Branch Accounts 2 – Branch Maintains Own Records Contents


A branch may maintain a complete set of records, leading to an Statement of Comprehensive Income and Statement of Financial Position being prepared for the branch.  This practice is not very common where a company has a large number of branches; it is more common where the head office has only one or two branches and the branches are large enough to warrant a separate administration department.


The head office provides the branch with the necessary assets in order for the branch to operate on its own.  To ensure the head office can identify the amounts invested in the branch at any stage, the head office records the details in a ‘Branch Current Account’ while the branch records the details in a ‘Head Office Current Account’. When the branch is being set up, the Branch Current Account in the Head Office books is an asset representing the investment in the branch. In the head office books, the branch current account normally represents the amount owing by the branch to the head office.  When the branch is first established, the branch current account represents the net investment by the head office in the branch and the head office current account represents the “capital” of the branch.

The Head Office Current Account in the Branch books is a liability representing the capital in the branch.  The relationship between the branch and the head office is seen as one similar to a debtor/creditor relationship.  As the branch becomes operational, all transfers i.e. goods, cash, expenses, assets, liabilities and the branch profit or loss, are posted to the current accounts.  Subsequently, on reconciliation, the Branch Current Account and the Head Office Current Account in the respective books should be equal at all times.  If not, this may be as a result of errors, which must be corrected or as a result of items in transit i.e. Inventories or cash.


An organisation may adopt a central buying policy, a standard product range and sales price for the head office and all its branches.  These policies may be adopted to ensure discounts available from suppliers are availed of, ease of movement of Inventories from one branch where demand is low to another branch where demand is high and a central advertising campaign quoting selling prices  The head office may transfer Inventories to the branch at cost or at cost plus a certain mark-up price.  This ensures the branch covers its overheads while enabling both the head office and branch to make a profit. However, where items are in transit between head office and branch, or vice versa, it becomes necessary to reconcile the current accounts. This reconciliation normally takes place in the books of the head office.


Goods in transit from head office to branch can be dealt with in one of two approaches:

  • Treated as a sale by the head office and part of the closing Inventories of the branch
  • Not treated as a sale by head office and included in closing Inventories of the head office

If the goods in transit are treated as a sale by the head office and part of the closing Inventories of the branch, it is necessary to make a provision in head office books for the unrealised profit element.  Otherwise, head office profit would be overstated.


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