by In the case of Independent Branches, the branch maintains its own set of books. However, the Head Office needs to prepare a Branch Account for consolidation, showing the total transactions between the branch and the head office. The Final Account System is employed to prepare the Branch’s Profit and Loss Account and Balance Sheet independently at the branch level. The Head Office’s role is to incorporate the entries for goods sent, expenses, and other transactions.
Concept of Final Account System:
In the Final Account System for independent branches, the branch prepares its own Profit and Loss Account and Balance Sheet, which are then consolidated by the head office. The head office records the transactions like goods sent to the branch, remittances received, or expenses paid on behalf of the branch.
The final branch account in the books of the Head Office reflects:
- Goods sent to the branch.
- Expenses incurred on behalf of the branch.
- Remittances made by the branch.
- Profits or losses of the branch.
Features of Final Account System:
- Separate Books: The branch keeps its own books, including its Profit & Loss Account and Balance Sheet.
- Independent Profit Calculation: The branch’s profit is calculated using its own revenues and expenses.
- Adjustment of Transactions: The head office records goods sent, expenses, and remittances to ensure proper consolidation.
- Branch Autonomy: The branch operates independently, with its financial activities recorded separately.
- Transparency: Clear differentiation between head office and branch transactions.
Here is the journal entries in table format for Independent Branch Account under the Final Account System with incorporating entries in the books of Head Office:
| S.No. | Particulars | Journal Entry | Amount |
|---|---|---|---|
| 1 | Goods Sent to Branch | Branch Account Dr.
To Goods Sent to Branch A/c |
₹50,000 |
| 2 | Expenses Incurred by Head Office on Behalf of Branch | Branch Account Dr.
To Bank/Cash Account |
₹15,000 |
| 3 | Remittance Made to Branch | Branch Account Dr.
To Bank/Cash Account |
₹10,000 |
| 4 | Sales Proceeds Remitted by Branch to Head Office | Bank A/c Dr.
To Branch Account |
₹50,000 |
| 5 | Profit Transferred from Branch to Head Office (Profit ₹7,000) | Branch Account Dr.
To Profit & Loss Account A/c |
₹7,000 |
| 6 | Closing Stock Adjustment | Branch Stock Account Dr.
To Branch Account |
₹12,000 |
| 7 | Final Account Closure (Profit) | Branch Account Dr.
To Trading Account |
₹7,000 |
| 8 | Final Account Closure (Loss) | Profit & Loss Account Dr.
To Branch Account |
₹7,000 |
Explanation of the Entries:
- Goods Sent to Branch: When goods are sent to the branch, the Branch Account is debited, and the Goods Sent to Branch A/c is credited.
- Expenses Incurred: Expenses incurred on behalf of the branch by the head office are recorded by debiting the Branch Account and crediting the Bank/Cash Account.
- Remittance Made to Branch: Remittances made to the branch by the head office are recorded by debiting the Branch Account and crediting the Bank/Cash Account.
- Sales Proceeds Remitted by Branch: When sales proceeds are received from the branch, the Bank Account is debited and the Branch Account is credited.
- Profit Transfer: The profit of the branch is transferred to the Profit and Loss Account.
- Closing Stock Adjustment: The closing stock at the branch is recorded by debiting the Branch Stock Account and crediting the Branch Account.
- Final Account Closure (Profit): The profit is transferred from the Branch Account to the Trading Account at the head office.
- Final Account Closure (Loss): If there is a loss, it is transferred from the Profit and Loss Account to the Branch Account.
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