What Is Branch Accounting?
Branch accounting is a bookkeeping system where separate accounts are kept up with for each branch or operating location of an organization. Commonly found in topographically scattered corporations, multinationals, and chain administrators, it considers greater transparency in the transactions, cash flows, and overall financial position and performance of each branch.
Branch accounts can likewise allude to records individually created to show the performance of different locations, with the accounting records really kept up with at the corporate headquarters. Notwithstanding, branch accounting for the most part alludes to branches keeping their own books and later sending them into the head office to be combined with those of different units.
How Branch Accounting Works
In branch accounting, each branch (defined as a topographically separate operating unit) is treated as an individual profit or cost center. Its branch has its own account. In that account, it records such things as inventory, accounts receivable, wages, equipment, expenses like rent and insurance, and petty cash.
Like any [double-entry](/twofold entry) bookkeeping system, the ledger keeps a count of assets and liabilities, debits and credits, and eventually, profits and losses for a set period.
Technically talking, in bookkeeping terms, the branch account is an impermanent or nominal ledger account. It goes on for a designated accounting period. At the period's end, the branch counts up its figures and shows up at ending balances, which are then moved to the fitting head office or head department accounts. The branch account is left with a zero balance until the accounting system starts once more with the next accounting period or cycle.
Branch Accounting Methods
There are several different methods for keeping branch accounts, depending on the nature and complexity of the business and the operational independence of the branch. The most common include:
- Debtor system
- Income statement system
- Stock and debtor system
- Last accounts system
Where Branch Accounting Applies
Branch accounting can likewise be utilized for a company's operating divisions, which typically have more independence than branches, as long as the division isn't set up legally as a subsidiary company. A branch is certainly not a separate legal entity, despite the fact that it can (fairly confusingly) be alluded to as an "independent branch" since it keeps its own accounting books.
In any case, branch accounting isn't equivalent to departmental accounting. Departments might have their own accounts, however they ordinarily operate from a similar physical location. A branch, by its tendency, is a geologically separate entity.
Branch accounting is a common practice for businesses that operate in different geographic locations.
History of Branch Accounting
However it appears to be inseparable from contemporary chain stores and franchise operations, branch accounting really returns a long way. Venetian banks kept a form of it as soon as the fourteenth century. The ledgers of a firm of Venetian traders, dating from around 1410, likewise show a form of it to try to account for overseas and home accounts. Luca Pacioli's **Summa de Arithmetica (**1494), the principal accounting course book, devotes a chapter to it.
By the seventeenth century, branch accounting was overall widely utilized by German counting-houses and different businesses. Moravian settlements all through the thirteen original provinces involved it for their books during the 1700s.
Benefits and Disadvantages of Branch Accounting
The primary benefits (and frequently, the objectives) of branch accounting are better accountability and control since the profitability and proficiency of different locations can be closely followed.
On the downside, branch accounting might include added expenses for an organization in terms of labor supply, working hours, and infrastructure. A separate account coding structure must be kept up with for each operating unit. It very well might be important to delegate branch accountants to guarantee accurate financial reporting and compliance with head office procedures and processes.
- Branch accounting provides better accountability and control since profitability and proficiency can be closely followed for every location.
- Branch accounting is a bookkeeping system wherein separate accounts are saved for each branch or operating location of an organization.
- Technically, the branch account is a transitory or nominal ledger account, going on for a designated accounting period.
- Branch accounting has a long history, returning to the Venetian banks of the fourteenth century.