Branch Accounting – Understanding the Basics

Branching Out

When an organization, whether for profit or non-profit, grows or strategizes expansion, it usually starts additional locations. Banks, caffeine shops, supermarkets, department stores, restaurants, cosmetic salons, flight companies, and even government office buildings may operate much more than one location, local or foreign, to serve the needs of their customers or clientele. quick books amazon

Many of these additional locations may either maintain the form of an agency or a branch.

Branch or Firm? 

Depending on its goals, the enterprise may choose the form of either a branch or an agency. Both are part of a central business and even though they conduct functions far from their home office, they are not only a distinct legal entity from the latter.

The key big difference between your two lies in their amount of autonomy or independence. For example, a sales agency typically does not stock inventory, but only displays merchandise, takes instructions and arranges for delivery of the merchandise. Put simply, the agency merely works on behalf of the home office (H. Um. ), with these managing the other areas of functions such as getting products, advertising, and granting of credit.

The branch, however, has a greater amount of autonomy and so operates more independently of the home office than the firm, generally in the pursuing aspects:

Provision of any larger range of services to customers or clientele
Workout of greater management decision-making
Handling of more areas of business operations, such as stocking of inventory, gas of customers’ orders, credit and collection
Maintenance of another accounting system
Individual Branch Accounting System

Exhibiting this greater degree of autonomy, the branch typically maintains its separate accounting system, even though the agency will not. In fact, is it doesn’t home office which documents all agency transactions in the former’s accounting system.

Such maintenance of distinct accounting records by the branch and the home office facilitates more efficient control over businesses and permits top management to better determine branch performance and make strategic business decisions for the company.

Accounting for Branch Operations

The accounting transactions recorded by the branch are generally of the following types:

External transactions or orders with parties external to the company as a legal entity (e. g. customers, suppliers, creditors, power companies)
Internal transactions
within the part
with other branches of the business
with home office

The documenting by the branch of its external transactions and those which naturally influence only the branch (i. e. internal transactions within the branch) is done using the regular documents and journal entries. Nevertheless, in recording the branch’s transactions with the L. O., certain intra-company documents will have to be created and used. Furthermore, inter-branch transactions or ventures of the branch with another branch are usually coursed or cleared through the H. O. using intra-company accounts.