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is to facilitate profit determination, Classification of branches
performance evaluation and controlling From an accounting perspective, branches
branch operations. This is important for can be classified based on either location or
the management to take appropriate actions
if the situation requires so. If the branch control. When branches are classified based
is making losses, for instance, it will be on location, we get two classes which are
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worthless to keep it, except for strategic inland/local branches and foreign branches.
reasons. Attention will be required to Inland (sometimes known as domestic or
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address the reasons for any branch that is home) branches are those which operate in
making a loss. Therefore, the basic purpose the same country as its head office while
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of branch accounting is to ascertain the foreign branches are those which operate
branch income, branch expenses, branch in a different country from the head office
assets and branch liabilities. with a different currency. On the contrary,
Branches have three key features. Firstly, when branches are classified based on
branches do not have separate legal statuses. control, we get two classes, which are
It means their legal existence is depending dependent (non-autonomous) branches
on the legal existence of the main office and independent (autonomous) branches.
and that is why they are considered as an Dependent branches are those which are
extension of the main office. Secondly, wholly controlled by the head office and
branches do not have independent capital. their accounts are kept by the head office.
Their activities are financed through the
capital of the head office. Even if they are While, independent branches are those
given the power to generate capital, it will be which have the autonomy to prepare and
just on behalf of the head office. Thirdly, the maintain their books of accounts.
assets and liabilities of the branches are part Advantages and disadvantages of
of the head office. This feature is related to
the first and the second, because if branches branch accounting
have neither independent legal status nor Branch accounting benefits the entity in
independent capital, then they cannot have the making, analysing and tracking of
independent assets. The features of branches business decisions according to a particular
are summarised as follows: branch’s requirements over time and in
(i) Branches are not separate legal entities; controlling each branch’s overall operations.
they are just extensions of the head
office; Its disadvantages include, chances of
(ii) Branches do not have independent mismanagement and decision-making
capital; and delays may occur due to various reasons.
(iii) Assets and liabilities of branches are It also increases an entity’s expense due to
part of the head office’s properties and separate set-ups at different locations.
liabilities.

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