SS1 Third Term Financial Accounting Lesson Note – Departmental Account

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WEEK 6

DEPARTMENTAL ACCOUNT

Content:

• Introduction to department account: meaning, needs, basis of apportionment
• Preparation of Departmental account and inter-departmental transfer

These are accounts relating to the departments or division of a business which desire to have a separate result of each department to ascertain the strength or weakness of individual departments.

ADVANTAGES OF DEPARTMENTAL ACCOUNT

NEEDS AND PURPOSES OF DEPARTMENTAL ACCOUNT:

• To determine the trading result of each departments.
• To compare the performance of each department to identify the weak and strong division.
• To help the proprietor formulate policy
• It is easier to separate the operation because it shows which department has most profit
• Errors can be easily detected.
• Helps to reward or reprimand departmental manager based on result.
• To ascertain the contributions of each department to the overall profit or loss
• Provide information for the remuneration of the departmental manager based on result
• Help in monitoring the progress of each department
• Gross profit of each department can easily be obtained

ALLOCATION OF EXPENSES:

1. Expenses incurred for one department: Any expense specifically incurred on behalf of department will be charged to that particular department
2. Expenses incurred on behalf of all the departments: Any expenses incurred for the benefit of all department not capable of precise allocation will be treated with any of these Methods/Bases:
3. Turnover basis
4. Floor area
5. Equality basis
6. Average stock held

TABLE OF APPORTIONMENT/ALLOCATION

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