Branch Accounting – Comprehending the Basics

Branch Accounting – Comprehending the Basics

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Branching Out

When a company, whether to make money or non-profit, grows or strategizes expansion, it always opens additional locations. Banks, coffee houses, supermarkets, shops, restaurants, salons, airlines, as well as government offices may be employed in several location, domestic or foreign, to focus on the requirements of their clients or clientele.

Such additional locations either can be by means of a company or perhaps a branch.

Branch or Agency?

Based on its objectives, the enterprise may adopt the type of whether branch or perhaps an agency. Both are members of a main organization even though they conduct operations from their house office, they aren’t another legal entity in the latter.

The important thing difference backward and forward is based on their amount of autonomy or independence. For example, a sales agency typically doesn’t stock inventory, only displays merchandise, takes orders and arranges for receiving the merchandise. Quite simply, the company just functions with respect to the house office (H.O.), using the latter handling another facets of operations for example acquisition of merchandise, advertising, and granting of credit.

The branch, however, includes a better autonomy and therefore operates more individually of the house office compared to agency, mainly within the following aspects:

Provision of the wider selection of services to customers or clientele

Exercise of greater management decision-making

Handling more facets of business operations, for example stocking of inventory, filling of customers’ orders, credit and collection

Separate Branch Accounting System

Reflecting this better autonomy, the branch typically maintains its very own separate accounting system, as the agency doesn’t. Actually, it’s the office at home which records all agency transactions within the former’s accounting system.

Such upkeep of separate accounting records through the branch and also the office at home facilitates more efficient control of operations and enables top management to higher assess branch performance making proper business decisions for the organization.

Comprising Branch Operations

The accounting transactions recorded through the branch are usually from the following types:

Exterior transactions or transactions with parties exterior to the organization like a legal entity (e.g. customers, suppliers, creditors, power companies)

    Internal transactions

-inside the branch
-along with other branches of the organization
-with office at home

It through the branch of their exterior transactions and individuals which naturally affect just the branch (i.e. internal transactions inside the branch) is performed while using regular accounts and journal records. However, in recording the branch’s transactions using the H.O., certain intra-balances must be produced and used. Likewise, inter-branch transactions or transactions from the branch with another branch are often coursed or removed with the H.O. using intra-balances.

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