of 10
8/10/2019 12006.Departmental Accounts
1/10
DEPARTMENTAL ACCOUNTS
8/10/2019 12006.Departmental Accounts
2/10
INTRODUCTION
A business is generally split up into number of
departments when it sells different types ofgoods. Department accounts are prepared toknow the working results of each department sothat necessary steps can be taken againstefficient and inefficient departments.Companies can be divided into departments formore effective management and control.
8/10/2019 12006.Departmental Accounts
3/10
8/10/2019 12006.Departmental Accounts
4/10
8/10/2019 12006.Departmental Accounts
5/10
ADVANTAGES OF DEPARTMENTAL ACCOUNTS
It helps the management to decide whether to drop thedepartment or add the new one.
The growth potential of the department as compared to others canbe evaluated.
More detailed information can be provided to the users of theaccounting information like the shareholders, investors, creditors
Departmental managers & staff can be rewarded properly on thebasis of results.
It helps the management to determine the justification of properuse of capital invested in each department.
It facilitates the comparison of expense items with those in other
departments & in the previous period. It helps to reveal fast or slow movement of items of stock by
calculating stock turnover ratio.
The overall profits of the organization can be increased by havingfriendly rivalry between different departments.
8/10/2019 12006.Departmental Accounts
6/10
METHODS OF DEPARTMENTAL ACCOUNTS
Where separate set of books are kept for each
department. Where accounts of all the departments are kept
together on columnar books.
8/10/2019 12006.Departmental Accounts
7/10
DEPARTMENTAL EXPENSES
DEPARTMENTAL EXPENSES
INDIRECT EXPENSES
Expenses which can beallocated
Expenses which cannotbe allocated
DIRECT EXPENSES
8/10/2019 12006.Departmental Accounts
8/10
ALLOCATION OF DEPARTMENTAL EXPENSES
Sr. No. EXPENSES BASIS
1. Travelling salesman salary & commission,
selling expenses, after-sales services, discountallowed, freight outwards, bad debts, provisionfor discount on debtors
Sales of each department
2. Rent & rates, insurance on building, repairs, airconditioning expenses, heating
Area or value of floor space
3. lighting Light points4. Insurance on stock Average stock carried
5. Insurance on plant & machinery Value of plant & machinery
6. Group insurance premium Direct wages
7. power H.P. Or H.P Hours worked
8. Depreciation, repairs & renewals Value of assets in eachdepartments
9. Canteen expenses& labour welfare expenses No. Of employees
10. Works managers salary Time spent in eachdepartment
11. Carriage inwards Purchases of each depart.
8/10/2019 12006.Departmental Accounts
9/10
DIFFERENCE BETWEEN BRANCH & DEPARTMENTAL
ACCOUNTS BASIS DEPARTMENTAL ACCOUNTS BRANCH ACCOUNTS
1.Maintenanceof accounts
All accounts are maintained at oneplace & departmental trading & P &L a/c is prepared accordingly.
All accounts are kept athead office except stock,cash & debtors registers.In case of independentbranch, all accounts arekept at branch & branch
prepares its own trading &P/L a/c.
2. Allocation ofcommonexpenses
Problem of allocation of depart.Expenses arises as depart. Are notgeographically separated.
This problem does notarise since branches aregeographically separatedfrom each other.
3. Adjustments& reconciliationof accounts.
It does not arise It may be required in caseof independent branch.
4. Problem offoreign currency
The problem of conversion offoreign currency into home
currency does not arise
The problem of foreigncurrency may arise in case
of foreign branches.
8/10/2019 12006.Departmental Accounts
10/10
INTER- DEPARTMENTAL TRANSFERS
Sometime prices are charged for goods or servicestransferred by one department to other. Transfer pricescan be cost based or market based or dual pricing
Under cost based transfer price, the price may be basedon actual cost, total cost or standard cost. Standard costis preferred over actual cost as inefficiency on onedepartment doesntpasses to another.
Under market based transfer price, price may be sellingprice to avoid passing on inefficiencies of one
department to another. Stock reserves are created. Under dual pricing, buying department is debited with
cost price & selling department credited with themarket price.
