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Departmentalized Accounting

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Banagher Links

on 9 June 2010

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Transcript of Departmentalized Accounting

Departmentalized Accounting Herbert Wong
Mr. A. Sinisi
Tuesday, June 08, 2010 An
accounting system
for a common
business system What's departmentalization? Departmentalization is a method used in most business which:

o Organizes the company into parts

• o Groups employees together with similar specializations

• o Allows for easier management of each part of the business

• o Each department functions mainly autonomously
・The actions of one department will affect another

• o Increase the efficiency of the company overall
Why departmentalize? What types of departments are there? 1. Revenue earning departments

Departments whose main role is to
earn the revenue for the company.

There are usually only a few
revenue earning departments. Sales Consulting Services Repair Services Ticket Sales Investments 1. Expense incurring departments

The function of these departments
is to increase the profitability
of the revenue earning departments

For example, the advertising department
may help increase sales for the sales

There are usually more expense incurring
departments compared to revenue earning departments. Human Resources Advertisement Research & Development Production Control Purchasing Internal Share Services As an accountant, you will inherit or design a department system for the company.

You will designate the names, size, as well as the function of these departments.

You will also have to come up with a system to account for each department What does that have to do with accounting? How does departmental accounting function? Accounting for a departmentalized business may be an advantage or a hassle, depending on the system implemented. In some traditional departmental accounting systems, each department submits financial reports to the head accounting office. For Accenture, the accounting system is completely computerized. The numbers are verified monthly by its respective department and submitted to the corporate level every quarter.

From there the financial statements are prepared and decisions are made by the head office. How does a company decide on the accounting system? As an accountant, you are responsible for implementing an accounting system that works with the departmental system of the company.

You will choose how the financial reports are created as well as how they will be managed within the company.

In Accenture's case, they use computer software to record the information and each department manages their own records. How does the financial information from every department impact the decisions made by head office? The financial reports are used to:
o Determine the profit picture of the department
o Decide the budget allocation for each department
o Create official financial statements
How does head office determine budget allocation? In a merchandise business, if there is an increase in sales, head office may wish to allocate more budget to advertising to increase the revenue of the sales department.

If there is a decrease in sales, head office may wish to allocate more budget to the research department to develop better products. The budget allocation depends on the functionality of the department and how it aids in the overall profitability of the company.

In addition to the financial reports from each department, the current market trend is also important in determining the budget allocation within a departmentalized company. A proper accounting system needs to be implemented in order to identify the impact each department has on the overall company. Summary Questions Which of the following is not a department name?
1. Human Resources
2. Section 9
3. Engineering
4. Electronics Sales Are expense incurring departments bad?
If you were a global corporation, would you want one single head accounting department, or each department to manage their own accounting?
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