ADVANTAGES OF DEPARTMENTAL ACCOUNTING

ADVANTAGES OF DEPARTMENTAL ACCOUNTING

The main advantages of departmental accounting are as follows:

1. Evaluation of performance : The performance of each department can be evaluated separately on the basis of trading results. An endeavour may be made to push up the sales of that department which is earning maximum profit.

2. Growth potential of each department : The growth potential of a department as compared to others can be evaluated.

3. Justification of capital outlay : It helps the management to determine the justification of capital outlay in each department.

4. Judgement of efficiency : It helps to calculate stock turnover ratio of each department separately, and thus the efficiency of each department can be revealed.

5. Planning and control : Availability of separate cost and profit figures for each department facilitates better control. Thus effective planning and control can be achieved on the basis of departmental accounting information.

Basically, an organisation usually divides the work in various departments, which is done on the principle of division of labour. Each department prepares its separate accounts to judge its individual performance. This can improve efficiency of each and every department of the organisation.