Stock and Debtors System
Dr.K.VANITHEESWARI,Ph.D.,
Assistant Professor,
PG and Research Department of Commerce
C.P.A College, Bodinayakanur.
Under this system, the H.O. maintains the following accounts for keeping records of branch transactions:
The journal entries to be made at the head office under this system are as follows:
JOURNAL ENTRIES
The journal entries to be made at the head office under this system are as follows:
1 | For goods sent to branch | Branch stock A/c Dr. To goods sent to branch A/c |
2 | For goods returned by branch to H.O. | Goods sent to branch A/c Dr. To branch stock A/c |
3 | For sales made by branch |
Cash/bank A/c Dr. To branch stock A/c (b) If credit sales: Branch debtors A/c Dr. To branch stock A/c |
4 | For goods returned by branch debtors | Branch stock A/c Dr. To branch debtors A/c |
5 | For cash received from debtors | Cash/bank A/c Dr. To branch debtors A/c |
6 | For discount allowed to debtors | Branch expenses A/c Dr. To branch debtors A/c |
7 | For bad debts | Branch expenses Dr. To branch debtors A/c |
8 | For goods returned by branch directly to head office | Goods sent to branch A/c Dr. Branch adjustment A/c Dr. To branch debtors A/c |
9 | For agreed allowances to customers off selling price already taken into account while invoicing | Branch adjustment A/c Dr. to branch Stock A/c |
10 | For loss or shortage of stock | ( i) if normal loss Branch adjustment A/c Dr. To branch stock A/c (ii) If abnormal loss Branch adjustment A/c Dr. Branch profit & loss A/c Dr. To branch stock A/c |
11 | For insurance claim recoverable | Insurance claim recoverable A/c Dr. To branch P & L A/c |
12 | For surplus in stock | Branch stock A/c Dr. To branch adjustment A/c To branch P & L A/c |
13 | For goods sent by one branch to another branch | Goods sent to branch A/c Dr. Branch adjustment A/c Dr. To branch stock A/c |
14 | For goods received by one branch to another branch | Branch stock A/c Dr. To goods sent to branch A/c to branch adjustment A/c |
15 | For apparent profit over the invoice price | Branch stock A/c Dr. To branch adjustment A/c |
16 | For branch expenses paid in cash | Branch expenses A/c Dr. To cash A/c |
17 | For closing ‘branch expenses A/c’ | Branch adjustment A/c Dr. Branch P & L A/c Dr. To branch expenses A/c |
18 | For closing ‘goods sent to branch A/c’ | Goods sent to branch A/c Dr. To purchases or trading A/c |
19 | For loading |
Stock reserve A/c Dr. To branch Adjustment A/c (b) For loading of goods sent to branch Goods sent to branch A/c Dr. T o branch adjustment A/c (c) For loading of closing stock Branch adjustment A/c Dr. To stock reserve A/c |
20 | For closing ‘branch adjustment A/c’ | Branch adjustment A/c Dr. To branch P & L A/c |
21 | For ‘branch P & L A/c’ | Brasnch P & L A/c Dr. To General P & L A/c |
This method can be explained by taking an example:
Indian Soap Mills Ltd. Has two branches at Agra and Goa. Goods are invoiced to branches at cost + 50%. Branches remit all cash received to H.O. and all expenses are met by H.O. from the following particulars, prepare the necessary accounts, on the Stock & Debtors System, to show the profit earned at the branches:
| AGRA | GOA |
Stock on 1st April, 1990 (invoice price) | 9300 | 15600 |
Debtors on 1st April, 1990 | 6800 | 8700 |
Goods sent to branch (cost price) | 34000 | 36000 |
Sales at branches: | | |
Cash sales | 25010 | 35000 |
Credit sales | 31000 | 30100 |
Cash collected from debtors | 30400 | 29800 |
Goods returned by debtors | 1200 | 1500 |
Goods returned by branch to H.O. | 1500 | |
Goods transferred from Goa to Agra | 2100 | 2100 |
Surplus of stock | | 300 |
Shortage of stock | 450 | |
Discount allowed to customers | 200 | 350 |
Expenses at branches | 5400 | 6700 |
BRANCH STOCK ACCOUNT
Particulars | Agra | Goa | Particulars | Agra | Goa |
To bal b/d | 9300 | 15600 | By cash | 25010 | 35000 |
To goods sent to branch | 51000 | 54000 | By branch debtors | 31000 | 30100 |
To braqnch debtors | 1200 | 1500 | By goods sent to branch | 1500 | - |
To goods sent to branch A/c | | | By goods sent to branch | | |
(goods received from Goa) | 2100 | - | (goods sent to Agra) | - | 2100 |
To branch adjustment | | | By branch adjustment | | |
(loading of surplus) | - | 100 | (loading of shortage) | 150 | - |
To branch P & L A/c | | | By branch P & L A/c | | |
(cost of surplus) | - | 200 | (cost of shortage) | 300 | - |
| | | By balance c/d | 5640 | 4200 |
| 63600 | 71400 | | 63600 | 71400 |
Branch Debtors A/c
To balance b/d | 6800 | 8700 | By cash | 30400 | 29800 |
To branch stock A/c | 31000 | 30100 | By branch stock (returns) | 1200 | 1500 |
| | | By branch exp. (discount) | 200 | 350 |
| | | By balance c/d | 6000 | 7150 |
| 37800 | 38800 | | 37800 | 38800 |
Branch expenses A/c
To branch debtors | 200 | 350 | By branch P & L A/c | 5600 | 7050 |
To cash | 5400 | 6700 | | | |
| 5600 | 7050 | | 5600 | 7050 |
Branch adjustment A/c
To stock reserve | 1880 | 1400 | By stock reserve | 3100 | 5200 |
To branch stock | | | By goods sent to branch A/c | 17200 | 17300 |
(loading of shortage) | 150 | - | By branch stock A/c | | |
To branch P& L | 18270 | 21200 | (loading of surplus) | - | 100 |
| 20300 | 22600 | | 20300 | 22600 |
Branch P & L A/c
To branch expenses A/c | 5600 | 7050 | To branch adj. A/c | | |
To branch stock A/c | | | (gross profit) | 18270 | 21200 |
(cost of shortage) | 300 | - | By Br. stock A/c | | |
To net profit | 12370 | 14350 | (cost of surplus) | - | 200 |
| 18270 | 21400 | | 18270 | 21400 |
A branch is said to be independent when it keeps a full system of accounting and maintains its own books of accounts. In other words, the branch carries on business as an independent unit, records all the transactions in its own books, extracts its own trial balance and prepare its own trading and profit & loss account and balance sheet.
Books of accounts: an independent branch generally maintains the following books of accounts:
Procedure for incorporating branch accounts in the books of H.O.
Under this method the following journal entries are passed:
Branch trading A/c Dr.
To Branch A/c
Branch A/c Dr.
To branch trading A/c
3. For closing branch trading account
(a) If gross profit
Branch trading A/c Dr.
To branch P & L A/c
(b) If gross loss
Branch P & L A/c Dr.
To branch trading A/c
branch P & l A/c Dr.
To Branch A/c
5. For incorporating credit side items of P & L A/c
Branch A/c Dr.
To branch P & L A/c
6. For closing branch P & L A/c
(a) If net profit
Branch P & L A/c Dr.
To general P & L A/c
(b) If net loss
General P & L A/c Dr.
To branch P & L A/c
7. For incorporating branch assets
Branch assets A/c Dr. (individually)
To Branch A/c
8. For incorporating branch liabilities
Branch A/c Dr.
To branch liabilities A/c (individually)
THANK YOU