INTRODUCTION: - When a business
deals in different finds of articles or services under one roof, it is divided into number of divisions which are known as departments.
This is generally done to have smooth and efficient running of business. A
department is a physical part of the rest of the business. It is like
decentralization of business activities. Each department is given freedom to
take decision relation to purchases, pricing, adding of new products ect. The
accounting system is so devised as to enable the management to find out
turnover, expenses and profit of each department separately.
OBJECTIVES:- When all the
divisions of a business are located under one roof and separate trading, profit and loss accounts of various departments of an
organization are prepared, the information available there from is helpful to
the management to find out relative performance of departments. The following
are the objectives of departmental accounting.
2)
To determine the profitability of each department and compare it
with previous year’s result and also with the other departments of the same
concern.
3)
To provide information regarding which department has high
operation expenses so that policy may be formulated to control such expenses.
4)
To help the management in deciding which department shall be
expanded to maximize profitability of the business.
5)
To
provide information regarding improving efficiency of departments with lower
profit or losses.
6)
Which
departments are to be closed because of lower sales volume and high operating
costs.
7)
When departmental manager’s are to be paid commission on the
basis of profit achieved by their department.
8)
To generate information which may be helpful for planning,
control, evaluation of their departments.
9)
To help the proprietor in formulating policy to expend the
business on proper lines so as to optimize the profits of the concern.
10)
When a business is dealing in different types of goods or
services, it is not enough to prepare one trading profit and loss account for
the entries business. It may show profit made by the whole business but still
there may be loss in some of the departments which reduces the overall profits
of the business. Such departments must be closed down. Because of this reason
separate trading profit and loss account of each department shall be prepared.