Branches are classified based on the level of control exercised by the head office:

Dependent branches do not have the power to prepare their own books of accounts. All records are maintained by the head office. The head office may transfer goods to branches at:

• Selling price (invoice price)
• Cost price
• Cost plus (wholesale price)

Key Accounts Maintained

The following accounts are used to record branch transactions:

• Branch Inventory Account – records inventory received from head office and goods sold
• Branch Accounts Receivable Account – records credit sales and payments from debtors
• Branch Expenses Account – records all expenses incurred by the branch
• Goods Sent to Branch Account – records movement of goods from head office to branch
• Branch Adjustment Account – reconciles differences and accounts for unrealised profit

Method 1: Debtors' Method (Goods at Selling Price)

When goods are sent to the branch at selling price, the branch is treated as a selling outlet or debtor. The head office records:

Journal entries:

1. When goods are sent to branch:

   • Dr Branch Inventory Account (at selling price)
   • Cr Goods Sent to Branch Account

2. When goods are sold and cash remitted:

   • Dr Bank Account
   • Cr Branch Inventory Account

Worked Example 1: Debtors' Method

Kwetusafi Ltd has a branch in Mtwara. The company sells products to customers at a 25% profit margin, and the same price is used to transfer goods to the branch. The following information relates to March 2022:

Required: Prepare branch inventory account and goods sent to branch account.

Solution:

Branch Inventory Account

Goods Sent to Branch Account

Method 2: Inventory and Debtors' Method

This method is used when branches are permitted to make credit sales. The head office maintains six accounts:

• Branch Inventory Account
• Branch Accounts Receivable
• Branch Expenses Account
• Branch Statement of Profit or Loss
• Goods Sent to Branch Account
• Branch Adjustment Account

Method 3: Statement of Profit or Loss (Final Accounts) Method

Separate statements of profit or loss are prepared for each branch to reflect their trading activities. The cost of goods transferred at selling price is converted to cost price.

Independent branches are large and complex enough to manage their own operations. They prepare and maintain their own books of accounts.

Current Account

The head office maintains one account called the Current Account to record all transactions with branches. Similarly, each branch maintains a Current Account for the head office.

• The head office's current account treats the branch as a debtor
• The branch's current account treats the head office as a creditor

Every transaction between head office and branch is recorded in both current accounts.

Recording Transactions

Worked Example 2: Independent Branch

Champions Ltd has its head office in Mwanza and opened a branch in Dar es Salaam. Transactions for the first month:

(a) Head office opened a bank account for the branch: TZS 30,000,000 (b) Head office purchased office building for branch: TZS 150,000,000 (c) Branch purchased motor vehicle: TZS 18,000,000 (d) Branch purchased goods from supplier: TZS 50,000,000 (e) Branch made cash sales: TZS 90,000,000 (f) Head office sent goods at cost to branch: TZS 84,000,000 (g) Branch refunded TZS 40,000,000 to head office (h) Goods returned to head office: TZS 3,000,000

Recording in Head Office Books:

Recording in Branch Books:

Head Office Current Account

End of Year: Incorporating Branch Results

At year-end:

1. Each branch sends its trial balance to the head office
2. Net profit is transferred to head office:
   • In branch books: Debit Profit and Loss, Credit Head Office Current Account
   • In head office books: Debit Branch Current Account, Credit Profit and Loss

Items in transit are transactions recorded in one party's books but not in the other's because the items have not yet been received. Common examples:

• Goods sent by head office but not yet received by branch
• Cash or goods returned by branch but not yet received by head office

These require adjustment in the head office books to reconcile current account balances before preparing final accounts.

Adjustment procedure:

• Add goods in transit to branch inventory
• Add cash in transit to head office assets

A Tanzanian student whose family runs a wholesale shop in Dar es Salaam that supplies maize flour to retail shops in Dodoma and Morogoro would encounter branch accounting directly. If the family opens a new retail branch in Iringa, they would need to decide whether to keep all accounting records at the main shop (dependent branch) or let the Iringa branch maintain its own records (independent branch). Understanding branch accounting helps them track whether the Iringa branch is profitable, control inventory shipped from the main shop, and decide whether expanding to more locations makes financial sense for their family business.