Concept And Meaning Of Branch
The recent process of globalization and its development hit all the nations of the world for their rapid development of trade, commerce and industries. Branch, therefore, is the result of rapid growth of business in the world. Since, there is an international access to the trade and commerce, business undertakings are opening their establishment nationally and internationally in the different parts of the world. Whatever the business undertaking opened by the organization, they are normally a segment of the original business undertaking. Therefore, a branch can be defined as a segment of an enterprise normally controlled by head office being located in different geographical position. In practice, the branches are playing a vital role to put the original establishment in the existence.
Types Of Branches
Branches may be classified as under from the accounting point of view:
1. Inland Branches
2. Foreign Branches
1. Inland Branches
The branches opened in the different parts of the nation, where the original undertaking being registered are called inland branches. These types of branches are also called home branches or national branches. There are two types of inland branches, which are:
a) Dependent branch
b) Independent branch
a). Dependent Branch
Dependent branches are the branches that do not keep their records but all the records are maintained by head office. They are not authorized to act solely without the prior permission of the head office. All the plans, policies, rules and regulations of these branches are totally formulated and executed by the head office. In other words, all the functions of dependent branch are totally controlled by head office.
Under dependent branch, two types of branches are included, which is termed as service branch and retail branch.
* Service Branch: All the branches which are booking or executing orders on behalf of head office are called service branches. These are the branches which are busy in execution all the orders for the sake of head office.
* Retail Branch: Retail branches are also dependent branches, but they are concerned with the head office for selling goods, produced by the head office itself or purchased from outside in a bulky position and are sent to the retail selling branches for selling them out as like.
b). Independent Branch
The branches that can keep their accounts themselves and sell goods that are sent by the head office as well as those purchased by themselves are known as independent branches. These are the branches which can sell the goods to head office too. They can pay their own expenses and can deposit their collection in their own name in the bank. These branches record separately
and independently all the transactions which are even recorded by the head office.
2. Foreign Branches
Because of the rapid development of trade, commerce and industries and with the growing tough competition, the business enterprises are opening their branches abroad in order to capture the potential market and accelerate their business globally. Therefore, the branches established abroad is called foreign branch. The accounting procedure of foreign branch is just like an independent branch except in the following cases:
- Exchange rate and conversion of foreign currency into home currency
- Effects of foreign exchange rate are to be incorporated in the books of head office.
