Concept of Departmental Accounting

Concept of Departmental Accounting

Departmental Accounting refers to maintaining accounts for one or more branches or departments of the company. Modern life is very mechanical, especially in big cities. The citizens of such cities expect all the goods and services just under a single roof. Contemplating the need of the consumers, the business men are also providing the expected service to the consumer just under a roof by opening large scale departmental stores. The departmental stores are the example of large scale retail selling just under a single roof. For instance, Departmental Store is an example of large scale trading by a retail trader. It helps in formulating new policies and to adopt new and latest techniques in the depart­ments, thereby further profitability of the department can be expected. It is essential to know the profit and loss account of each departmental store at the end of the accounting year.

The advantages of departmental accounting are that the business is able to identify the financial performance of each of its departments. It helps to understand or locate the success, failure, rates of profit, etc. It is helpful in evaluating the result of each department. It helps to know the profitability of each department.

In order to carry out business more efficiently, a businessman divides his store into many sections, each section is called a Department. Different departments are involved for different goods to be sold out. Revenues and expenses of the department are recorded and reported separately. Managers can use the financial information from the departmental accounting system to tell how profitable and efficient each department is. To calculate the net result of the whole organization, full-fledged trading and profit and loss accounts are to be prepared. But to evaluate individual department, it will be credit worthy to prepare individual trading and profit and loss account. Such individual accounts will help to evaluate and control the different departments.  The system of accounting is followed for this; the purpose is known as Departmental Accounting. It enables to compare the performance of one department with that of another and to mea­sure the progress of the department itself by comparing year-wise performance.