Branch Accounting – Understanding the Basics

Branching Out

When an business, whether for profit or non-profit, grows or strategizes expansion, it usually starts additional locations. Banks, espresso shops, supermarkets, department stores, restaurants, cosmetic salons, flight companies, and even government office buildings may operate much more than one location, local or foreign, to serve the needs of their customers or clientele. Irenas

Many of these additional locations may either take the form of an agency or a branch.

Branch or Firm? 

Depending on its goals, the enterprise may undertake the form of either a branch or an agency. Both are part of a central corporation even though they conduct businesses faraway from their home office, they are not just a distinct legal entity from the latter.

The key big difference involving the two lies in their level of autonomy or independence. As an example, a sales agency typically does not stock inventory, but only displays merchandise, takes requests and arranges for delivery of the merchandise. Quite simply, the agency merely serves on behalf of the home office (H. U. ), with these managing the other facets of functions such as acquiring goods, advertising, and granting of credit.

The branch, however, has a greater level of autonomy and so operates more independently of the home office than the organization, mostly in the pursuing aspects:

Provision of your larger range of services to customers or clientele
Workout of greater management decision-making
Handling of more facets of business operations, such as stocking of inventory, stuffing of customers’ orders, credit and collection
Maintenance of another accounting system
Independent Branch Accounting System

Showing this greater degree of autonomy, the branch typically maintains an unique separate accounting system, even though the agency will not. In fact, it’s the home office which data all agency transactions in the former’s accounting system.

Such maintenance of independent accounting records by the branch and the home office facilitates more efficient control over businesses and permits top management to better determine branch performance and make strategic business decisions for the company.

Accounting for Branch Operations

The accounting transactions recorded by the branch are generally of the following types:

External transactions or deals with parties external to the company as a legal entity (e. g. customers, suppliers, creditors, power companies)
Internal transactions
within the part
with other branches of the corporation
with home office

The saving by the branch of its external transactions and those which naturally impact only the branch (i. e. internal transactions within the branch) is done using the regular credit accounts and journal entries. Even so, in recording the branch’s transactions with the L. O., certain intra-company documents will have to be created and used. Furthermore, inter-branch transactions or orders of the branch with another branch are usually coursed or cleared through the H. O. using intra-company accounts.