Theory question 102
Branch Accounts(a) What are closing entries? (b) Distinguish between a branch and a department. (c) State four reasons for the preparation of branch accounts.
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(a) Closing entries: journal entries made at the end of a period to transfer the balances of income and expense (nominal) accounts to the trading and profit and loss account, closing those accounts.
(b) A branch is a unit of the business located away from the head office (often in another town) and may carry out most activities of the business; a department is a section of the business under the same roof dealing in one line of goods or service.
(c) Any four: to find the profit or loss of each branch; to compare branches' performance; to decide which branch to expand or close; to control branch stock, cash and debtors (prevent fraud); to reward branch managers; to help management decisions and planning.
Define closing entries, contrast location/scope, then give reasons for branch accounts.