Branch and Activity Accounting

One area entry-level accounting systems don't handle particularly well is a segmented General/Nominal Ledger.

Most larger businesses operate over a number of regions, branches or departments and within these are multiple activities. Accounting for these sorts of businesses is usually handled within one legal entity's accounts by segmenting each general ledger account as follows:

CCCCCC-BB-AA

where CCCCCC is the Chart of Accounts, BB is the Branch and AA is the Activity.

The Chart of Accounts represents the standard representation of the summary ledger accounts that form the basis of the company's Profit and Loss and Balance Sheet.

The Branch is typically a distinct business owned by the company with a similar business model as other branches in the group.

Activities are business units within each branch, such as Sales and Marketing, Administration and Finance.

Where there are business expenses incurred that relate to multiple branches and activities, some accounting systems have the automatic capability of allocating these expenses to each branch and activity on the basis of a pre-defined proportion.

Reporting is another area that is handled better by segmented accounting systems. For example, you can usually produce a Profit and Loss Report and Balance Sheet for

• Specific Branches for all Activities
• Specific Branches for Specific Activities
• All Branches for All Activities
• All Branches for Specific Activities

The most common benefit of adopting a segmented accounting system is the production of more meaningful results to enable Management to assess the relative success or failure of individual business units and regions.

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