Enforcement Officer / Accounts Officer (EO/AO) 2017 recruitment test. Transcribed from the Commission's own booklet (series A, GRS-A-TNS); answer as per the official UPSC final answer key. This question is in Part B. Answer last reviewed 24 August 2026.

Branch Account under Debtors System is

(a)Real Account
(b)Personal Account
(c)Nominal Account
(d)Liability Account

Answer

Why

Correct — C, (c) Nominal Account. Under the Debtors System of branch accounting the head office opens a single account for each dependent branch and works out the branch's result inside it. The account is debited with the opening balances of branch assets — stock, debtors, petty cash, furniture — with the cost of goods sent to the branch and with the expenses the head office pays on the branch's behalf. It is credited with cash and goods returned by the branch, with remittances received, and with the closing balances of the branch's assets. Whatever is left is the profit or loss the branch has earned, and it is transferred to the general Profit and Loss Account.

That is the behaviour of a nominal account and of nothing else. A nominal account is opened for a period, collects the elements of a result, and is closed off into the account that summarises results, leaving nothing to carry forward. A personal or a real account, by contrast, ends the year with a balance that goes into the Balance Sheet and opens the next year with it. Nothing of the Branch Account survives the transfer of its balance; the branch's assets are carried forward as assets in the head office's Balance Sheet, not as a balance of this account.

The item is genuinely awkward because the account looks like two other things. It carries the name of a place, which makes it read like a personal account; and it has asset figures on both of its sides, which makes it read like a real account. Neither appearance decides the classification. The assets appear only as the opening and closing points between which the result is measured, in exactly the way opening and closing stock appear in a Trading Account without making the Trading Account real. And a branch is not a person: it is a part of the same legal entity as the head office, so there is no debtor or creditor relationship for a personal account to record.

The cleanest way to hold this is to look at what the other method does with the same information. Under the Stock and Debtors System the head office breaks the single account up: Branch Stock Account and Branch Cash Account are real, Branch Debtors Account is personal, and the profit emerges in the Branch Adjustment Account and the Branch Profit and Loss Account, which are nominal. The Debtors System simply rolls all of that into one account — and since the purpose of that one account is to produce the profit figure, it takes the character of the nominal accounts it has absorbed.

Why the others are wrong

(a)Real Account — A real account records an asset or a property and carries its balance into the Balance Sheet. This option is tempting because branch stock, branch debtors, petty cash and furniture all appear inside the Branch Account, as opening balances on the debit side and closing balances on the credit side. But they are there to mark the two ends of the period so that the result between them can be measured, just as opening and closing stock appear in a Trading Account without turning it into a real account. If a real account is wanted in branch accounting, it is the Branch Stock Account under the Stock and Debtors System, which genuinely tracks the movement of goods and is balanced rather than closed.
(b)Personal Account — A personal account records dealings with a person or an entity treated as a person, and the branch's name at the head of the account is what makes this look right. It is not: a dependent branch is not a separate legal entity but a part of the same concern as the head office, so nothing is owed between them in the way a debtor owes a creditor. The genuine personal account in branch accounting is the Branch Debtors Account under the Stock and Debtors System, which records what the branch's customers owe. It is worth noticing that the same three classes were offered in the earlier item on the Income and Expenditure Account in this paper, and the reasoning that answers one answers the other: ask what the account is opened to produce, not what it is called.
(d)Liability Account — Liability Account is not one of the three classes recognised by the traditional classification at all, so the option is misclassified before its content is examined — and a liability, where one exists, is recorded in a personal account. Nor is there any liability here to record: a dependent branch owes the head office nothing, because the two are the same concern. This is the only option that differs from the set offered in the earlier classification item in this paper, and it is the weakest of the four.

Concept

Branches are accounted for according to how much independence they have. A dependent branch keeps no full set of books, and the head office records its results by one of four methods. The Debtors System suits a small branch: one Branch Account per branch, in which the branch's profit emerges as the balancing figure. The Stock and Debtors System suits a larger branch and gives closer control, splitting the record into Branch Stock Account, Branch Debtors Account, Branch Expenses Account, Goods Sent to Branch Account and Branch Adjustment Account, where goods are invoiced to the branch at selling price and the loading is dealt with through the adjustment account so that shortages and surpluses in stock become visible. The Final Accounts System prepares a Branch Trading and Profit and Loss Account as though the branch were a separate business. The Wholesale Branch System separates the profit the head office would have made as a wholesaler from the profit the branch makes as a retailer. An independent branch, by contrast, maintains a complete double-entry set of books and a Head Office Account, and the two sets are combined at the year end after reconciling items in transit.

The paper asks the classification of an account twice in this block and offers the same first three options both times, changing only the fourth. That is a deliberate construction: it rewards a candidate who has one reliable test for the class of any account and punishes one who has memorised a short list of examples. The test is functional — ask what the account exists to produce and what happens to it at the year end. An account that is closed off into another account and starts again at nil is nominal, whatever it is called and whatever figures pass through it. Branch Account, Consignment Account, Joint Venture Account and Income and Expenditure Account are all named after something concrete and are all nominal for the same reason.

Key facts

Under the Debtors System, one Branch Account is opened in the head office books for each dependent branch and its balancing figure is the branch's profit or loss.
The Branch Account is debited with opening branch assets, goods sent to the branch and expenses paid by the head office, and credited with returns, remittances and closing branch assets.
Its balance is transferred to the general Profit and Loss Account, so nothing is carried forward — the behaviour that makes it a nominal account.
Under the Stock and Debtors System, Branch Stock Account is real, Branch Debtors Account is personal, and Branch Adjustment Account is nominal.
A dependent branch is not a separate legal entity, so there is no debtor-creditor relationship with the head office for a personal account to record.
The four methods of accounting for a dependent branch are the Debtors System, the Stock and Debtors System, the Final Accounts System and the Wholesale Branch System.
An independent branch keeps a full set of books including a Head Office Account, and the two sets are combined after reconciling items in transit.

Ask what the account exists to produce, not what it is called

(c) Nominal Account→Under the Debtors System the head office opens one account per dependent branch: debited with the opening balances of branch assets, the cost of goods sent and the expenses it pays on the branch's behalf; credited with returns, remittances and the closing balances of those assets. Whatever is left is the branch's profit or loss, transferred to the general Profit and Loss Account.

The functional test→A nominal account is opened for a period, collects the elements of a result, and is closed off into the account that summarises results, leaving nothing to carry forward. A personal or a real account ends the year with a balance that goes into the Balance Sheet and opens the next year with it.

(a) Real Account→Tempting, because branch stock, branch debtors, petty cash and furniture all appear inside the account, on the debit side at the start and the credit side at the close. But they are there to mark the two ends of the period so that the result between them can be measured, exactly as opening and closing stock appear in a Trading Account without turning it into a real account.

(b) Personal Account→Tempting, because the account carries the name of a place. But a dependent branch is not a separate legal entity — it is part of the same concern as the head office, so nothing is owed between them in the way a debtor owes a creditor. The genuine personal account here is the Branch Debtors Account under the other method.

(d) Liability Account→Not one of the three classes recognised by the traditional classification at all, so the option is misclassified before its content is examined; a liability, where one exists, is recorded in a personal account. It is also the only option that differs from the set offered in the earlier classification item in this paper.

Where each class genuinely lives→Under the Stock and Debtors System the single account is broken up: Branch Stock Account and Branch Cash Account are real, Branch Debtors Account is personal, and the Branch Adjustment Account is nominal. The Debtors System rolls all of that into one — and since the purpose of that one account is to produce the profit figure, it takes the character of the nominal accounts it has absorbed.

Study next

Stock and Debtors System, with goods invoiced to the branch at selling price and the loading routed through the Branch Adjustment AccountNormal and abnormal shortages of branch stock, and how each is disclosed under the two systemsIndependent branches — the Head Office Account, incorporation entries and reconciliation of items in transitForeign branch accounts and the translation of their balancesDepartmental accounts, and the difference between a department and a branch

Common traps

Classifying an account by its name. A branch is a place, not a person, and the account is not personal on that account.
Classifying it by the figures inside it. Assets appear in the account only as the two ends of the period being measured.
Treating Liability Account as a class of account. The traditional classification has three classes.
Carrying the reasoning across to the Stock and Debtors System, where the individual accounts genuinely are real, personal and nominal in turn.
Assuming that because the account has a debit and a credit balance side it must produce a Balance Sheet figure; the balance here goes to Profit and Loss.

Branch accounting reaches EPFO papers as classification and method-identification items far more often than as full problems, because a one-line question can test the whole topic. Typical shapes are: which system is being described, which account is debited with goods sent to a branch, at what value goods are invoiced under the Stock and Debtors System, and how a shortage of branch stock is treated. All of these are answered from a clear picture of which accounts each system opens, so the preparation that pays is a side-by-side list of the accounts under the Debtors System and under the Stock and Debtors System.

Related PYQs

EPFO_EOAO_2017_Q62Open & attempt →

Income and Expenditure Account is

(a) Real Account
(b) Personal Account
(c) Nominal Account
(d) Capital Account

Answer(c) Nominal Account

The earlier classification item in this same block, on the Income and Expenditure Account, which offers the identical first three options and is answered by the identical test.

Practice

practice — not a real PYQ
Under the Stock and Debtors System of branch accounting, the Branch Stock Account is
- (a)a nominal account
- (b)a real account
- (c)a personal account
- (d)a memorandum account outside the double-entry system
Answer(b) a real account
practice — not a real PYQ
The balancing figure of the Branch Account maintained under the Debtors System represents
- (a)the amount owed by the branch to the head office
- (b)the profit or loss made by the branch
- (c)the value of goods in transit to the branch
- (d)the closing stock held at the branch
Answer(b) the profit or loss made by the branch

Why