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figure between the debit side and credit In addition, it records any returns of
side is the value of the remaining inventory inventory from the branch on the credit side.
at the invoiced (selling) price. However, Adjustment account
if the goods are transferred to the branch The account is used to reconcile the
at cost, the difference between the debit differences between the branch inventory
side (inventory received at cost) and the account and goods sent to the branch
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credit side (at selling price and the value of account whenever the head office sends
closing inventory at cost) is the gross profit goods at a cost-plus (profit margin) price.
generated by the branch.
Simply, the adjustment account is used to
LANGUAGE EDITING
Branch accounts receivable establish unrealised profit and the realised
account profit on the goods sent to the branch.
The branch accounts receivable is used For example, the head office of Sapphire
to keep a record of the debtors whenever Company sends 100 units of inventory to its
branches have the permission to sell goods branch at a cost-plus price of TZS 10,000.
on credit. It is maintained by the branch just If this price includes a profit margin of
for recording credit sales and payments to TZS 1,500 per unit, then the head office
establish accounts receivable balances. will recognise TZS 150,000 (that is 100
units x TZS 1,500 profit margin) as profit
Branch expenses account
from branch sales, but this is correct only
The branch expenses account is used to when the branch has sold all inventory.
record all expenses incurred by the branch, However, if the branch has sold only 80
such as sundry expenses and casual labours units, then the head office will recognise
supporting branch operations. It includes only TZS 120,000 (that is 80 x 1,500) as
expenses paid by the branch itself as well profit earned from branch sales and the
as expenses incurred by the head office on remaining TZS 30,000 as unrealised profit
behalf of the branch. These expenses are on the goods sent to the branch. Thus, all
included in the ascertainment of the profit these adjustments related to goods sent to
made by the branch. the branch for realised and unrealised profit

are made through the adjustment account.
Goods sent to branch account
This account is used to record the movement Invoicing goods to branch from
of goods from the head office to the branch. head office
The head office maintains this account. Once Goods can be transferred to a branch at
goods are sent to the branch this account is either the selling price or at cost or wholesale
debited. If the branch is permitted to make (cost plus) price. The details of each of
credit sales, then the account is also used these pricing approaches together with their
to record (on the credit side) cash paid by accounting treatments are provided in the
branch debtors directly to the head office. following sections and related sub-sections:

Student’s Book Form Five
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