Significance of Departmental Accounting

This report has done on large research of financial accounting. This statement has five parts. First part includes departmental accounting and its value. Second part shows a computation for confirmed question. Third part includes four important accounting ideas such as going concern, matching principle, prudence and steadiness with instances. Forth part includes users and uses of financial accounting and claims. Finally fifth part shows a need for local community for businesses and corporate interpersonal governance, how it commenced and its importance.

1. 0 Departmental Accounts

Departmental accounts may be mentioned as a procedure of book-keeping and accounting, the reason why of which is to find how much revenue (or damage) is manufactured by each section or section of a business. On this context the term 'department' means an income making department, as dealing effects will never be obtained for non-revenue making division for example maintenance, trading or management, etc. (Pendlebury & Groves, 2004).

If an business comprise of five 3rd party activities, or is split into five departments, for carrying on split functions, its management is normally involved in finding out the working benefits of each section to ascertain their relative efficiencies. This is made likely only if departmental accounts are prepared. Departmental accounts are of great help and assistance to the managements as information for commanding the organization more intelligently and effectively, since thereby all types of waste material either of material or of cash are quickly found; furthermore attention is drawn to inadequacies or inefficiencies in the working of departments or systems into which the enterprise may be divided (Pendlebury & Groves, 2004).

Significance of Departmental Accounts

Preparation of Departmental accounts is effective to the business in the following respects:

Easy to comparing the performance of each departments

Departmental accounts allow the firms to compare the performance of 1 department with another department. In addition, it helps an company to get ranking departments using their earning beliefs.

The overall income on sales, particularly RM 490, 000 over a turnover of RM 2, 730, 000 is probably quite adequate; yet in the lack of departmental accounting the loss incurred by Team C and D wouldn't normally be discovered.

Easy to evaluate departmental growth

Departmental accounting helps an company to evaluate each departmental growth separately based on trading results over period of time. An endeavour may be made to push in the sales of the team which is getting maximum profit. To explain it further here is an illustration:

The above stand shows a person product progress of ABC company for three years. Product D is a continuing damage making product whereas other products such as profit for product C is continually decreasing over a period of time. Using departmental accounting for this company became easier for management to judge the performance of these products.

Decision making

Departmental accounting makes it simplier for management to make conclusions if they are having several product, they can in fact forecast the near future performance of something. More often than not decision includes some questions such as whether a product is profitable or not, if the product is not profitable if they should continue to produce that product or just eliminate it, what would be consequences of eliminating a product. Here is a further interpretation using illustration 2.

Management can actually decide if they should continue steadily to produce these five products based on their progress over a period of time. Let say product D as this product is continuously making loss since 2009, it became easier for management to decide if they should produce product D or they must eliminate the product. Furthermore they can get ranking the product predicated on their profits. For example Product B is the most profitable product.

Easy to prepare departmental budget

Departmental budgeting facilitates an organisation to prepare budgets for every team. A budget ensures that an organisation can pay for costs for all products and don't have risk of going into arrears to keep business working. To construct an entire budget, an venture must learn how to set aside funds for each department and know how each department works concurrently to make up the full-scale plan.

ABC organisation can actually evaluate if they can afford these departments or not. If we compare Team B and Office C, then B is a profitable department whereas C is loss making team. Now the management have to decide whether they are able expenses for Section C in next yr or not because they are uncertain whether it can make earnings or not in next.


3. 0 Four Fundamental Accounting Concepts

3. 1 Heading Concern Concept

The going concern concept assumes that business will persist with its business activities in the foreseeable future; thus the accountant will not suppose that there's a desire to lessen on business operations or an goal to liquidate. The significance of this principle is the fact items should be valued not at their break-up value but at their world wide web book value, predicated on the estimation of the expense of the depreciation provision. Without this assumption, preparation of the total amount sheet would be much more difficult (Pizzey, 2001).

Examples of going concern concept

The RM 2. 6 billion inventory for Sara Ltd in 2012 is reported at the price originally paid to purchase the inventory. This is a reasonable body because, in the standard span of business, Sara Ltd can get to sell the inventory for this amount, and several income. But if it were assumed that Sara Ltd would walk out business tomorrow, the inventory would all of the sudden be worth much less. The going matter concept allows the accountant to record investments at what they are worth to a corporation in normal use alternatively than what they might sell for in a liquidation sale (Pizzey, 2001).

Another example is fixed belongings, we show set asset at cost less depreciation to rather their current value in the second-hand market, because they are performed by the organization not for immediate resale, but to be employed by the business enterprise until their working life is over. This is plainly an assumption on which the total amount sheet is situated (Pizzey, 2001).

Before the accounts are authorized as showing a true and fair view, the auditor must be satisfied that the company is a heading concern which it will continue steadily to function successful in the future (Pizzey, 2001).

This the income measurement computation is covered from fluctuations in the worthiness of fixed investments, and the pass on of the capital cost of an asset over the years of its useful life, by depreciation, is backed by this principle (Pizzey, 2001).

3. 2 Matching concept

This is sometimes called the accruals process. Its purpose is to complement effort to accomplishment by setting the price tag on resources used up by the certain activity contrary to the income or benefits received from that activity. When a profit declaration is compiled, the cost of the goods sold should be arranged against the income from the deal of these goods, even though cash has not yet been received. Price and earnings must be matched up in order that they concern the same goods and time frame, if a genuine profit is usually to be computed. Costs pertaining to another period must be transported onward as a prepayment and billed in that period, and not charged in today's profit and reduction account. Expenditures of the current period not yet inserted in the literature must be believed and placed accruals (Pizzey, 2001).

Example of corresponding concept

Jason pays rent for his visitor house of 1000 RM per season, in a lump amount by the end of the year. If he did not use the accruals strategy, accounts would show zero rent expenses for the first eleven months of procedure and then a heavy rent expenditure by the end of the 12th month. In order to show more genuine and accurate regular profit and reduction accounts, he should "accrue" the total of RM 1000/12 and then modify for any dissimilarities at the end of the year.

3. 3 Prudence Concept

The prudence theory is also known as the conservatism concept. The prep of accounts requires judgements to be produced about the future and as a result of uncertainties associated with this a wise or cautious strategy is required profit determination. Under this idea all expected loss should be studied into consideration immediately they are really known about, whereas expected increases are not accepted until actually recognized. A good example of the popular use of the prudence strategy is concluding stock valuation. The standard rules is the fact shutting stock should be valued at cost if the market value of the stock falls below cost then your market value should be used. This is actually the 'lower of cost or online realizable value' that is normally applied to stock valuations (Pendlebury & Groves, 2004).

The prudence concept is clearly useful in terms of protecting against over-optimistic calculations of income to be reported. Overstatement of revenue might lead increased dividend payments being made or to incorrect investment decision being considered. However, the idea of prudence should not be taken to surplus because the understatement of profit which would direct result might be in the same way deceptive as overstatement and may discourage investment unnecessarily (Pendlebury & Groves, 2004).

3. 4 Uniformity Concept

In accounting there are often several acceptable means of determining asset principles and the percentage of the expense of assets that should be borne by each accounting period. The steadiness strategy requires there to be uniformity if treatment of like items within each accounting period and from one period to the next. In other words once one of the generally accepted methods is chosen then the method should usually be used consistently from time to 12 months (Pendlebury & Groves, 2004).

However, if there are engaging and justifiable reasons for changing the method of valuing a specific item. E. g. shutting stock, then this is permitted under the consistency concept, however the impact of the change on current season revenue and the impact the change could have experienced on accounts of the prior time should be reported to provide comparability (Pendlebury & Groves, 2004).

4. 0 Users and Uses of financial statements and accounting information

There are different kinds of users of financial assertions. The users of financial assertions may be inside or outside the business. They use financial claims for a huge variety of business purposes and their potential to comprehend and analyse financial assertions helps them to achieve the business enterprise world.

4. 1 Classification of Users of Financial accounting Information

The five users of financial statements are classified and explained the following:


Investors are concerned about risk and return with regards to their investments. They require information to decide if they should continue steadily to invest in a business. In addition they need to be able to evaluate whether a business can pay dividends, and to measure the overall performance of the business' management (Riley, 2012).


Customers require information about the ability of the business to make it through and prosper. As customers of the business's products, they have a long-term desire for the company's selection of products and services. They could even be reliant on the business for several products or services (Riley, 2012).


Employees are seeking security of occupation and a return for the work they do. Employees would therefore be looking for indications that the business is doing sufficiently to keep to trade into the future and is doing well enough to continue to employ them and can meet the salary and income bill each month. When there is any income or performance related element of the remuneration they will also be enthusiastic about the business performance and how close it is to triggering the benefit repayments (Riley, 2012).


There are many government companies and departments that are enthusiastic about accounting information. For instance, the IR&CE needs information on business profitability to be able to levy and accumulate Corporation Tax. For example: Various regulatory organizations (e. g. the Competition Commission and the surroundings Firm) need information to aid decisions about takeovers and grants or loans (Riley, 2012).


The bankers are one common source of short-term funds for an company, and where cash is deposited as it is received. If the lender provides loan to the business they will be interested in the ability of the company to pay its interest and the loan amount back on the due dates. How profitable the business is and how good it is being managed will be important areas they will look at. In the case of smaller businesses this will revolve around the faith they may have in the owner/administrator (Riley, 2012).

4. 2 Classification of uses of financial accounting information

Accounting provides companies with various bits of information regarding business procedures. It is conducted by way of a company's inner accounting team and reviewed by way of a public accounting firm. Small businesses frequently have considerably less financial information recorded through the accounting process. However, companies often review this financial information to regulate how well their business is working. Accounting information can provide understanding on growing or increasing current business businesses (Vitez, 2012).

Performance Management

A common use of accounting information is measuring the performance of varied business businesses. While financial statements are the classic accounting information tool used to assess business operations, business owners may conduct a far more thorough analysis of the information when looking at business procedures. Financial ratios use the accounting information reported on financial assertions and break it into leading signals. These indications can be in comparison to other companies available environment or a business standard. This helps business owners know how well their companies operate compared to other set up businesses (Vitez, 2012).

Create Budgets

Business owners often use accounting information to generate budgets for his or her companies. Historical financial accounting information provides companies with an in depth evaluation of how their companies have spent money on certain business functions. Business owners often take this accounting information and develop future budgets to ensure they have a financial road map for his or her businesses. These budgets can even be adjusted predicated on current accounting information to ensure a business proprietor does not restrict spending on critical financial resources (Vitez, 2012).

Business Decisions

Accounting information is commonly used to make business decisions. Decisions may include expanding current businesses, using different financial resources, purchasing new equipment or facilities, estimating future sales or reviewing new business opportunities. Accounting information usually provides companies information about the cost of various resources or business businesses. These costs can be compared to the potential income of new opportunities through the financial examination process. This technique helps business owners know how current business businesses will be afflicted when growing or growing their businesses. Opportunities with low income probable and high costs are often rejected by companies (Vitez, 2012).

Investment Decisions

External business stakeholders often use accounting information to make investment decisions. Banking institutions, lenders, project capitalists or private traders often review a company's accounting information to examine its financial health insurance and operational profitability. This provides information about if a little business is a smart financial commitment. Many smaller businesses need external financing to get started on up or grow. The shortcoming to provide exterior lenders or traders with accounting information can severely limit financing opportunities for a tiny business (Vitez, 2012).

5. 0 Why community is important for an organisation

A neighborhood is a group of interacting people showing a host. In human communities, intent, perception, resources, personal preferences, needs, risks, and lots of other conditions may be present and common, influencing the personal information of the participants and their amount of cohesiveness (Post, Lawrence, & Weber, 1999).

Business activity occurs within the community, and it is important that the community is known as in major business decisions. Businesses face community in several roles such as they may be potential employees and customers who can help the organisation be successfully. Without the community there would be no business. Community can effect business in different manners such as (Post, Lawrence, & Weber, 1999)

Customers as a community

Community can reduce demand for an organisation's product because customers are also an integral part of community. If businesses influence community in a poor manner such as providing poor product, harming environment by pollution and so on, then customers as a part of community will start lowering their demand for that particular businesses' product. If demand for their product will decrease then your company would be making a serious damage and without making income, an company cannot survive (Taylorr, 2010).

Employees as a community

Employees are also an integral part of community and they likewise have a power to influence an organisation. If an organisation will not play a good role in community, then employees can in fact strike or stop working in that organisation. Labour affect is a serious problem for an company since it can reduce the production. Reduction in production can even be a reduction making situation for an company (Taylorr, 2010).

Investors as a community

Investors also are likely involved as a community for an company. By having a terrible image in community, it can stop investors to purchase particular businesses because buyers are nervous about their go back on opportunities. If an company has a negative image on community, its likely that high for reduction in stock value of enterprise, that will effect investor's decision of purchasing a particular company (Taylorr, 2010).

There are many other reasons which make a value of a local community for an company while making decisions. The best idea for survival of your entity is to have a good marriage with local community.

5. 1 Corporate and business Social Responsibility

Corporate interpersonal responsibility means a corporation should be kept accountable for some of its activities that affect people, their communities, and their environment; it means that negative business influences on people and population should be acknowledged and corrected if possible. It may need a company to forgo some gains if its communal impacts are critically harmful to some of its stakeholders or if its funds may be used to promote an optimistic social good (Post, Lawrence, & Weber, 1999).

5. 1. 1 How commercial cultural responsibility began

In the United States, the thought of corporate sociable responsibility appeared around the flip of the twentieth century. Corporation at that time came under episode for being too big, too powerful, and guilty of antisocial and anticompetitive routines. Critics attempted to curb corporate ability through antitrust laws, banking legislation, and consumer-protection laws.

Faced with this type of communal protest, a few farsighted business professionals advised corporations to use their power and effect voluntarily for wide social purposes alternatively than for income alone. Some of the wealthier businesses leaders for example steelmaker Andrew Carnegie became great philanthropists who gave a lot of their riches to educational and charitable companies. Other like, automaker Henry Ford, developed paternalistic programs to aid the recreational and health needs of their workers. The point to focus on is these business leaders presumed that business experienced a responsibility to social that gone beyond or did the trick in parallel with their work to make gains (Post, Lawrence, & Weber, 1999).

As due to these early on ideas about business's broadened role in world, two broad key points emerged that happen to be: The Charity Concept and The Stewardship Principle. These ideas have designed business considering social responsibility during the twentieth century and will be the foundation rocks for the present day ideas of corporate and business cultural responsibility (Post, Lawrence, & Weber, 1999).

5. 1. 2 Need for Community Governance in businesses

An easy way to create its brand, reputation and public profile

Being socially responsible creates goodwill and an optimistic image for an organisation. Trust and a good reputation are some of company's most effective assets. Actually, without these, one wouldn't have even a business. You can nurture these important assets when you are socially liable (Taylorr, 2010).

It is however, essential that an company devise the right socially accountable program because of their business. When used properly, it will open up a myriad of new relationships and opportunities. Not merely will a link success grow, but so will company's culture. It will turn into a culture which an entity, its personnel and the wider community really believe in (Taylorr, 2010).

It allures and keeps staff

Socially responsible companies survey increased employee commitment, performance and job satisfaction. By attracting, retaining and participating staff, 'doing well' for others reduces an organisation's recruitment costs and increases work production (Taylorr, 2010).

It draws in more customers

Branding business as 'socially accountable' differentiates it from opponents. The Body Shop and Westpac are companies who've used this with their advantage. Developing innovative products that are environmentally or socially liable add values and provides people reasonable to obtain that organisation (Taylorr, 2010).

It draws in more investors

Investors and financiers are attracted to companies who are socially sensible. These decision-makers know this demonstrates good management and a good reputation. Businesses should not underestimate this affect; it can be just as important as a company's financial performance. In fact, it may be the deciding element in choosing to support company (Taylorr, 2010).

It stimulates professional and personal growth

Employee can form their leadership and job management skills through the well-designed corporate communal responsibility program. This may be as easy as team building exercises, pushing employees to form associations with people they might not normally meet (Taylorr, 2010).

It helps to trim business costs

Environmental initiatives such as recycling and conserving energy increase in-house efficiency and spend less. Introducing a commercial cultural responsibility program offers an organisation a good reason to look at and improve on its spending (Taylorr, 2010).

6. 0 Conclusion

After conducting this report we've learn that departmental accounting is compulsory for an company with an increase of than one section since it make business activities more effective. Another thing we've learn could it be very very important to a success in an area community to execute corporate social tasks, without doing right for community it's hard for an company to survive in long term. Furthermore we've learnt that it's compulsory for businesses to apply fundamental principles while planning financial statements.

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