Branch Accounting System

A business is often separated into a number of different branches each of which is treated as its own profit center. Branch accounting allows the business to prepare branch trading and profit and loss accounts in order that it can assess the profitability of each of these branches.

Consequently the advantages of branch accounting are that the business is able to identify the financial performance of each of its branches. Furthermore by making comparisons it can identify inefficient branches and make informed managerial decisions about their future. In addition managers and staff can be given responsibility and motivated and rewarded on the basis of branch performance.

It should be noted that branches differ from departments in that they are operated from different locations; for example a retail business might have branches in different cities. In contrast departments are usually operated from the same location.

Recording Branch Accounting Transactions

The simplest method of branch accounting is for the head office to operate a single branch account for each branch. Additionally the method is sometimes referred to as the debtors system or direct method system. The method is most often used when there are a small number of branch accounting entries in the books of the head office.

It is important to realize that the branch account itself is a temporary nominal ledger account. The use of the branch account is best explained using as example.

Branch Accounting System Example

To illustrate suppose a business has a retail operation with a number of branches. Information extracted from the accounting records of the business shows the following details in respect of the one of the branches. Additionally equipment is depreciated on a reducing balance basis at the rate of 20% and inventory is transferred to the branch at cost.

Branch Account Beginning and Ending Balances
Accounts receivable5,0006,000
Petty cash650800
Prepaid insurance200200
Wages payable1,5000
Branch Period Transaction Information
Goods received95,000
Goods returned1,400
Cash from accounts receivable45,000
Petty cash received1,300
Insurance paid700
Wages paid28,000
Cash sales150,000
Rent paid9,000

The Branch Accounting Entries – Beginning Balances

The branch is not a new branch and therefore has beginning balances in respect of inventory, accounts receivable (amounts owed by customers), petty cash, prepaid insurance wages payable, and equipment.

Since the branch account is a temporary nominal ledger account its balances are cleared at the end of each period and returned back to their respective head office accounts. At the start of the next period these balances therefore need to be reinstated into the branch account with the following branch accounts journal entries.

Beginning balances journal entry
Branch account24,550 
Inventory 12,200
Cash 650
Accounts receivable 5,000
Equipment 8,000
Prepaid insurance 200
Wages payable1,500 

As can be seen the debit entry to the branch account transfers the beginning net assets of the branch back to the branch account. After the bookkeeping entry the branch account appears as follows.

It is important to realize that for the sake of clarity the individual entries making up the debit of 24,050 have been shown separately in the branch account.

branch accounting system beginning balances

Branch Accounting Entries – Period Transactions

The next step is to post the transactions between the branch and head office which occurred during the accounting period.


During the period goods (95,000) are transferred to the branch from head office. In addition the branch returns goods (1,400) to head office.
The following branch journal entries are used to reflect the net movement of 93,600.

Inventory movements during the period
Branch account93,600 
Inventory 93,600

Cash Receipts

During the period the branch deposits cash of 150,000 in respect of cash sales and 45,000 in respect of amounts received from customers. The total deposited in the head office bank account therefore amounts to 195,000.

In this case the bookkeeping journal entry to the branch account is as follows.

Cash transferred to head office
Branch account 195,000

Cash Payments

During the period head office pays wages of 28,000, rent of 9,000, insurance of 700 and petty cash expenses of 1,300 in respect of the branch. Consequently the total cash payments amount to 39,000 and this is posted to the branch account as follows.

Cash payments made by head office
Branch account39,000 
Cash 39,000

After posting the transactions for the period the branch account appears as follows. Again for clarity the details of each posting are shown in the branch account.

branch accounting system period transactions

Branch Accounting Entries – Ending Balances

At the end of the accounting period the balances relating to inventory, accounts receivable (amounts owed by customers), petty cash, prepaid insurance wages payable, and equipment are transferred back to their respective head office accounts with the following journal.

Ending balances journal entry
Branch account 19,900
Accounts receivable6,000 
Prepaid insurance200 
Wages payable  

As can be seen the ending balances representing the branch net assets have now been transferred from the branch account back to the respective head office accounts. In this case the branch account appears as follows.

branch accounting system ending balances

Branch Profit

As can be seen the balance on the branch account is now 57,750 which represents the branch profit for the period. Additionally this can be verified by drawing up the trading and profit and loss account for the branch.

Firstly it is necessary to calculate a number of the trading and profit and loss account entries using information from the branch account above.

Additionally our cash to accruals conversion post is a useful reference in respect of the formulas used.

Credit Sales

The amount sold to customers on credit terms is calculated as follows.

Credit sales = Ending accounts receivable + Cash received - Beginning accounts receivable
Credit sales = 6,000 + 45,000 - 5,000 = 46,000

Cost of Sales

Cost of sales is calculated as follows.

Cost of sales = Beginning inventory + Goods received - Goods returned - Ending inventory
Cost of sales = 12,200 + 95,000 - 1,400 - 6,500 = 99,300


Expenses are calculated as follows.

Expense = Payments + Ending accruals – Beginning accruals + Beginning prepayments – Ending prepayments
Wages = 28,000 - 1,500 = 26,500
Rent = 9,000
Insurance = 700 + 200 - 200 = 700

Petty cash expenses

Payments = Receipts + Beginning balance – Ending balance
Payments = 1,300 + 650 - 800 = 1,150

Equipment Depreciation

Since there were no additions or disposals the equipment depreciation is calculated at 20% as follows.

Depreciation = Beginning balance x Depreciation rate
Depreciation = 8,000 x 20% = 1,600
Ending balance = 8,000 - 1,600 = 6,400

Branch Trading and Profit and Loss Account

To complete the branch accounting, the branch trading and profit and loss account can now be produced in a suitable format for the business using the amounts calculated above.

Branch Trading and Profit and Loss Account
Cash sales150,000
Credit sales46,000
Beginning inventory12,200
Net purchases93,600
Ending inventory-6,500
Cost of goods sold99,300
Gross profit96,700
Petty cash expenses1,150
Branch profit57,750

The branch profit shown in the statement above is 57,750 which is consistent with the balance shown on the branch account. The balance on the branch account therefore represents the profit of the branch for the accounting period.

Transfer of the Branch Profit to Head Office

Finally the balance on the branch account representing the profit of 57,750 is transferred to the profit and loss account of the business.

Branch profit for the period
Branch account57,750 
Profit and loss account 57,750

As can be seen the temporary branch account now has a nil balance ready for the branch accounting process to be repeated in the next accounting period.


Branch accounting is useful when a business operates a series of distinct branches at different locations as it allows it to produce branch trading and profit and loss accounts and to determine the profitability and effectiveness of each branch.

The operation of a single branch account is the easiest method to adopt when accounting for branch operations; however, there are a number of other branch accounting methods such as the final accounts or branch accounting inventory and accounts receivable system where multiple accounts are opened.

Last modified February 9th, 2023 by Michael Brown

About the Author

Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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