(a) What are closing entries? (b) Distinguish between a branch and a department. (c) State four reasons for the preparation of branch accounts.

Answer Details

(a) What are closing entries?

Closing entries are the journal entries made at the end of an accounting period to transfer the balances on the nominal (revenue and expense) accounts to the Trading and Profit and Loss Account. They close off the income and expense accounts so that they start the next period with nil balances, and they bring together the figures needed to determine gross profit and net profit.

(b) Distinction between a branch and a department

(c) Four reasons for the preparation of branch accounts

1. To determine the profit or loss made by each branch separately.
2. To control the branch and check the honesty and efficiency of branch staff (guard against fraud).
3. To ascertain the value of stock, cash and other assets held at each branch.
4. To help the head office in decision-making, such as whether to expand, retain or close a branch.
5. To measure the performance of branch managers for reward or control purposes.

(Any four.)