When the policies and administration of a branch are totally controlled by the head office, who also maintains its accounts, the branch is called a dependent branch.
Salient Features of Dependent Branch:
A dependent branch does not maintain, its own set of books. The Head Office maintains a record of all transaction. However, the branch maintains a Debtors’ Ledger and a Stock Ledger. Debtors’ ledger is maintain in order to find out the money due from debtors. Stock ledger is kept to provide information regarding the movement of the goods from Head Office and the balance of stock in hand.
Generally, all goods are supplied to the Branch by the Head Office, Sometimes the branch may be allowed to make purchases from the local parties for which the payments are made by Head Office.
Goods are generally sold by such branches in cash. Such branches can sell goods with the permission of the Head Office.
The amount collected from cash sales or debtors is either remitted to Head Office immediately or banked intact in the account of the Head Office in some local bank. All major expenses of the branch are paid, as far as possibles by the Head Office.
In order to meet the petty expenses of the branch, the branch may be provided with the petty cash from the Head Office. Petty cash account at the branch may be maintained on either simple system or impress system.
When the size of the branches is very large, their functions become complex. In such a situation, it is desirable or practicable for each branch to establish its own double entry book-keeping system quite separate from those of head office, under this system of branch accounting, the branches, are treated as separate, independent units. These types of branches are known as Independent Branches.
This type of branch records all the transactions in its own books, extracts its own trial balance and prepares its own Trading and Profit and Loss Account. A copy of the trial balance so prepared will be forwarded to the head office and the head office will incorporate the same in its books of accounts so that consolidated Profit and Loss Account and a Balance Sheet can be prepared for the business as a whole.