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Advanced Accounting · Accounting for Branches including Foreign Branches

Dependent Branches: Debtors System of Branch Accounting

Updated 4 October 2026 · Fact-checked

Under the debtors system, head office keeps a Branch Account that shows the branch as a single account, with goods at cost. You debit opening balances, goods sent and expenses paid by head office. You credit remittances, goods returned and closing balances. The balancing figure is branch profit or loss.

Understand Dependent Branches: Debtors System

A dependent branch has no separate books of its own. It sells goods that head office sends, or goods head office tells it to buy. The branch does not keep full accounts. Head office keeps every record.

Under the debtors system, head office opens one Branch Account. It works like a Trading and Profit and Loss Account combined with a statement of branch assets. Goods are shown at cost, not at selling price. So no stock reserve or loading is needed. That is the main difference from the stock system.

Think of the Branch Account as a running account of what head office has put into the branch and what has come back. Debit side: opening stock, debtors and cash at the branch, goods sent, and expenses head office pays for the branch. Credit side: cash remitted by the branch, goods returned to head office, and closing stock, debtors and cash. Each side holds what the other side lacks, so the balance is the profit or loss.

Credit sales do not appear directly in this account. You track them in a Branch Debtors Account. That account gives you the missing figure, usually closing debtors or credit sales. Discount allowed and bad debts reduce the debtors. Because the closing debtors balance is already net of them, you do not debit them again in the Branch Account.

The profit is transferred to the General Profit and Loss Account of head office. A loss is transferred the other way.

Key rules to remember

Branch Debtors Account (to find any missing item)
Opening debtors + Credit sales = Cash received from debtors + Discount allowed + Bad debts + Sales returns + Closing debtors
Use it to find closing debtors, credit sales or cash received. If returns are given, include them on the right side.
Cash remitted by branch
Cash sales + Cash received from debtors − Branch expenses paid from cash, − Cash retained at branch
If the question says all cash was remitted, remittance equals cash sales plus collections from debtors.
Branch profit (balancing figure)
Credit side total − Debit side total (before profit)
Credit side: remittances, goods returned, abnormal losses, closing stock, closing debtors, closing petty cash. A positive balance is profit. A negative balance is loss.
Petty cash at the branch
Opening petty cash + Cash sent by head office − Petty expenses paid = Closing petty cash
Use it to find missing expenses or closing balances.
Key journal entries in head office books
Goods sent: Branch A/c Dr, To Goods Sent to Branch A/c. Expenses paid by HO: Branch A/c Dr, To Bank. Remittance: Bank Dr, To Branch A/c. Goods returned: Goods Sent to Branch A/c Dr, To Branch A/c. Profit: Branch A/c Dr, To General P&L A/c
At year end, Goods Sent to Branch A/c is transferred to the Purchases or Trading Account, or deducted from it.

How to solve Dependent Branches: Debtors System questions

Follow the same order for every debtors system question. It stops you from missing an item and makes the balancing figure reliable.

  1. 1Read the whole question and list the opening balances (stock, debtors, petty cash), the transactions of the year, and the closing balances.
  2. 2Prepare the Branch Debtors Account first if credit sales, cash received or closing debtors is missing. Find the missing figure from it.
  3. 3Work out cash remitted by the branch if it is not given. Take cash sales plus collections from debtors, then deduct expenses paid by the branch and cash retained.
  4. 4Open the Branch Account. On the debit side put opening stock, debtors and petty cash, goods sent, and expenses paid by head office, including cash sent to the branch.
  5. 5On the credit side put cash remitted, goods returned to head office, any abnormal loss at cost, and closing stock, debtors and petty cash.
  6. 6Do not debit discount allowed or bad debts again if closing debtors from the Debtors Account is on the credit side.
  7. 7Total both sides. The difference is the profit or loss. Write 'By Profit transferred to General P&L A/c' on the short side, or the loss on the debit side.
  8. 8Write the journal entries if asked. Show goods sent, expenses, remittances, goods returned and the profit transfer.

Quickest way: Four-line check for the debtors system

When to use it: Use it in exam time pressure, especially for MCQs and for checking a written answer before you submit.

  1. Find the missing debtors figure first with the Debtors A/c identity. Most MCQs ask for closing debtors or credit sales.
  2. For a profit MCQ, use: (cash sales + collections + closing stock + closing debtors) − (opening stock + opening debtors + goods sent + expenses). If petty cash is given, include it on both sides.
  3. Eliminate options that treat goods sent at invoice price or add a stock reserve. The debtors system works at cost.
  4. In written answers, show the Branch Debtors A/c, the Branch A/c and each working note separately. Examiners give step marks even if the final profit is wrong.
  5. Check that the two sides of the Branch Account agree after adding the profit. A mismatch means a missed item.

Common mistakes in Dependent Branches: Debtors System

  • Debiting discount allowed and bad debts in the Branch Account and also showing closing debtors after deducting them.

    You treat them as expenses like rent, forgetting that the closing debtors figure already carries their effect.

    Fix: Deduct them only in the Branch Debtors Account. Do not debit them again in the Branch Account when closing debtors is on the credit side.

  • Leaving out opening debtors or petty cash from the debit side.

    You focus on stock and goods sent and forget the other opening assets of the branch.

    Fix: Start the debit side with all opening balances: stock, debtors and petty cash. Tick them off against the data list.

  • Showing goods sent at invoice price or creating a stock reserve.

    This is mixed up with the stock system, where goods go at invoice price.

    Fix: Under the debtors system everything is at cost. No loading, no stock reserve.

  • Forgetting to credit goods returned by the branch to head office.

    The returned goods look like a stock movement rather than a branch item.

    Fix: Credit Branch A/c by goods returned. Debit Goods Sent to Branch A/c in head office books.

  • Putting cash sales and credit sales on the credit side while also showing remittances and closing debtors.

    You mix two approaches, counting the same sales twice.

    Fix: Choose one approach. In the full Branch A/c, credit remittances and closing balances, and use the Debtors A/c only for the missing figure.

  • Ignoring petty cash cash sent by head office, or treating petty expenses as paid by head office.

    You do not see that cash sent is a debit to the branch, while petty expenses reduce the petty cash balance.

    Fix: Debit cash sent. Use the petty cash identity to check the closing balance.

Worked examples

Example 1

A head office has a dependent branch. Opening balances on 1 April: stock ₹40,000; debtors ₹25,000. During the year: goods sent to branch ₹2,50,000; cash sales ₹1,20,000; credit sales ₹2,00,000; cash received from debtors ₹1,85,000; discount allowed ₹3,000; bad debts ₹2,000. The branch remitted all cash received to head office. Head office paid rent ₹12,000 and salaries ₹30,000 for the branch. Closing stock is ₹55,000. Prepare the Branch Account at cost and find the profit.

Show the solution
  1. Branch Debtors Account: Dr side: opening balance ₹25,000 + credit sales ₹2,00,000 = ₹2,25,000.
  2. Cr side: cash received ₹1,85,000 + discount ₹3,000 + bad debts ₹2,000 = ₹1,90,000. Closing debtors = ₹2,25,000 − ₹1,90,000 = ₹35,000.
  3. Cash remitted = cash sales ₹1,20,000 + collections ₹1,85,000 = ₹3,05,000.
  4. Branch Account debit side: opening stock ₹40,000 + opening debtors ₹25,000 + goods sent ₹2,50,000 + rent ₹12,000 + salaries ₹30,000 = ₹3,57,000.
  5. Branch Account credit side: remittances ₹3,05,000 + closing stock ₹55,000 + closing debtors ₹35,000 = ₹3,95,000.
  6. Profit = ₹3,95,000 − ₹3,57,000 = ₹38,000.
  7. Check: sales ₹3,20,000 + closing stock ₹55,000 − opening stock ₹40,000 − goods sent ₹2,50,000 = ₹85,000 gross profit. Less rent ₹12,000, salaries ₹30,000, discount ₹3,000, bad debts ₹2,000 = ₹38,000. It agrees.
  8. Entry: Branch A/c Dr ₹38,000; To General P&L A/c ₹38,000.

Answer: Closing debtors ₹35,000. Branch profit ₹38,000, transferred to General P&L A/c.

Example 2

Opening balances: stock ₹30,000; debtors ₹20,000; petty cash ₹1,000. During the year: goods sent ₹2,00,000; goods returned by branch to head office ₹10,000; cash sales ₹90,000; credit sales ₹1,60,000; cash received from debtors ₹1,50,000; bad debts ₹4,000. Head office paid salaries ₹24,000 and sent ₹3,000 as petty cash. Petty expenses paid by the branch were ₹3,500. Stock worth ₹2,000 (at cost) was destroyed by fire. Closing stock is ₹36,000. All cash except petty cash was remitted to head office. Prepare the Branch Account and find the profit.

Show the solution
  1. Debtors Account: ₹20,000 + ₹1,60,000 = ₹1,80,000. Less cash ₹1,50,000 and bad debts ₹4,000 = ₹1,54,000. Closing debtors = ₹26,000.
  2. Closing petty cash = ₹1,000 + ₹3,000 − ₹3,500 = ₹500.
  3. Remittance = ₹90,000 + ₹1,50,000 = ₹2,40,000.
  4. Debit side: opening stock ₹30,000 + debtors ₹20,000 + petty cash ₹1,000 + goods sent ₹2,00,000 + salaries ₹24,000 + petty cash sent ₹3,000 = ₹2,78,000.
  5. Credit side: goods returned ₹10,000 + remittances ₹2,40,000 + loss by fire ₹2,000 + closing stock ₹36,000 + closing debtors ₹26,000 + petty cash ₹500 = ₹3,14,500.
  6. Profit = ₹3,14,500 − ₹2,78,000 = ₹36,500.
  7. Check: sales ₹2,50,000 + closing stock ₹36,000 + fire loss ₹2,000 − opening stock ₹30,000 − net goods sent ₹1,90,000 = ₹68,000. Less salaries ₹24,000, petty expenses ₹3,500, bad debts ₹4,000 = ₹36,500. It agrees.
  8. Fire loss is debited to Abnormal Loss A/c (or charged to the P&L, as the question says) and credited to Branch A/c.

Answer: Closing debtors ₹26,000; closing petty cash ₹500; branch profit ₹36,500.

Exam tips

  • Show the Branch Debtors Account as a separate working note. The closing debtors figure is often the key to the answer.
  • State your assumption in one line, for example 'All cash received is remitted to head office'. It protects your marks if the question is vague.
  • MCQs often give you the Branch Account items and ask for profit or one missing figure. Add both sides with a small table on rough paper.
  • Treat abnormal losses such as fire or theft separately. Credit them to the Branch Account at cost and charge them elsewhere.
  • Write the journal entries only when the question asks. Otherwise spend the time on the account and the workings.

Practice questions from Accounting for Branches including Foreign Branches

Dependent Branches: Debtors System in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Dependent Branches: Debtors System: frequently asked questions

What is the debtors system in branch accounting?

It is a method for dependent branches in which head office keeps a single Branch Account showing goods at cost. The account records opening and closing balances, goods sent, expenses and remittances. The balancing figure is the profit or loss.

How is the debtors system different from the stock system?

In the debtors system, goods are at cost and the account is built from debtors, cash and stock balances. In the stock system, goods are usually sent at invoice price, so a stock reserve is needed. Practice both so you can pick the right one from the question.

Do I debit discount and bad debts in the Branch Account?

Not if closing debtors is already on the credit side and was found after deducting them. They are deducted in the Branch Debtors Account. Debiting them again would count them twice.

Where does the profit of the branch go?

It is transferred to the General Profit and Loss Account of head office. Pass the entry: Branch A/c Dr, To General P&L A/c. A loss is transferred the other way.