Inventory bought by head workplace and despatched to branches for them to promote might be invoiced to the department at value worth or at an quantity above value (often a set retail promoting worth). Invoicing the products despatched by head workplace to the branches at value reduces head workplace stock by the identical quantity as that at which the stock was initially recorded in its accounting books. The switch just isn’t thought-about to represent gross sales and due to this fact doesn’t end in gross revenue for the pinnacle workplace. Branches obtain items at value worth and earn gross revenue when items are bought.
Where department accounting information are saved by head workplace the data from head workplace’s personal documentation is supplemented by the data obtained from department returns. In observe the department returns will likely be summarised month-to-month and recorded within the related department account in head workplace’s accounting books.
Where varied branches exist, a separate account needs to be saved for every, though in a guide system this may be executed in columnar type for the sake of simplicity. In head workplace’s books, the gross sales and varied different accounts will likely be distinguished by the title of the department.
The following are typical accounts offered in a centralised accounting system: (1) Branch stock account, (2) Branch debtors account (if the department sells items on credit score), (3) Branch financial institution and petty money or money accounts and (4) Branch revenue and loss account.
When the pinnacle workplace buying and selling account is ready the price of the products despatched to the branches is deducted from head workplace purchases. If this isn’t executed, head workplace purchases will comprise head workplace and department purchases. This overstatement of buy will end in an overstatement of head workplace’s value of gross sales and consequently and understatement of the pinnacle workplace’s gross revenue share.
Since stock is often valued at value within the monetary accounting statements of an enterprise, the tactic of invoicing items to the branches at value is the simplest to use, as each head workplace and department stock are proven at value. Therefore, no additional changes are required.
In the decentralised accounting system, transactions between head workplace and the department are recorded within the books of each. Where the department retains it personal books, the accounting entries will likely be comparable in lots of respects to these made by a sole dealer. However, the department capital is offered by head workplace and due to this fact often recorded by the department as a credit score to the ‘head workplace account’, with a corresponding debit in head workplace’s books to “XX department account’.
The head workplace account within the department’s accounting books and the ‘department account’ within the head workplace’s books are due to this fact reciprocal accounts, that’s equal accounts which can be maintained in numerous units of accounting books and which have equivalent, however reverse, balances.
After all transactions, changes and shutting entries have been recorded in each units of books, the pinnacle workplace account stability within the department’s accounting books needs to be the identical because the department account within the head workplace’s accounting books (except any transactions between the pinnacle workplace and the department haven’t been recorded in a single set of accounting books).
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