Here, the accounts are kept in the head office. The branch does little or no book keeping but they keep subsidiary books. The head office will purchase goods and send them to the branches for sale. The branches are expected to make necessary returns at intervals. This is common in large retail outlets e.g. a chain of a confectionery shop. The head office will purchase goods and send them to the branches for sale. The branches are expected to make necessary returns at intervals. This is common in large retail outlets e.g a chain of a confectionery shop. The branch profit or loss is ascertained from the branch accounts in the head office books. Information relating to sales, stock, cash, etc will be forwarded to the head office.
Transfer of Stock of Goods to the Branch
Goods can be charged to branches using any of these pricing methods.
(i) Cost price
(ii) Cost plus a percentage
(iii) Selling price
Goods Charged to Branches at Cost Price
The head office can charge goods out to the branches at cost price. This method is good when the goods are of perishable nature or there are difficulties in determining the selling price. The exact result of the operation can be ascertained when the cost price is used. It is disadvantageous because the check imposed by the selling price system is not available.
Accounting Entries:
The following accounts will be prepared when goods are sent to the branch at cost:
(a) Branch stock account
(b) Goods sent to branch account
(c) Branch debtors account
(d) Profit and loss account
(a) Branch Stock Account: This will be used to determine the gross profit. The items are posted at cost price except cash or credit sales.
(b) Goods Sent To The Branch Account: This account represents the net value of goods sent to the branch. It is shown at cost price.
(c) Branch Debtors Account: This account shows the analysis of branch credit sales.
(d). Profit and Loss Account: This account will show the net profit made by the branch.
Responses