Branch accounting definition
/What is Branch Accounting?
Branch accounting involves separately tracking business transactions for each operating unit of a business. By doing so, you can see the financial results, financial position, and cash flows of each operating unit. This information is quite useful for evaluating performance. It is most commonly found in organizations that have a number of geographically dispersed locations.
Dependent Branch Accounting
In a dependent branch arrangement, an operating entity has a minimal accounting staff, if any. In this arrangement, most of the accounting is handled by another entity where a comprehensive accounting department is maintained. All transactions pertaining to the dependent branch are sent to the central accounting location for processing. This can be quite a cost-effective arrangement, since it allows a business to concentrate its accounting staff for maximum efficiency of transaction processing. At most, a dependent branch might have a few people at the bookkeeper level, who handle local transactions that are more effective to process on the spot.
Disadvantages of Branch Accounting
Branch accounting can result in a large chart of accounts, since a separate account coding structure must be maintained for each operating unit. Since the chart of accounts must be maintained, branch accounting can require extra staff to be added to the accounting department. Consequently, it should only be used if management intends to take concrete actions as a result of the information produced by the system.