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Invoice Price Method Branch Accounting

In branch accounting, head office sends the goods to branch on the invoice price instead of cost price because with this, company can hide his profit margin from branch employees. In the invoice price, there are two prices will be included on is cost price and second is profit %. So, it is very necessary to use invoice price method for doing branch accounting. Here, we are teaching its procedure.


1st Step : Pass the Journal Entries in Head Office for Adjustment of Stock 

It is very necessary to adjust the stock of company when it supplies to branch at invoice price. We are not selling the product to our branch. Branch is the small part of company. So, for deducting the profit from stock, we will pass the reverse entry of stock reserve will pass which is relating to adjustment of opening stock, closing stock and goods send to branch. For example, we have $ 1000 opening stock in branch. In this $ 1000, $ 200 is our profit, so, it is necessary to deduct $ 200 from $ 1000 from opening stock. Same adjustment will apply on closing stock also.

1. For adjustment in the value of opening stock 

Stock Reserve Account Debit ( Invoice value - cost value)

Branch Account Credit

2. For adjustment in the value of goods sent to branch less return


Goods Sent to Branch Account Debit  ( Invoice value - cost value)

Branch Account Credit


3. For adjustment in the value of closing stock 

Branch Account Debit ( Invoice value - cost value)

Stock Reserve Account Credit


2nd Step : Making of Branch Account


Following is branch account as per invoice method



Related Resource : Financial Accounting 

COMMENTS

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  1. How to pass adjusting entries for allowance for overvaluation for the year in the books of head office? Please tell me

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Accounting Education: Invoice Price Method Branch Accounting
Invoice Price Method Branch Accounting
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Accounting Education
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