departmental accounting

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2. MEANING
Where a big business with diverse trading
activities is conducted under the same roof the
same is usually divided into several
departments and each department deals with a
particular kind of goods or service. For
example, a textile merchant may trade in
cotton, woolen and jute fabrics.
It is desirable to maintain accounts in such a
manner that the result of each individual
department can be known—together with the
result as a whole

3. OBJECTIVES
To check out an interdepartmental performance.
Evaluation of individual performance of branches which
facilitates in doing comparison of results.
Detects financial position of every department in
organization.
Calculation of remuneration and commission of managers of
every department after knowing result of operations.
The progress of each department can monitor for appropriate
actions to take
To help the owner formulating the right policy for the future.
To assist the management in deciding to drop or add a
department.

4. METHODS AND TECHNIQUE
There are two methods of departmental
accounting
1. Where Individual Set Of Books Is
Maintained
It is method under which every branch of an organization is
regarded as separate unit and therefore individual book of
accounts are prepared and maintained for every unit. At the
end, financial result of every department is calculated and
consolidated to find the overall performance and net result of
whole organization
This method of departmental accounting involves
huge costs and is preferred only by large scale
organizations or where is required by the law.

5. 2 .Where All Departmental Accounts Are
Maintained Columnar-Wise Collectively
A Departmental Trading and Profit and Loss
Account is opened for each individual
department in a columnar form together with a
separate column for ‘Total’ in order to ascertain
the individual result of the different
departments and also as a whole. But the
Balance Sheet is prepared in a combined form.

6. PRINCIPLES
Final accounts of departmentalized organization
are prepared keeping in mind the following
principles
Determination of gross profit or loss and net profit
or loss of every unit of business should be done
separately before taking total amount to balance
sheet or appropriate account of organization.
Bases of appropriating gains and losses to each and
every unit should be given fairly.

7. ADVANTAGES
Facilitates interdepartmental comparison
Formulation of policies
Assist in Expansion and Shut down
decisions
Reveal the success or failures of units
Benefits to Auditors and Investors
Determine managers commission
Promote competitive spirit
Enhance profitability

10. SCHOOL OF BUSINESS
AND MANAGEMENT
Naveen Singh
Bcom Honors
1 year (EAFM)