Both branch books and periodic returns matter
Companies Act section 128(2) provides a branch-book route to compliance with subsection (1): proper books relating to branch transactions are kept at the branch and proper summarised returns are periodically sent to the company at its registered office or the other place referred to in subsection (1). A branch spreadsheet retained locally without a reporting handoff does not establish both conditions. This article concerns domestic branches and the evidence-to-accounts reconciliation.
Read the applicable text: Official Companies Act text: section 128.
Define the company perimeter
A branch is part of the company, while a separately incorporated subsidiary has its own books and legal identity. Do not eliminate genuine transactions with another entity as though they were merely head-office movements. Maintain branch codes, locations, reporting owners and the actual receiving location. The route for another place under subsection (1) has its own conditions; an informal destination is not assumed to satisfy them.
Use accrual books and a controlled return
Section 128(1) requires accrual accounting and the double-entry system, with books explaining company and branch transactions. A cash remittance summary does not necessarily capture receivables, liabilities, inventory or unpaid expenses. Define a periodic reporting pack that reconciles to branch books. Monthly figures in the examples are assumed internal policy controls, not a claim that subsection (2) prescribes a universal monthly deadline.
Reconcile rather than conceal differences
Match branch trial balances to the return, central postings and the company closing accounts. Tag head-office/branch current accounts and internal movements so that the same company does not present a receivable from itself as an external asset. A mismatch can arise from cut-off, missing entries or wrong identifiers; investigate rather than force a balancing suspense entry. Preserve the branch’s original return and explain central adjustments.
Keep reporting and assurance distinct
Periodic returns are not a substitute for proper branch books, supporting vouchers or the applicable audit framework. Branch audit, director inspection, electronic-record requirements and retention have separate provisions and are not resolved merely because the return balances. An approved central adjustment should retain its origin and evidence rather than make the original branch transmission disappear.
Close the receipt-and-posting trail
Record period, version, sender, receipt, review, approved adjustments and final posting. Resolve exceptions individually and carry outstanding differences into an accountable list. The objective is a traceable company-wide account, not merely a dashboard showing all branches green. Overseas books and their additional prescribed conditions are outside this domestic-branch use case.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Accrual return differs from cash
A domestic branch earns ₹12 lakh revenue and collects ₹9 lakh against it, with no opening receivable or other changes assumed. Closing receivable is ₹3 lakh. A cash-only return of ₹9 lakh would omit ₹3 lakh of the stated earned revenue population.
Illustrative example 2: Unpaid branch expense
Verified branch expenses are ₹5 lakh, of which ₹3.80 lakh is paid and ₹1.20 lakh remains payable. Under the assumed accrual facts the expense population is ₹5 lakh, not only cash paid. Recognition conditions still require supporting evidence.
Illustrative example 3: Head-office current account mismatch
Head office records ₹8 lakh receivable from the branch and the branch records ₹7.50 lakh payable to head office. Difference is ₹50,000. Investigate and correct the supported cause before eliminating matched internal balances; do not classify the difference as an external receivable automatically.
Illustrative example 4: Periodic return completeness
Internal policy expects six branch-month returns from each of four domestic branches, or 24 returns. Twenty-two are received and reconciled, leaving two missing returns. The policy count is not a statutory deadline calculation.
Illustrative example 5: Internal stock movement
Assume the same company transfers stock with recorded cost ₹2 lakh from one branch to another and records an internal transfer amount ₹2.40 lakh. The internal uplift is ₹40,000. Its inclusion in company profit or inventory requires correction under the applicable accounting treatment; it is not external revenue merely because two branch codes are involved.
Illustrative example 6: Central posting bridge
Branch return revenue ₹15 lakh plus a supported central accrual adjustment ₹60,000 less a supported duplicate entry ₹20,000 gives ₹15.40 lakh in the final company working. Preserve all three components and their evidence rather than replacing the original return with an unexplained total.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Identify domestic branches | Company-owned branch perimeter and codes. |
| 2 | Locate proper branch books | Actual accounting records and support. |
| 3 | Confirm accrual and double entry | Subsection (1) and period-end adjustments. |
| 4 | Define periodic returns | Internal policy and receiving location. |
| 5 | Record transmission and receipt | Period and version-specific evidence. |
| 6 | Match return to branch books | Trial balance and supporting reconciliation. |
| 7 | Reconcile head-office accounts | Internal counterparties and cut-off differences. |
| 8 | Review central adjustments | Authority, evidence and no silent overwrite. |
| 9 | Check separate obligations | Audit, inspection, electronic records and retention as applicable. |
| 10 | Close the company bridge | Unique transactions and unresolved exceptions. |
Sixteen practitioner FAQs
1. Does local retention of branch books alone prove the route?
No. Periodic proper summarised returns are also required.
2. Does subsection (2) cover branches outside India too?
Its text does, but this article confines its procedure to domestic branches.
3. Does it prescribe monthly returns universally?
No. The monthly examples use assumed internal policy.
4. Can cash receipts alone represent a full return?
Not necessarily; accrual balances and other transactions matter.
5. Is a subsidiary the same as a branch?
No. Establish the legal entity perimeter.
6. Can internal balances be treated as external assets?
Not merely because they appear under separate branch codes.
7. Should unmatched internal amounts be forced to zero?
No. Investigate and correct the actual cause.
8. Can central adjustments be made without evidence?
They need a supported basis and traceable authority.
9. Should original branch returns be overwritten?
Preserve the received version and adjustment history.
10. Does a balanced return establish that every transaction is correct?
No. Balance alone is insufficient assurance.
11. Does this replace branch-audit requirements?
No. The audit framework is separate.
12. Does it settle director-inspection rights?
No. Those are separately addressed by law.
13. Where are periodic returns sent?
The registered office or the other place referred to in subsection (1).
14. Is any informal central office automatically that other place?
No. Check the applicable subsection (1) requirements.
15. Why use return counts by branch and period?
To reveal missing reporting periods rather than rely on an aggregate total.
16. What should the closing bridge preserve?
Branch figures, central adjustments, internal reconciliations and unresolved items.