What Is Branch Accounting?

Branch accounting is a bookkeeping system in which separate accounts are maintained for each branch or operating location of an organization. Typically found in geographically dispersed corporations, 澳洲幸运5官方开奖结果体彩网:multinationals, and chain operators, it allows for great♕er transparency in🍌 the transactions, , and overall financial position and performance of each branch.

Branch accounts can also refer to records individually produced to show the performance of different locations, with the accounting records actually maintained at the corporate headquarters. However, branch accounting usually refers to branches keeping their own books and later ﷺse🐎nding them to the head office to be combined with those of other units.

How Branch Accounting Works

In branch 澳洲幸运5官方开奖结果体彩网:accounting, each branch (defined as a geographically separate operating unit) is treated as an individual profit or cost center. Its branch has its own account. In that account, it records such items as inventory, 澳洲幸运5官方开奖结果体彩网:accounts receivable, wages, equipment, expenses such as rent and insurance, and 澳洲幸运5官方开奖结果体彩网:petty cash.

Like any 澳洲幸运5官方开奖结果体彩网:double-entry bookkeeping system, the ledger keeps a tally of assets and liabilities, debits an♍d credits, and ultimately, profits and losses for a set period.

Technically speaking, in bookkeeping terms, the branch account is a temporary or nominal ledger account. It lasts for a designated accounting period. At the period's end, the branch tallies up its figures and arrives at ending balances, which are then transferred to the appropriate head office or head department accounts. The branch account is left with a zero balance until the accounting process begins all over again 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 autonomy of the branch. The most common include:

• Debtor system
• Income statement system
• Stock and debtor system
• Final accounts system

Where Branch Accounting Applies

Branch accounting can also be used for a company's operating divisions, which usually have more autonomy than branches, as long as the division is not set up legally as a 澳洲幸运5官方开奖结果体彩网:subsidiary company. A branc🐼h is not a separate legal entity, although it can (somewhat confusingly) be referred to as an "independent branch" because it keeps its own accounting books.

Branch accounting doesn't apply to departments, which typically are all in the same physical location, even if they have their own accounts. By contrast, a branch is in a different geographic location, and is a separate entity.

History of Branch Accounting

Though it may seem synonymous with contemporary chain stores and franchise operations, branch accounting actually goes back a long way. Venetian banks maintained a form of it as early as the 14th century. The ledgers of a firm of Venetian merchants, dating from around 1410, also show a form of it to try to account for overseas and home accounts. Luca Pacioli's "Summa de Arithmetica" (1494), the first accounting textbook, 💦devotes a chapter to it🍬.

By the 17th century, branch accounting was being widely used by German counting-houses and other businesses. Moravian settlements throughout the 13 original American colonies used it for their books in the mid-1700s.

Advantages and Disadvantagesꦗ of Branch Accounting

The primary advantages (and often, the objectives) of branch accounting are better accountability and control since the profitability and efficiency of different locations can be closely🐷 tracked.

On the downside, branch accounting may involve added expenses for an organization in terms of manpower, working hours, and infrastructure. A separate account coding structure must be maintained for each operating unit. It may be necessary to appoint branch 澳洲幸运5官方开奖结果体彩网:accountants to ensure accurate financial reporting and compliance with head office procedures and processes.

The Bottom Line

Branch accounting is a useful bookkeeping practice in businesses that have branches or geographically disparate operating locations. It maintains separate accounts for each locatio▨n to allow for greater monitoring, transparency, and accountability over the financial transactions and performance. Branch accounting differs from departmental accounting in that departments tend to operate from the same physical location.