中六級中六級會計學原理科會計學原理科

Branch AccountsBranch Accounts

G oods Sent to B ranchat C ost

Mem orandum C olum n Branch Adjustm ent a/c

G oods sent to B ranchat Selling price

H ead officekeeps a ll the records

G oods sent toBranch at C ost

G oods sent to B ranch at Selling price

Each Branch keepsseparate records

Branch a/c

Head Office maintains all the accounting records

The accounts are used for three main purposes: (1) to record transactions showing changes in assets, liabilities and capital; (2) to ascertain the profitability of each branch: (3) to check whether anyone at the branches is stealing goods or cash.

Internal ControlInternal Control

(1) Inventory control

Head Office does all buying. Goods are transferred to the Branch by Head office. Spot inspections of stock in Branch.

(2) Cash control

All branches should bank their full cash takings everyday. Cash payments made by the branch will be kept on a basis similar to the petty cash imprest system.

The Head Office will keep the The Head Office will keep the following accounts for each following accounts for each

BranchBranch

(1) Branch Stock A/C(2) Branch Total Debtors A/C(3) Branch Cash A/C(4) Branch Expenses A/C(5) Goods Sent to Branch

Goods sent to Branch at costGoods sent to Branch at cost

Beginning stock b/d Cash: Cash sales Goods sent to Branch Branch Debtors: credit sales Cash/Branch debtors: Goods Goods sent to Branch: Good returned to returned to Branch by customers Head Office Branch Debtors: profit loading on Branch Profit & Loss: wastage;Loss goods returned to Closing stock c/d (given) Head Office by Customers Branch Gross Profit (Cr.-Dr.)_____ ______

==== =====

Branch Stock

Goods sent to Branch

Branch stock: goods returned from Branch Stock Branch to Head OfficeBranch Debtors: goods returned by Branch customersHead Office Trading a/c _____ _____ ==== ====

Goods sent to branch at Goods sent to branch at selling priceselling price

(I) Memorandum Column Method Branch Stock Selling Cost Selling Cost

price price $ $ $ $ Bal. b/d Branch debtors -sales

Goods sent to branch Cash: sales Branch Gross Profit Goods sent to branch

-goods returned to H.O. Branch P/L -goods stolen

Branch P/L -normal wastage

Branch P/L -excess deficiency

Bal. c/d

BranchBranch DebtorsDebtors $

$Bal. b/d Branch P/L -bad debtsBranch stock -sales Cash

Branch P/L -discounts allowed Bal. c/d

Goods sent to Branch

$$

Branch stock -goods returned Branch stock -goods to H.O sent to branchHead office Trading A/C

Notes :Notes :

1. Goods sent to Branch : use the COST value

2. Values of sales : no need to change into cost value in Cost column

3. Returns to H.O. : use the COST value

4. Unknown loss

5. Gross profit = Cr. side - Dr.side ( Only in COST column )

＊＊ The selling price column of Branch Stock is not The selling price column of Branch Stock is not part of the double-entries while the Costpart of the double-entries while the Cost column is.column is.

Selling Price ColumnSelling Price Column- to find out the closing stock ( Dr.side - Cr.side )- the closing stock figure in the A/C should be compared with the stock figure found out by physical stock taking.

If there is a difference stock discrepancy / deficiency

Cost Column- to calculate the gross profit of the branch

Advantages of including a Advantages of including a selling price columnselling price column

(1) The branch manager is not able to calculate the amount of profit the branch is making. Head office is able to preserve the secrecy of certain key information.

(2) It highlights stock discrepancies. Separate adjustment is not required in the double entry column for these discrepancies as they are automatically included in the gross profit.

Goods sent to branch at Goods sent to branch at Selling PriceSelling Price

Branch Stock a/c - at selling price

to control upon stock deficiencyBranch Adjustment a/c - to calculate the gross profit

earned by each branch

Example of Branch Example of Branch AdjustmentAdjustment

Branch Adjustment (Profit loading)Branch Stock: Goods Returned to

Head Office by branch

Branch Stock: Reduction in selling price

Branch Stock: Normal loss/wastage of

goods

Branch Stock: Deficiency of stock

Gross Profit of branch (Cr.-Dr.)

Unrealized Profit on closing stock c/d

Unrealized Profit on beginning stock b/d

Goods sent to branch: Profit loading

Journal EntriesJournal Entries1. Profit element on opening stock2.Goods sent to branch Dr. Branch Stock Cr. Goods sent to branch Branch Adjustment

at selling price

at costprofit loading

3.Goods Returned to Head Office

Dr. Branch Adjustment Goods sent to branchCr. Branch Stock

4.Reduction in selling price

Dr. Branch AdjustmentCr. Branch Stock

To be continue...

5.Normal loss/wastage of goods (at selling price) Dr. Branch Adjustment Cr. Branch Stock6.Deficiency of stock (at selling price) Dr. Branch Adjustment Cr. Branch Stock

7.Gross Profit on branch Dr. Branch Adjustment Cr. Branch Profit and loss8.Profit element on closing stock

Profit and Loss AccountProfit and Loss AccountHead office Branch Combined

Gross Profit xxx xxx xxx

Less: Expenses

Distribution expenses xx xx xxx

Administrative expenses xx xx xxx

Depreciation xx xx xxx

Provision for bad debts xx xx xxx

xxx xxx xxx

Net Profit xxx xxx xxx

(b) Goods sent to branch at selling price(b) Goods sent to branch at selling price

Trading AccountHead office Branch Combined

Sales xx xx xxxGoods Sent to Branch xx --- ---- xx xx xxxLess:Cost of goods sold Opening stock xx xx xxx Add: Purchases xx --- xxx Goods received

from Head office --- xx ----

xx xx xxx

Less: closing stock xx xx xxx

xx xx xxxGross Profit xx xx xxx

Example:Peter & Sally

Trading and Profit and Loss account for the year ended 31 October,20X1

Sales

Less: Cost of goods sold Opening Stock Add: Purchases Goods sent to branch Less: Closing Stock Cost of goods soldGross ProfitLess: Expenses Administrative Expenses Distribution Expenses Depreciation Provision for bad debts Manager’s Commission

Net Profit

Head Office Branch Combined $ $ $ $ $ $ XXX XXX XXX

XX XX XX XX XX XX XX XX XX XX XX XX XX XX XX XX XX XX XX XX XX

XX XX XX XX XX XX XX XX XX XX XX XX XX XX XX

XXX XXX XXX ====== ======= ======

Net Profit XXXXXLess: commission to Peter XXXLess: Interest on Capital:--Peter XXX --Sally XXX XXXX XXXXX XXXXXBalance of Profit shared:--Peter ¾ XXX --Sally ¼ XXX XXXXX =======

THE ENDTHE END