Branch Accounts - Decentralized System

Learning Objective
i) Understand the reasons for a branch to keep its own books
ii) Make ledger entries in the books of head office and branch
iii) Reconcile Branch Current Account with Head Office Current Account
iv) Make adjustments to transit items and allowance for unrealised profit
v) Prepare financial statements for head office, branch and whole business.

28.1 Decentralised system

1. Decentralized branch is also known as autonomous branch where the branch keeps its own books as the branch is large or geograpically seperate from the head office ( Example :far away from head office) If the branch has its own full accounting system it gives an easier way of calculating branch profit. 
2. Under Decrentralised accounting system, two sets of books are kept. One in the head office and another in the branch.
   
   A current account  is used to record transactions between them in order to link them together 
3. The current account is kept to record the transactions that affect both head office and branch accounts. It shows the transactions regarding the head office supplying resources to its branch or taking back the resources .

Transactions that only affect head office are recorded in head office only and transactions that affect branch only are recorded in the books of branch only .

4 . At the end of each financial year head office and branch will close their respective ledgers and draw up their own financial statements. Head office will the COMBINE both financial statements for the whole business and the following accounts must contra each other.

Homework