Detailed Incorporation

As stated earlier, under this method, the Head Office prepares a proper Branch Trading and Profit & Loss Account and makes entries for all revenue items before incorporating the branch assets and liabilities in its books. The entries passed under this method are as follows:

 



1) For items on the debit side of the Trading Account

Branch Trading A/c                                   Dr.

To Branch A/c

(This entry is passed for the total amount of items like opening stock, net purchases, wages, goods received from HO., carriage inwards, etc.)

 

2) For items on the credit side of the Trading Account

Branch A/c                                                 Dr.

To Branch Trading A/c

(This entry is passed for the total amount of items like net sales, closing stock, etc.)

 

3) For branch gross profit

Branch Trading A/c                                   Dr

To Branch Profit & Loss A/c

(In case of gross loss, the above entry will be reserved)

 

4) For items on the debit side of the Profit and Loss Account

Branch Profit & Loss A/c                       Dr.

To Branch A/c

(This entry is passed for the total amount of items like salaries, rent, bad debts, repairs, depreciation, etc.).

 

5) For items on the credit side of the Profit & Loss Account

Branch A/c                                                 Dr

      To Branch Profit & Loss A/c

(This entry is passed for total amount of items like interest received, discount received, commission received, etc.)

 

6) For branch net profit

Branch Profit & Loss A/c                       Dr.

To General Profit & Loss A/c

(If there is net loss, the above entry will be reversed)

 

7) For branch assets

Branch Assets A/c                        Dr.

To Branch A/c

(Each asset should be debited individually)

 

8) For Branch liabilities

Branch A/c                                                 Dr.

To Branch Liabilities A/c

(Each liability credited individually. This should not include H.O. A/c balance)

 

As a result of the last two entries (7 and 8), the Branch Account in the Head Office books will stand closed because the net assets (assets minus liabilities) of the branch are equal to the balance in the Branch Account after branch net profit or net loss has been incorporated in Head Office books. In order to open the Branch Account in the next year’s books of the Head Office and show the amount due from the branch, the entries for branch assets and branch liabilities (7 and 8 above) shall be reversed at the beginning of the next year.

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