Independent Branch — Books Maintained & Incorporation in Head Office

Meaning of Independent Branch

An Independent Branch is a branch of a business that maintains a complete set of books on its own. It can keep its own accounts, prepare its own trial balance, determine profit or loss independently and carry out business activities with substantial autonomy. Although it is legally part of the main business, it enjoys operational freedom and maintains full accounting records similar to a separate business unit.

Such branches are usually located in different cities or countries and handle local purchases, sales, expenses, cash transactions and customer dealings independently.

Features of an Independent Branch

• Maintains complete books of accounts.
• Prepares its own Trading, Profit & Loss Account and Balance Sheet.
• Keeps separate records for debtors, creditors, cash, stock etc.
• Head Office sends goods and cash but branch also makes local purchases.
• Branch may remit profit to Head Office periodically.

Books Maintained by an Independent Branch

An independent branch maintains a full set of accounting books similar to those maintained by a small business unit. These include:

• 1. Cash Book — Records all cash and bank transactions.
• 2. Sales Book — Records all credit sales.
• 3. Purchases Book — Records all credit purchases.
• 4. Goods Received Book — Records goods received from Head Office.
• 5. Goods Sent to Head Office Book — If branch returns goods.
• 6. Debtors Ledger — Maintains accounts of branch customers.
• 7. Creditors Ledger — Maintains accounts of suppliers.
• 8. General Ledger — For all nominal and real accounts.
• 9. Stock Register — Records daily stock movement.
• 10. Branch Trial Balance — Prepared periodically to check accuracy.

Incorporation of Branch Accounts in Head Office Books

Although the branch prepares its own books and financial statements, the Head Office must incorporate the branch results into its own books to prepare consolidated final accounts.

There are two methods of incorporation:

1. Full Incorporation Method

Under this method, the Head Office incorporates all items from the branch Trading and Profit & Loss Account.

• Branch trading items (opening stock, purchases, wages, sales etc.) are transferred to HO books.
• Branch gross profit is shown in the HO Trading Account.
• Branch expenses and incomes are transferred to HO Profit & Loss Account.
• Branch assets and liabilities are recorded in the HO Balance Sheet.

Journal Entries (HO Books)

• Branch Trading A/c Dr. To Branch Opening Stock To Branch Purchases To Branch Wages
• Branch Sales A/c Dr. To Branch Trading A/c
• Branch Profit & Loss A/c Dr. To Branch Expenses
• Branch Assets A/c Dr. To Branch Liabilities

2. Abridged Incorporation Method

Under this method, only branch net profit or net loss is incorporated into the Head Office books. Individual items like purchases, expenses, assets or liabilities are not transferred.

• If branch earns profit: Branch Account Dr. → To General Profit & Loss Account
• If branch incurs loss: General Profit & Loss Account Dr. → To Branch Account

Branch Assets & Liabilities Shown in HO Balance Sheet

Conclusion

An independent branch functions like a mini-business unit with full autonomy over accounts. It maintains a complete set of books and prepares financial statements. Ultimately, its accounts must be incorporated by the Head Office to prepare consolidated final accounts, either through full incorporation or abridged incorporation method.