What are the advantages of branch accounting?
Different branches of accounting came into existence, keeping in view various types of accounting information needed by a different class of people. They may be owners, shareholders, management, suppliers, creditors, taxation authorities and various government agencies, etc. There are three main accounting branches, which include financial accounting, cost accounting, and management accounting. Other accounting branches, are a result of commercial development and emerging needs of business reporting world over.
Various branches of accounting
Financial accounting is a systematic method of recording transactions of any business according to the accounting principles. It is the original form of the accounting process. The primary purpose of financial accounting is to calculate the profit or loss of a business during a period and provide an accurate picture of the business’s financial position as on a particular date. The Trial Balances, Profit & Loss Accounts, and Balance Sheets of a company are based on application of financial accounting principles. These are useful for creditors, banks, and financial institutions to assess the company’s financial status.
Further, taxation authorities can calculate the tax based on these records only. These are just the primary help, you can get from this accounting. Besides these, there are a lot of other things, like knowing about bank balances, account recievable balances, account wise summary, bank reconciliation, etc. The list is actually endless. Browse through the category – financial accounting for more topics under this branch of accounting.
Cost accounting deals with evaluating the cost of a product or service offered. It calculates the cost by considering all factors, including manufacturing and administrative, that contribute to the output production. The objective of cost accounting is to help the management fix the prices and control the cost of production. It also pinpoints any wastages, leakages, and defects during manufacturing and marketing processes. Possibly, these short descriptions about these accounting branches may give overlapping understanding about each branch of accounting. Further, to understand the line of difference, we suggest reading – Cost Accounting vs. Financial Accounting – All You Need to Know.
This branch of accounting provides information to management for better administration of the business. It helps in making important decisions and controlling of various activities of the business. The management can make decisions efficiently with the help of various Management Information Systems such as Budgets, Projected Cash Flow and Fund Flow Statements, Variance Analysis reports, Cost-Volume-Profit Analysis reports, Break-Even-Point calculation, etc.
Management accounting and financial accounting are not to be confused with each other. Both are different. Management accounting serves the management’s needs in decision-making regarding minimizing the cost factor and enhancing profit-making. On the other hand, financial accounting serves the needs of shareholders, creditors, and financial institutions to ascertain the company’s financial position. Management accounting records are kept secret for the use of management only. As a result, they are not made public.
Advantages of Branch Banking: Branch banking system has the following advantages:
- Economies of Large Scale operations: Branch banking enjoys the advantages and economies of large scale operations. Under branch banking system economies can maintained through large scale of operations and wider geographical coverage increase public confidence in the banking system.
- Economy of Cash Reserves: Under branch banking system a particular branch can operate without keeping large amounts of reserves. In time of need, resources can be transferred from one branch to another. It is not easy for a .unit bank to draw on another unit bank.
- Proper use of capital: There is a proper use of capital under the branch banking system. Since the resources are transferred from one branch to another. So the capital can be properly used by investing in the profitable branches.
- Economy of Costs: Branch banking has the advantage of effecting remittances of funds from one place to another with greater ease and at a lesser cost than unit banking, for inter-office indebtedness can be far more easily adjusted.
- Risks-spreading Economy: The spreading of risks geographically is another major advantage of the branch banking system. In branch banking, losses incurred one branch can be offset by profits earned by the profit making branches which is not possible in case of unit banking.
- Easy and cheaper transfer of funds: Since the branches of bank under branch banking are spread all over the country, it is easier and cheaper, for it to transfer funds from one place to another.
- Greater Safety and Liquidity: Branch banking also offers a wider scope for the selection of diverse securities and varied investments, so that a higher degree of safety and liquidity can be maintained.
What are the objectives of branch accounting?
Branch accounting: Branch accounting is the process through which the accounting system of a branch is maintained. Objectives of branch accounting: The main objects of branch accounts are dependent on the nature of the business and specific need of a particular branch. The objectives of keeping the branch accounts acceptable to all businesses are as follows.
- To know the profit or loss of each branch separately.
- To ascertain the financial position of each branch separately on a particular date.
- To know the cash & goods requirements of the various branches.
- To evaluate the progress and performances of each branch
- To calculate commission for payment to the managers, if based on profits of branch
- .6. To give concrete suggestions for the improvement in the working of the various branches.
- To meet the requirements of specific enactments as all branches of a company must keep the accounts for audit purpose
Cash Basis System:
When Branch sells Head Office s Goods for cash only:
Under this method, the goods which are sent by the Head Office are sold by the branch only for cash and the proceeds are deposited into the local bank by the branch at the end of the day/week/month for credit to Head Office. The expenses of the branch are met by the Head Office. The branch is not allowed to make any expenses except some petty expenses for which a Petty Cash Book is maintained by the branch to keep records.
The same is replenished by the Head Office at fixed interval expenses. In addition to above, the branch has to keep the following information to prepare a detailed statement to be sent to Head Office, i.e., the particulars relating to:
- Cash sales
- Petty expenses
- Cash remittance
- Receipts of proceeds and the same is deposited into bank;
- Any loss, if any
- Any special information etc. in addition to above, a stock statement is prepared by the branch which is remitted to Head Office stating all the information relating to goods received, sold and unsold.