by Opening stock at branch ₹10,000
Goods sent by Head Office to branch (at cost) ₹60,000
Cash sales at branch ₹40,000
Credit sales at branch ₹10,000
Cash remitted by branch to Head Office ₹35,000
Sales returns by customers ₹2,000
Goods returned by branch to Head Office ₹1,000
Branch expenses paid by Head Office ₹5,000
Closing stock at branch (at cost) ₹20,000
Journal entries in Head Office books
| Date | Particulars | Debit (₹) | Credit (₹) |
|---|---|---|---|
| 1 | Branch A/c Dr. 60,000 | 60,000 | – |
| To Goods Sent to Branch A/c | – | 60,000 | |
| (Goods sent to branch at cost) | – | – | |
| 2 | Cash A/c Dr. 35,000 | 35,000 | – |
| To Branch A/c | – | 35,000 | |
| (Cash remitted by branch) | – | – | |
| 3 | Branch A/c Dr. 5,000 | 5,000 | – |
| To Cash A/c | – | 5,000 | |
| (Branch expenses paid by Head Office) | – | – | |
| 4 | Cash A/c Dr. 40,000 | 40,000 | – |
| Debtors A/c Dr. 10,000 | 10,000 | – | |
| To Branch A/c | – | 50,000 | |
| (Cash and credit sales by branch) | – | – | |
| 5 | Sales Returns A/c Dr. 2,000 | 2,000 | – |
| To Branch A/c | – | 2,000 | |
| (Sales returns recorded against branch) | |||
| 6 | Goods Sent to Branch A/c Dr. 1,000 | 1,000 | – |
| To Branch A/c | – | 1,000 | |
| (Goods returned by branch to Head Office) | – | – | |
| 7 | Branch Stock A/c Dr. 20,000 | 20,000 | – |
| To Branch A/c | – | 20,000 | |
| (Closing stock at branch shown in HO books) | – | – |
Notes
Goods sent and returns are recorded at cost in this example. Branch expenses paid by HO are charged to Branch Account. Sales by branch reduce the Branch Account because they represent collections or realizations.
Branch Account (Debtor’s System) in Head Office books
| Particulars | ₹ | Particulars | ₹ |
|---|---|---|---|
| To Opening stock | 10,000 | By Sales (cash + credit) | 50,000 |
| To Goods sent to branch | 60,000 | By Cash remitted to HO | 35,000 |
| To Branch expenses paid by HO | 5,000 | By Sales returns | 2,000 |
| – | By Goods returned to HO | 1,000 | |
| – | By Closing stock | 20,000 | |
| Total | 75,000 | Total | 108,000 |
| Surplus / Branch Profit | 33,000 (Cr) | – | – |
Explanation
Debit side records resources placed at branch and branch expenses. Credit side records realisations and closing stock. The credit side exceeds the debit side by ₹33,000. Under the debtor’s system a credit balance indicates branch profit of ₹33,000.
Working note for branch profit (simple)
Total resources at branch
Opening stock ₹10,000 + Goods sent ₹60,000 = ₹70,000
Less closing stock ₹20,000 gives cost of goods sold ₹50,000
Sales of branch ₹50,000 produce gross margin over cost of goods sold of ₹0 in this simplified cost based example because goods sent are at cost and sales are revenue. But branch expenses ₹5,000 were paid by HO and cash remitted and closing stock adjustments give final surplus.
A direct way under Debtor’s System
Balance on credit side minus balance on debit side = Profit
108,000 − 75,000 = 33,000 profit
Short comments for exam
Record goods sent, sales, cash remitted, expenses and closing stock through one Branch Account. The balance of Branch Account shows profit if credit balance, loss if debit balance. Make sure to treat sales returns and goods returned to Head Office as credits to Branch Account and show closing stock as credit by posting Branch Stock A/c Dr To Branch A/c.
