Define Departmental Accounting. What are the basis upon which the joint expenses are allocated to different departments.
Meaning of Departmental:- Department are different segments of a business under the same roof. These departments or sections in a business house deal in different types of goods, products or services. These segments and sections are called departments. Departmental stores in big cities are an example.
Departmental retail stores like Super Bazaar, Apna Bazaar etc. have a number of departments such as Cosmetics, Kitchen articles, foods, medicine, clothes and beverages. All departments deal in different types of goods. However, accounts of these departments are managed under the one place as in the head office.
However, To measure the efficiency of different departments, profit or loss of each department has to be calculated. So all subsidiary books like sales book, purchase book, purchase return book and sale return book are maintained on column basis. departmental accounting
ALLOCATION OF EXPENSES
There are no hard and fast rules on which basis expenses are allocated in the departmental accounts. The following principles should be noted for this purpose.
( a ) Expenses Relating to a particular department are charged to the concerned department. For example:- Cost of special Raw materials charged to the specific department for which it is used.
( b ) Expenses relating to the benefit of more than one department, but capable of precise allocation are charged on the appropriate basis. For Example:- Paint used by different departments, on the basis of quantity used paint, Cost will be charged to the concerned departments.
( c ) Expense relating to the benefit of more than one department but not precisely allocation to the concerned department. Here expenses are allocated on some arbitrary basis. For Example:- Managers salary is to be apportioned on the basis of turnover or cost of sales.
BASIS OF ALLOCATION
There are some methods on which based expense allocated can be made within the different departments in the business. departmental accounting
| Joint ExpensePurchase Expense:- These expenses such as Carriage, Freight, Octroi, Discount Received etc. Allocation Such expenses allocation are made on the basis of ratio of departmental Net Purchases, Except inter-departmental purchases. |
| Joint ExpensesExpense on selling, such as salesman commission, Bad Debts, Discount Allowed, Advertisements, Carriage Outward etc. AllocationIt can be allocated on the basis of Net sales of different departments, Except interdepartmental sales. |
| Joint ExpenseExpense of land and Building such as Rent, Rates, Taxes, Repairs and Maintenance of Building and Depreciation. AllocationIt can be allocated on the basis of the area occupied by each Department. |
| Joint ExpenseExpense on Assets, Such as Depreciation, Repairs and Insurance of Assets. AllocationSuch costs can be allocated on the basis of values of Assets. |
| Joint ExpenseExpense on Electricity, Such as Lighting and Heating etc. AllocationOn the basis of units and points consumed by different departments. |
| Joint ExpenseCanteen Expense, Medical Expense and other labor welfare expenses. AllocationSuch expenses can be allocated on the basis of employees engaged in each department. |
| Joint ExpenseExpense as Provident Fund Contribution and E. S. I Contributions. AllocationSuch expenses can be allocated on the basis of wages of each department. |
| Joint ExpenseNon-departmental Expenses such as Interest on loan, Income Tax, Salary to General Manager, Share transfer Expenses and Bank Charges etc. AllocationSuch expenses can be allocated on the basis of general profit and loss of each department account in the business. |
Final Accounts
There are some Final Accounts which are prepared by the departmentals. departmental accounting
Trading And Profit and Loss Account:- This account can be made in Columnar based that separate Gross profit or Gross Loss and Net Loss and Net Profit Can be calculated. Such an account is prepared in the normal manner as in one business. Each department will be allotted one Column under the departmental Account.
General Profit and Loss Account:- There are some Expense and Incomes which cannot be charged directly to any departments like, General Expense, Miscellaneous Expense, audit fees, interest on loan, interest and dividend received etc. Net profit of different departments will be credited to this account such expenses or income which can’t be allocated will be debited in the General Profit and Loss account Which helps us to know overall profit or loss of the departmental stores.
Balance Sheet:- It is the summary of assets and liabilities of the departmental stores. But it is not prepared separately for each department. Assets and liabilities of all departments are shown in a collective mannar.
Conclusion:- Thus, each department’s costs will be allocated as per appropriate way on which based any department used services or materials. However, there are some other expenses and income which can’t be allocated directly to different departments but these are credited or debited to the General Reserve of Profit and Loss Account. Each department will be allotted a different column for calculating its profit and loss in the Trading account. departmental accounting
Essential questions of financial Accounting.
Difference between joint Venture and Partnership
Difference between Normal Loss and Abnormal Loss
Consignment Account Meaning and Treatment
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