Branch Accounting Methods

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Questions and Answers

What is a key characteristic of a branch in relation to the head office?

The branch is an extension of the head office. (correct)

The branch operates independently from the head office.

The branch is considered an independent entity.

The branch has its own legal identity.

Which account is NOT typically kept by a branch in a centralised accounting method?

Branch gross profit account (correct)

Goods to branch account (correct)

Bank account

Petty cash account

In the decentralised accounting method, what is primarily required of the branch?

To manage only inventory counts.

To prepare an annual financial statement.

To keep a complete set of financial records. (correct)

To keep only sales records.

What advantage does the centralised method provide regarding purchase prices?

Lower purchase prices due to larger orders. Signup and view all the answers

What transaction affects the VAT accounts in the centralised method?

VAT entries are recognized in the head office's accounts. Signup and view all the answers

What role does the head office play in the decentralised accounting method?

It does not intervene in branch operations. Signup and view all the answers

What is a requirement for branches under the decentralised method?

Branches must prepare a trial balance. Signup and view all the answers

Which of the following statements about inventory purchases in the centralised method is true?

Branches do not hold inventory records. Signup and view all the answers

What is a primary feature of the centralised method of branch accounting?

The head office purchases all inventories for the branch. Signup and view all the answers

In the decentralised method, what is true about the branch's financial records?

Branches must keep complete financial records and control inventories. Signup and view all the answers

Which of the following expenses is likely decreased through the centralised method?

Administrative expenses due to centralized purchasing. Signup and view all the answers

What inventory transfer method is typically used in the decentralised approach?

Inventory is transferred at cost from head office to branch. Signup and view all the answers

Which accounts are typically maintained by the head office in the centralised method?

Goods to branch account and bank accounts for branches. Signup and view all the answers

Which statement reflects a misconception about the nature of a branch under the centralised method?

Branches operate as independent entities. Signup and view all the answers

Which of the following is likely NOT a responsibility of a branch in a decentralised system?

Centralizing all purchase orders through head office. Signup and view all the answers

What is a significant limitation of the branch in the centralised method?

Branches cannot independently manage inventory levels. Signup and view all the answers

Study Notes

Branch Accounting

Two methods are used to manage branch accounting: Centralised and Decentralised.
The Centralised method sees the head office responsible for all purchasing, with goods dispatched to branches at cost or selling price.
Decentralised, on the other hand, treats the branch as independent, requiring a complete set of financial records, inventory control, and a trial balance.
Centralised method leads to lower administrative expenses and potentially better purchasing prices due to larger quantities.
Under Centralised, the head office keeps records of Goods to Branch account, Branch Inventories account, Branch Gross Profit account, and Branch Profit or Loss account.
In both methods, the branch is not an independent entity but rather an extension of the head office.
The Decentralised method typically transfers inventory at cost from the head office to the branch.

Centralised Method

The branch uses only bank and petty cash accounts.
All VAT is recorded in the head office's VAT output and VAT input accounts.

Decentralised Method

The branch independently controls inventory and generates a trial balance.

Head Office and Branches

Businesses expand by establishing branches in new locations.
Branches are extensions of the head office and not independent entities.
Two main accounting methods exist for branch accounting:
- Centralised: Head office controls all purchases and inventory. Branch only keeps bank and petty cash accounts.
- Decentralised: Branch is independent and maintains its own complete set of financial records. Inventory is transferred at cost from the head office.

Centralised Method

Head office purchases all inventory at a lower cost due to bulk buying.
Branch receives goods from the head office at cost or selling price.
Head office maintains specific accounts for branch transactions:
- Goods to branch account
- Branch inventories account
- Branch gross profit account
- Branch profit or loss account
Head office handles all VAT entries.

Decentralised Method

Branch functions autonomously, keeping records and managing its inventory.
Inventory is typically transferred at cost from the head office to the branch.
Branches maintain independent financial records, including a trial balance.

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Description

Explore the differences between Centralised and Decentralised branch accounting methods in this quiz. Understand how financial records and inventory control are managed in each approach, along with the implications for administrative expenses and purchasing prices. Test your knowledge on key concepts related to branch accounting.