DEPARTMENTAL

ACCOUNTS
P R E S E N T E R N A M E - TA N I S H A D O S H I

R O L L - 111
 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.
he Department accounts are the set of accounts prepared to evaluate each
department or division’s operational performance and trading results. These are
prepared at any given time to evaluate the earning capacity and find the
operational leakage.
Where a huge business with various trading activities is conducted under one
roof, it is generally divided into a number of departments and each department
deals with a particular kind of goods or service.

•
Overview
Advantages of Department Accounts:

The main advantages of Departmental accounting are as follows:

a) It provides an idea about the affairs of each department.

b) It helps to evaluate the performance of each department.

c) It helps to reward the Departmental mangers and staff on the basis of performance.

d) It facilitates control over the working of each department.

e) It helps to compare the result of one department with those of other departments.

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

g) It will help in the preparation of departmental budgets.

h) It helps to calculate stock turnover ratio of each department.

DEPARTMENTAL ACCOUNTING (MANNER)

Sales Return - The seller records this return as a debit to

a Sales Returns account and a credit to the Accounts
Receivable account; the total amount of sales returns in
this account is a deduction from the reported amount of
gross sales in a period, which yields a net sales figure.
The credit to the Accounts Receivable account reduces
the amount of accounts receivable outstanding.
Purchase return- occurs is when the buyer of
merchandise, inventory, fixed assets, or other items sends
these goods back to the seller. Excessive purchase returns
can interfere with the profitibality of a business, so they
should be closely monitored.

Stocks-the structure of a journal entry for the cash sale of

stock depends upon the existence and size of any par
value. Par value is the legal capital per share, and is
printed on the face of the stock certificate. If you are
selling common stock, which is the most frequent
scenario, then record a credit into the Common Stock
account for the amount of the par value of each share
sold, and an additional credit for any additional.
DEPARTMENTAL ACCOUNTING (MANNER)
Expense- An expense is the reduction in value of an
asset as it is used to generate revenue. If the
underlying asset is to be used over a long period of
time, the expense takes the form of depreciation, and
is charged ratably over the useful life of the asset. If
the expense is for an immediately consumed item,
such as a salary, then it is usually charged to expense
as incurred.

Indirect expenses- those expenses that are incurred

to operate a business as a whole or a segment of a
business, and so cannot be directly associated with a
cost object, such as a product, service, or customer. A
cost object is any item for which you are separately
measuring costs.

Direct expense- Direct expense is an expense

incurred that varies directly with changes in the
volume of a cost object. A cost object is any item for
which you are measuring expenses, such as products,
product lines, services, sales regions, employees, and
customers.
 Allocation of Indirect Expenses
EXPENSES TO BE ALLOCATED BASIS OF ALLOCATION

1. Freight , inward, octroi etc 1. purchases of each department

2. Rent , taxes , repairs of building 2. floor area of each department

3. Lighting 3. No. of points in each department

4. sales of each department and salaries of each

4. power department

5. Depreciation , repairs 5. Hours worked at each department

6. Staff welfare 6. Material consumed by each by each department

Inter-Departmental transfer

•Transfer
value •Stock
Reserve
Balance
•Many
Sheet
departments
•Entry for
stock
reserve

•Entries for
transfer
Transfer Value
Transfer price, also known as transfer cost, is the price at which related parties transact with each other, such
as during the trade of supplies or labor between departments. Transfer prices may be used in transactions
between a company and its subsidiaries, or between divisions of the same company in different countries.
STOCK RESERVE

Unrealized profit included in unsold stock at the end of

accounting period is eliminated by creating an appropriate stock
reserve by debiting the combined Profit and Loss Account. The
amount of stock reserve will be calculated as:

Transfer price of unsold stock x Profit included in transfer price

Transfer price
 BALANCE SHEET
A balance sheet is a financial statement that reports a
company's assets, liabilities, and shareholder equity. The
balance sheet is one of the three core financial statements
that are used to evaluate a business. It provides a snapshot
of a company's finances (what it owns and owes) as of the
date of publication.
This statement is a great way to analyze a company’s
financial position. An analyst can generally use the
balance sheet to calculate a lot of financial ratios that
help determine how well a company is performing, how
liquid or solvent a company is, and how efficient it is.
Changes in balance sheet accounts are also used to calculate
cash flow in the cash flow statement. For example, a positive
change in plant, property, and equipment is equal to capital
expenditure minus depreciation expense.
 Entry Of Stock Reserve
• The entry adjust the stock reserve is made by the concern in the general P & L as follows
profit & loss account A/C Dr
profit & loss account A/C Dr
To
Tostock
stockreserve
reserve A/C Cr
Cr
(being the reserved created for unrealized profits included in closing stock)
(being the reserved created for unrealized profits included in closing stock)
 Entries for Transfer

Sometimes it is necessary to transfer an amount or balance of one account to some other account. We do this by means of a transfer journal entry in
the Journal Proper. We use a Transfer Journal Entry to allocate an expense or revenue from one account to another. It is used to transfer funds
between object codes within an account or sponsored project.

To fix a classification mistake in the original accounts.

An object outstanding under the Debt, Deposit, or Remittance head to be
adjusted by debit or credit to its proper head.

To make daily modifications.

To arrange payments of
assistance grants or loans to
state governments .
Structure Of Profit And Loss
Statement

A profit and loss statement (P&L), or income statement or

statement of operations, is a financial report that provides a
summary of a company’s revenues, expenses, and
profits/losses over a given period of time. The P&L
statement shows a company’s ability to generate sales,
manage expenses, and create profits. It is prepared based on
accounting principles that include revenue recognition,
matching, and accruals, which makes it different from the
cash flow statement.
 Illustration

From the following balances extracted

from the books of a firm, prepare
Departmental Trading and General
Profit and Loss Account for the year
ended 31st December 2005 and a
Balance Sheet as on that date after
adjusting the unrealised departmental
profits, if any.
Profit and loss
statement
Additional information:

1. Closing stock of Dept. A – Rs 13,000 including goods

from Dept. B Rs 4,000 at cost to Dept. A.

2. Closing stock of Dept. B – Rs 26,000-including goods

from Dept. ARs 9,000 at cost to Dept. B.

3. Sales Dept. A includes transfer of goods to Dept. B of

the value of Rs 20,000 and sales of Dept. B includes
transfer of goods to Dept. A of the value of Rs 30,000
both at market price to transferor departments..

4. Depreciate land and buildings by 5% and furniture by

10% p.a.
N.B. There is no need for any adjustment for opening
stock which includes inter-departmental transfers. This is
because goods have been valued at cost to the transferor
department and not to transferee departments.
Departmental accounting is a system of
accounting which maintains a separate book of
account for every department or branch of a
business enterprise. It is one where accounts are
prepared and maintained for different
departments of an organization on an individual
basis for evaluating their results in a fair
manner. These individual books of account are
then consolidated together with accounts of
head office for preparation of financial
statements of business.