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SS2: FINANCIAL ACCOUNTING - 2ND TERM

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Departmental accounts are accounts relating to the departments or division of a business it being desired to ascertain the trading result of separately It is convenient to separate the operation of each department. This entails keeping separate purchases, Sales, Stock, Cash, returns, and personal ledgers for each of the departments. The preparation of departmental accounts will show which department is more profitable and may guide in the decision-making process as to which department must be closed down in some organizations, some departments may deliberately run at a loss to attract customers by using cheap prices.

This information will show management the viability of each department and may guide in policy formulation.

Objectives of Department Accounting

1. The main objects of preparing such accounts are:

2. To have a comparison of the results of a particular department of concern.

3. To help the proprietor in formulating policy to extend the business on proper lines so as to optimize the profits of the concern.

4. To allow departmental managers to commission on the basis of the profits of their departments and

5. To generate information which may be helpful for planning, control and evolution of performance of each department for taking various managerial decisions.

Advantages of Departmental Accounts

1. The gross profit of each department can be ascertained.

2. Unprofitable departments will be revealed

3. The result of operation can be used to pay the managers of each department.

4. The progress of each department can be monitored

5. Errors can be easily detected

6. It will help in the preparation of departmental budgets

7. It helps the management to formulate the right business policies for the various departments.

8. It helps to calculate stock turnover ratio of each department.

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