Concept Of Departmental Accounting
Department
:
Department refers to activity centre ( profit
or cost centre ) usually in the same roof but carrying distinct type of
activities.
Departmental
Accounting :
Departmental accounting is a system of
financial accounting which is used in the organization whose all work are done
through their different departments of departmental stores. Departmental
accounts are prepared separately for each department and trail balance will
also be prepared. Departmental profit and loss account is prepared to ascertain
the profit or loss of each department separately and at the end of the year. It
is transferred to general profit and loss account of the whole organization
Objectives Of Departmental Accounting
The
main objectives of departmental accounting are:
- To check out interdepartmental performance
- To evaluate the performance of the department with previous period result.
- To help the owner for formulating right policy for future.
- To assist the management for making decision to drop or add a department
- To provide detail information of the entire organization
- To assist management for cost control
Followings are the main differences between branch and department:
1. Branches are separated from the main organization. Departments are attached with the main organization under a single roof.
2. Branches are the outcome of tough competition and expansion of business. Departments are the result of fast human life.
3. Branches are geographically separated. Departments are not separated rather existed under a same roof.
4. Branches are of different types like dependent, independent and foreign. There is no such classification in department because all are common under the same roof.
5. Allocation of branch common expenses does not arise. Allocation of departmental common expenses is a tough job.
6. To find out the net result of the organization, the reconciliation of different branch account is a main job.In departmental accounting, no reconciliation is necessary because there is a central account division.
