Departmental Accounting Study material financial accounting (ICAI)

 

DEPARTMENTAL ACCOUTNING 

Meaning of departments

Department refers to activity center (profit or cost centre) usually located in the same roof but carrying distinct type of activities.

Meaning of Department and Departmental Accounting

• Department accounting or departmental accounting is a system of financial accounting.
• which is used in the organizations whose all works are done through their different departments or departmental stores.
• Departmental accounts are prepared separately for each department and trial balance will also be prepared.
• Departmental P&L Account is prepared to ascertain the profit or loss of each department separately and at the end of the year it is transferred to General profit and loss account of the whole organisation.

Objective of Departmental Accounting

• To have comparison of the result
• To help the formulating policy
• To allow Wages, commission, bonus of worker
• To generate information for planning and control

Advantage of Departmental Accounting

• Evaluation of performance
• Growth potential of each department
• Justification of capital outlay in each department
• Judgment of efficiency
• planning and controlling

Methods of Departmental Accounting

• Accounts of all departments are kept in one book only
• Separate set of books are kept for each departments
  

Types of Departments

• Dependent Departments
• Independent Departments

Dependent Departments

Department which transfer goods from one department to another department for further processing are called dependent departments.

Independent Departments

Departments which work independently of each other have negligible inter –department transfer are called independent departments

Allocation of expenses

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