(a) What are closing entries? (b) Distinguish between a branch and a department. (c) State four reasons for the preparation of branch accounts.
Question 1 Report
(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
| Branch | Department |
|---|---|
| Located away from the head office, often in a different town or area. | A section within the same premises as the main business. |
| May keep its own set of books, and separate branch accounts are prepared. | Records are kept centrally; departmental accounts are drawn up within one set of books. |
| Results are combined with head office through branch accounting. | Results are shown through columnar (departmental) trading and profit and loss accounts. |
(c) Four reasons for the preparation of branch accounts
- To determine the profit or loss made by each branch separately.
- To control the branch and check the honesty and efficiency of branch staff (guard against fraud).
- To ascertain the value of stock, cash and other assets held at each branch.
- To help the head office in decision-making, such as whether to expand, retain or close a branch.
- To measure the performance of branch managers for reward or control purposes.
(Any four.)
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