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Foreign Branch Account

Please tell me, can I get full tutorial on foreign branch account? I mean, I just want to learn to maintain foreign branches accounts. Esther from Nigeria (7/11/2012 5:52:01)




Esther! Yes, you can get full tutorial on foreign branch account. In the foreign branch account tutorial, we will first explain the meaning of foreign branch. Foreign branch is the branch outside your country where is your company’s head office. For example, we talk about state bank of India. It has 173 branches in 43 countries. SBI’s head office in India. But all these branches are outside of India. So, 173 branches are foreign branches of India. It is different from subsidiary and associates. Because subsidiaries and associates can use different accounting system but foreign branches can follow same accounting system which is used in inland branches.

1. All foreign branches of companies are using any accounting and ERP software for maintaining foreign accounts. In this accounting software, we can include Tally.ERP 9, SAP, For example SBI is used centralized core banking processing system and PNB uses Finacle. Finacle runs on flexible database Oracle. It has webs system web servers at data centers.

2. All foreign branches are connected with head office with wireless internet network.

3. Applying of Double Entry System for recording the transactions.

4. Foreign Branches are almost independent branches. It means they work like any independent expenses. For example, if it has paid expenses, it will pass the journal entry.

Expenses account Dr. Bank Account Cr.

 5. Transactions between Head Office and Foreign Branches or between one foreign branch and another foreign branch are done. You must remember that one branch will never earn profit from other branch. If goods or services are transferred on the profit, this profit should be cancelled by passing reverse entries.

6. Foreign Branch can should record all transaction in its home currency. For example, if it is Indian company, foreign branches should record all transactions in home currency. If it is not possible. Then before making trial accounts, all revenues, expenses, assets and liabilities should be converted in home currency.

a) If any fixed asset is bought in foreign country. When it is bought, its exchange rate will apply. For any fixed liability, current asset, current liabilities, exchange rate will be applicable on trial balance making date. If there is different in trial balance due to conversion from foreign currency to home currency, it will be transferred to Head Office Profit and loss account.

b) We will make the profit and loss account of foreign branch and its net profit is transferred to Head Office’s Profit and loss account.

c) We can also make foreign branch’s Balance sheet. With this, company can find the assets and liabilities of its independent foreign branch. All these assets and liabilities are merged in Head office’s balance sheet.

Related : Branch Accounting - Full Tutorial

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Accounting Education: Foreign Branch Account
Foreign Branch Account
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