Meaning of Head Office, Branch

29/03/2021 2 By indiafreenotes

It is the primary aim of all business enterprises to increase their volume of sales. For this purpose, many firms open their shops in different parts of the locality/country. (The parent establishment is known as ‘Head Office’ and its offshoots are termed as ‘Branch’.)

Besides, if branches are opened, particularly in developed regions, both the local consumers and the firms are benefited.

Practically, it is an extension of an existing firm. It should be remembered that a branch has its separate existence but does not possess any separate legal entity. That is why, it is said that it is nearly an extension and a profit centre of an existing firm. Needless to say that all activities of the branches are controlled by the Head Office.

According to Sec. 2 (a) of the Companies Act, 1958, a branch (office) is defined as:

(a) Any establishment described as a branch by the Company, or,

(b) Any establishment carrying on either the same or substantially the same activity as that carried on by the head office of the company, or

(c) Any establishment engaged in any production, processing or manufacture, but does not include any establishment specified in any order made by the Central Govt., u/s-8.

As the foreign branch is an independent branch, it keeps a complete set of books on the double entry system, prepares all the necessary accounts including the account of the Head Office, prepares its own trial balance, Trading and Profit and Loss Account and Balance Sheet. In short, the accounting procedure adopted at a foreign branch is exactly the same as that adopted at an independent domestic branch.

Accounting at the Head Office:

The trial balance received by the Head Office from the foreign branch is in foreign currency. Therefore, before incorporating the items in the trial balance of the foreign branch, the Head Office is required to convert the various items in the trial balance into the currency of the Head Office. Thereafter, it has to incorporate the items in the Converted Branch Trial Balance in its books, prepare the Branch Trading and Profit and Loss account and Balance Sheet and Branch Account.