Question

In branch accounts, in debtors system, opening balances of assets are _______.
1. credited to branch account
2. debited to branch account
3. added to branch account
4. transferred to branch account

Answer 1

Correct Answer - Option 2 : debited to branch account

In branch accounts, in debtors system, opening balances of assets are debited to the branch account.

Debtors method 

• This method of accounting is suitable for small-sized branches.
• Under this method, a separate branch account is maintained for each branch to compute profit or loss made by each branch.
• The opening balance of stock, debtors (if any), petty cash (if any), are debited to the Branch Account; the cost of goods sent to the branch as well as expenses of the branch paid by the head office,e.g., salaries, rent, insurance, etc., are also debited to it.
• Conversely, amounts remitted by the branch and the cost of goods returned by the branch are credited.
• At the end of the year, the value of the unsold stock, the total of customers balances outstanding and that of petty cash is brought into the branch account on the credit side and then the branch account will reveal profit or loss; Debit ‘balance’ will be the loss suffered by the working of the branch and vice versa.
• If the branch is allowed to make small purchases of goods locally as well as to incur expenses out of its cash receipts, it will be necessary for the branch to supply to the head office a copy of the Cash Account, showing details of cash collections and disbursements.
• So, in In branch accounts, in the debtors system, opening balances of assets are debited to the branch account.