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Difficulty: MediumDistinction Between Dependent and Independent Branches

A trading enterprise operates two regional sales outlets in different locations. Outlet X receives all inventory directly from the head office, remits all daily cash receipts to the head office bank account, and relies entirely on the head office to maintain its accounting records. Outlet Y, on the other hand, maintains a complete double-entry ledger system, purchases inventory locally, and extracts its own trial balance at the end of the financial period. Which of the following accounting classifications correctly describes Outlet X and Outlet Y?

  1. A
    Outlet X is an independent branch, while Outlet Y is a dependent branch.
  2. Outlet X is a dependent branch, while Outlet Y is an independent branch.Answer
  3. C
    Both Outlet X and Outlet Y are classified as dependent branches.
  4. D
    Both Outlet X and Outlet Y are classified as independent branches.

Answer

Outlet X is a dependent branch, while Outlet Y is an independent branch.
A dependent branch (such as Outlet X) does not keep a complete set of accounting books; its books are kept by the head office, and it operates under strict head office oversight regarding supplies and cash. Conversely, an independent branch (such as Outlet Y) operates autonomously in terms of bookkeeping, maintaining a full double-entry ledger system, purchasing goods from local suppliers, and extracting a trial balance at period end.

Step-by-Step Solution

1
Analyze the operational and record-keeping features of Outlet X.
Outlet X relies on the head office for inventory supply, remits all cash to head office, and does not maintain its own accounting ledgers. Therefore, it is a dependent branch.
Dependent branches do not maintain complete books of account; all major accounting functions are handled by the head office.
2
Analyze the operational and record-keeping features of Outlet Y.
Outlet Y maintains a complete set of accounting books, purchases goods locally, and extracts its own trial balance. Therefore, it is an independent branch.
Independent branches function as separate accounting entities, keeping double-entry records and balancing their own accounts.
3
Select the classification option that matches both outlets.
Outlet X is dependent and Outlet Y is independent.
This correctly aligns both outlets with their respective accounting features.

Key Concept

Distinction Between Dependent and Independent Branches
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Topics

Distinction Between Dependent and Independent Branches