Principles of Accounting. Departmental Income Statements. Help Lesson #7. By Laurie L. Swanson. Departmental Accounting. Companies can be divided into departments for more effective management and control. Departmental Accounting.
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Companies can be divided into departments for more effective management and control.
This presentation provides a simplified discussion of departmental accounting and departmental income statements.
You are probably familiar with some of the departments of discount retail superstores such as clothing, groceries, electronics, auto supplies, and the list continues.
Departments also include the accounting department, purchasing, administration, human resources, and the list goes on.
The purpose of departmental accounting is to provide management with information used to evaluate the profitability or cost effectiveness of each department as well as to help set up responsibility centers to assign costs to department managers.
Reports for departmental accounting may vary by company and management needs, but one important tool is the Departmental Income Statement.
To see the importance of the information provided by a Departmental Income Statement, look at the example for Doing Fine Company.
Upon looking at the Income Statement for Doing Fine, you might say that the company is in good shape.
Are there any areas that require attention at Doing Fine?
To determine the answer to that question, take a look at the Departmental Income Statement for Doing Fine.
While Doing Fine is making a profit overall, the Housewares Department has a net loss. This points out an area that management needs to look into to see what, if any, changes need to be made in this department.