Branch accounts explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A dependent branch keeps no full set of books. The head office records everything the branch does, either in one branch account or in a set of branch accounts, and works out the branch profit from them. The complication arises when the head office sends goods at a price above cost, called the invoice price, so that the branch cannot see the true margin. The excess, the loading, then has to be taken out of the stock and out of the profit. This guide works one invented branch through both methods and shows that they give the same profit. Keeping such records is part of our bookkeeping and online accounting work for businesses with several outlets.
Under the debtors method the head office keeps one branch account showing stock, debtors, goods sent, expenses and cash remitted; its balancing figure is profit or loss at invoice price. When goods go at invoice price, a branch adjustment account removes the loading on goods sold and keeps a stock reserve for the loading in closing stock. Under the stock and debtors method separate accounts for stock, debtors, adjustment and expenses are kept. Both methods must give the same net profit.
The two methods compared
| Point | Debtors method | Stock and debtors method |
|---|---|---|
| Accounts kept | One branch account, plus a branch adjustment account if goods go at invoice price | Branch stock, branch debtors, branch expenses, branch adjustment and branch profit and loss accounts |
| Branch account at invoice price shows | Stock, debtors, goods and cash; the balance is profit or loss at invoice price | Branch stock account balances by itself; no profit appears there |
| Where shortage appears | Inside the balancing figure | Credited from the stock account, with the loading reversed |
| Suited to | A small branch with few transactions | A larger branch where the stock and the debtors need separate control |
If goods are sent at cost, there is no loading and no adjustment account: the balance of the branch account is the profit. Only the invoice price case needs the extra steps below.
Working with loading
- Loading rate. If goods are invoiced at cost plus 25 per cent, the invoice price is 125 for cost 100, and the loading is 25/125 = 20 per cent of the invoice price.
- Goods sent less goods returned, both at invoice price, give the net goods sent. The loading on it is credited to the branch adjustment account, and the cost to the head office trading.
- Opening stock reserve (loading in opening stock) is credited to the adjustment account, since that stock has now been dealt with. Closing stock reserve is debited, as that loading is still unrealised.
- Shortage. Charge the cost to an abnormal loss account and reverse the loading on the shortage from the adjustment account.
- The balance of the adjustment account is the loading realised on goods sold.
Worked example: Bhaskar Hardware, head office, and its branch at Indore
The entity and all figures in this example are invented for illustration.
Goods are invoiced to the branch at cost plus 25 per cent, so the loading is 20 per cent of the invoice price. GST on transfers between branches is outside this example (see our GST guides).
| Item for the year | Invoice price |
|---|---|
| Opening stock | 40,000 |
| Goods sent to branch | 4,00,000 |
| Goods returned by branch | 20,000 |
| Cash sales | 1,20,000 |
| Credit sales | 2,00,000 |
| Sales returned by customers (back into stock) | 5,000 |
| Closing stock (physical) | 1,00,000 |
Other facts: opening debtors 30,000; cash collected from debtors 1,70,000; bad debts 3,000. Branch rent 6,000 and salaries 24,000 paid by head office.
Workings.
- Closing debtors: 30,000 + 2,00,000 - 1,70,000 - 5,000 - 3,000 = 52,000.
- Stock that should be there: 40,000 + 4,00,000 - 20,000 - (1,20,000 + 2,00,000 - 5,000) = 1,05,000. Physical 1,00,000, so the shortage is 5,000 at invoice price, 4,000 at cost.
- Loading: opening stock 40,000 x 20 per cent = 8,000; net goods sent 3,80,000 x 20 per cent = 76,000; closing stock 1,00,000 x 20 per cent = 20,000.
Method 1: debtors method.
| Branch account (at invoice price) | Debit | Branch account | Credit |
|---|---|---|---|
| To Stock, opening | 40,000 | By Goods returned | 20,000 |
| To Debtors, opening | 30,000 | By Bank: cash sales | 1,20,000 |
| To Goods sent | 4,00,000 | By Bank: collected from debtors | 1,70,000 |
| To Bank: rent and salaries | 30,000 | By Stock, closing | 1,00,000 |
| By Debtors, closing | 52,000 | ||
| By Loss at invoice price, to profit and loss | 38,000 | ||
| Total | 5,00,000 | Total | 5,00,000 |
| Branch adjustment account | Debit | Branch adjustment account | Credit |
|---|---|---|---|
| To Stock reserve, closing | 20,000 | By Stock reserve, opening | 8,000 |
| To Profit and loss (balance) | 64,000 | By Goods sent to branch (loading on net 3,80,000) | 76,000 |
| Total | 84,000 | Total | 84,000 |
Net profit: 64,000 (loading realised) less 38,000 (loss at invoice price, which already includes the shortage, rent, salaries and bad debts) = 26,000.
Method 2: stock and debtors method.
| Branch stock account (invoice price) | Debit | Branch stock account | Credit |
|---|---|---|---|
| To Opening stock | 40,000 | By Goods returned | 20,000 |
| To Goods sent | 4,00,000 | By Bank: cash sales | 1,20,000 |
| To Branch debtors: sales returned | 5,000 | By Branch debtors: credit sales | 2,00,000 |
| By Abnormal loss (cost 4,000) and branch adjustment (loading 1,000) | 5,000 | ||
| By Closing stock | 1,00,000 | ||
| Total | 4,45,000 | Total | 4,45,000 |
| Branch adjustment account | Debit | Branch adjustment account | Credit |
|---|---|---|---|
| To Stock reserve, closing | 20,000 | By Stock reserve, opening | 8,000 |
| To Loading on shortage | 1,000 | By Goods sent (loading on net 3,80,000) | 76,000 |
| To Gross profit (balance) | 63,000 | ||
| Total | 84,000 | Total | 84,000 |
| Branch profit and loss | Debit | Branch profit and loss | Credit |
|---|---|---|---|
| To Rent and salaries | 30,000 | By Gross profit from adjustment account | 63,000 |
| To Bad debts | 3,000 | ||
| To Abnormal loss (shortage at cost) | 4,000 | ||
| To Net profit | 26,000 | ||
| Total | 63,000 | Total | 63,000 |
The branch debtors account closes: debit 30,000 + 2,00,000 = 2,30,000; credit 1,70,000 + 5,000 + 3,000 + 52,000 = 2,30,000.
Check. Both methods give a net profit of 26,000. A third route confirms it: goods sold net of returns 3,15,000 at invoice price cost 80 per cent, or 2,52,000, so gross profit is 63,000, less shortage 4,000, rent and salaries 30,000 and bad debts 3,000, leaves 26,000. The loading realised is 8,000 + 76,000 - 20,000 = 64,000, of which 1,000 is on the shortage and 63,000 on goods sold.
How it shows in the financial statements
In the balance sheet of the head office the branch is shown through its assets and liabilities taken into the head office accounts: branch stock at cost (invoice price less the stock reserve) and branch debtors. The stock reserve is deducted from stock; stock is not carried at invoice price in the final balance sheet. Branch profit is added to head office profit before the profit and loss account is closed. For a non-company entity, see our guide to final accounts of a sole proprietor.
Common mistakes
- Carrying the closing stock at invoice price in the balance sheet instead of at cost.
- Taking the loading as 25 per cent of the invoice price when the 25 per cent is on cost; on the invoice price it is 20 per cent.
- Forgetting to reverse the loading on goods returned and on the shortage.
- Charging the shortage at invoice price to the profit and loss account; it is charged at cost.
- Using the opening stock reserve with the wrong sign, which swings the profit by twice the figure.
Need help with branch accounts?
If you run branches and want the head office books to give a branch-wise profit that you can rely on, our team can set up the accounts and the monthly routine. See our bookkeeping and online accounting service and tell us how goods move between your branches.
Key takeaways
- A dependent branch is recorded in the head office books.
- The debtors method uses one branch account; the stock and debtors method uses several.
- When goods go at invoice price, the loading is removed from stock and from profit through the branch adjustment account.
- The loading is a percentage of invoice price, not of cost.
- Both methods must give the same net profit.
Read next
- Independent and foreign branch accounts: incorporation and AS 11 translation
- Final accounts of a sole proprietor
- Subsidiary books: purchases, sales, returns and journal proper
Disclaimer: Based on the Accounting Standards issued by the Institute of Chartered Accountants of India as on 1 April 2025, the Companies (Accounting Standards) Rules, 2021 as amended up to G.S.R. 169(E) of 10 March 2026, the Companies Act, 2013 and the ICAI guidance named in the article, as consulted on 4 October 2026. The worked example uses invented figures. Later amendments should be checked on icai.org and mca.gov.in. This article is general information, not legal advice; check the official text before acting.