Dependent Branch is a segment or location of a business that does not maintain independent accounting records. All transactions are recorded centrally at the Head Office. To ascertain the branch’s profit or loss, the head office prepares a Branch Account (a nominal account in its ledger). This account is debited with all expenses (like goods sent, salaries, rent) and credited with all revenues (cash/credit sales, goods returned). The balance—profit or loss—is transferred to the General Profit & Loss Account. This system ensures centralized control and simplifies accountability for branches operating purely as extensions of the head office.

Features of Dependent Branch Account:

• Centralized Accounting and Control

The primary feature is that all accounting records are maintained solely at the Head Office. The branch functions merely as a sales or operational arm and does not keep its own books of account. All financial transactions of the branch—whether related to goods, cash, expenses, or sales—are recorded in the head office’s ledger. This centralization provides the head office with absolute financial control, enabling close monitoring of inventory, cash, and performance without relying on independent branch bookkeeping, ensuring uniformity and adherence to corporate policies.

• Use of a Nominal Account (“Branch Account”)

To determine the branch’s profitability, the head office opens a nominal account titled “Branch Account” (e.g., “Mumbai Branch Account”) in its ledger. This account is debited with all items that constitute cost or expense for the branch (e.g., goods sent, cash remitted for expenses, branch assets) and credited with all revenue items (e.g., cash/credit sales, goods returned to head office). The balancing figure of this account reveals the net profit or loss of the branch for a specific period.

• Goods Supplied at Cost or Invoice Price

Goods are typically supplied to the branch by the head office either at cost price or at a fixed invoice/marked-up price. If sent at invoice price (above cost), the Branch Account is debited with the invoice price. A separate account, “Goods Sent to Branch Account,” is used to adjust the loading (the profit margin included in the invoice price). This is a key feature, as it allows the head office to conceal the actual cost and profit margin from branch staff while still enabling accurate calculation of true profit during finalization.

• Remittance of All Cash Receipts

The branch is required to remit all cash sales proceeds and other cash collections to the head office promptly and regularly. The branch usually retains only a petty cash float for minor daily expenses. This feature ensures tight cash management and security, minimizing the risk of misappropriation at the branch level. All cash transactions of the branch are, therefore, ultimately reflected in the head office’s cash book, giving the head office direct control over the entity’s overall cash flow and liquidity position.

• Fixed Asset Accounting at Head Office

All fixed assets (like furniture, machinery, vehicles) used by the branch are typically recorded in the head office’s books. Depreciation on these assets is calculated and charged by the head office. The branch merely uses these assets for operations. This simplifies accounting at the branch level and allows the head office to maintain a complete and consolidated record of all company assets, their location, and their depreciation, ensuring proper capital management and financial reporting for the business as a whole.

• Determination of Stock and Adjustment

At the period’s end, the head office ascertains the closing stock at the branch (through physical verification or branch returns). This stock is valued at cost or invoice price, consistent with the pricing method used for goods sent. The value of closing stock is credited to the Branch Account as it represents an unsold asset, reducing the charge for goods sent. This adjustment is crucial for correctly matching revenues with the cost of goods sold and arriving at an accurate branch profit figure.

Types of Dependent Branch Account:

1. Debtors System (Wholesale Goods Branch)

This system is used when the branch sells goods primarily on credit and maintains its own debtors’ ledger for customers. The head office debits the Branch Account with opening balances (stock, debtors, petty cash), goods sent at cost/invoice price, and expenses. It is credited with cash remittances, closing balances, and sales (total of cash received + debtor balances). The branch periodically sends copies of its sales invoices and debtor ledgers to the head office. Profit/loss is the balancing figure, focusing on the overall settlement of branch assets and liabilities.

2. Stock and Debtors System (Retail/Sales Branch)

This comprehensive system is most common. The head office maintains detailed control accounts for both Branch Stock and Branch Debtors in its ledger. Goods sent and sales are recorded at invoice price. Key reconciliations include:

• Branch Stock Account: Adjusted for shortages, spoilage, and closing stock to find the cost of goods sold.

• Branch Debtors Account: Adjusted for bad debts and discounts to find cash collected from debtors.
  It provides stringent control over inventory and receivables, with profit calculated from these accounts.

3. Final Account System (Trial Balance-Based)

Used when the branch maintains a full set of books for internal purposes but is still dependent for final profit calculation. At the period-end, the branch prepares and sends a Trial Balance to the head office. The head office then incorporates these figures into its own books by preparing the Branch Trading and Profit & Loss Account and including the branch’s assets/liabilities in its own Balance Sheet. The Branch Account in the head office ledger acts as a capital account, representing the net investment in the branch. Branch profit is calculated via the final accounts.

4. Wholesale Price System (Goods at Invoice Price)

A subsystem focused on goods accounting. Here, all goods are supplied to the branch at a fixed invoice price (cost + a loading). The head office maintains a “Goods Sent to Branch at Invoice Price” account and a “Branch Stock Adjustment” or “Loading on Branch Stock” account. At period-end, the loading on closing stock is adjusted to convert figures from invoice price to cost price, revealing the actual gross profit earned by the branch. This system allows the head office to conceal true cost from branch staff while retaining control over margins.

Example of Dependent Branch Account:

Head Office sends goods to the Delhi Branch and branch makes cash sales. All expenses are paid by Head Office.

Given Information

Opening Stock at Branch 20,000
Goods Sent to Branch 80,000
Cash Sales 1,10,000
Branch Expenses paid by HO 15,000
Closing Stock 25,000

Journal Entries in Head Office Books

Branch Account in HO Books