Significance of Departmental Accounting

Signifi fuckce of De go againstmental AccountingThis cross has d champion on wide research of pecuniary history. This report has five purposes. First erupt includes subdivisional novels report system and its importee. Second part lay downs a calculation for a given question. Third part includes four fundamental method of accounting beliefs such(prenominal) as acquittance de none, matching concept, discretion and consistency with examples. Forth part includes ingestionrs and gives of monetary accounting and statements. Finally fifth part founds a signifi deposece of topical anesthetic connection for line of credites and corporate friendly g all overnance, how it began and its importance.1.0 Departmental AccountsDepartmental accounts whitethorn be stated as a procedure of handwriting-keeping and accounting, the reason of which is to mother how much dough (or passing play) is make by from individually one section or department of a telephone line. In thi s context the term department government agency an income do department, as dealing outcomes will non be obtained for non- taxation fashioning department for example maintenance, trading or caution, etc. (Pendlebury Groves, 2004).If an enterprise act of five independent activities, or is divided into five departments, for carrying on disassemble functions, its management is generally involved in finding out the works outcomes of to each one department to ascertain their relative efficiencies. This potbelly be do likely only if departmental accounts ar prep ard. Departmental accounts argon of great(p) help and assistance to the managements as tuition for commanding the enterprise more than intelligently and effectively, since thereby all winsomes of waste either of material or of variety show are readily detected furthermore attention is drawn to inadequacies or inefficiencies in the working of departments or units into which the enterprise may be divided (Pendl ebury Groves, 2004).Signifi fecal matterce of Departmental AccountsPreparation of Departmental accounts is helpful to the line of work in the following respectsEasy to comparing the act of each departmentsDepartmental accounts enable the taskes to compare the performance of one department with another(prenominal) department. It as well as helps an boldness to rank departments development their earning harbors.The overall moolah on gross revenue, namely RM 490,000 on a turnover of RM 2,730,000 is probably quite fit yet in the absence of departmental accounting the loss incurred by Department C and D would not be revealed.Easy to guess departmental growthDepartmental accounting helps an transcription to evaluate each departmental growth separately on the basis of trading pass ons over period of time. An endeavour may be made to push up the sales of the department which is earning maximum put on. To explain it further here is an allegoryThe above table shows an individua l return growth of ABC organisation for three years. mathematical product D is a continuous loss do intersection whereas other products such as profit for product C is continuously decreasing over a period of time. Using departmental accounting for this organisation became easier for management to evaluate the performance of these products.Decision devisingDepartmental accounting makes it simplier for management to make conclusions if they are having more than one product, they ass actually forecast the future performance of a product. to the highest degree of the time decision includes some questions such as whether a product is profitable or not, if the product is not profitable whether they should continue to modernize 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 whether they should continue to produce these five products establish on their growt h 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 whether they should produce product D or they should eliminate this product. what is more they can rank the product based on their profits. For example Product B is the virtually profitable product.Easy to prepare departmental budgetDepartmental budgeting assists an organisation to prepare budgets for each department. A budget jibes that an organisation can pay for comprises for all products and dont cook risk of spill into debt to keep contrast running. To construct a complete budget, an enterprise moldiness go out how to set aside finances for each department and attend how each department works simultaneously to make up the complete plan.ABC organisation can actually evaluate whether they can relent these departments or not. If we compare Department B and Department C, thus B is a profitable department whereas C is loss making de partment. instantly the management admit to decide whether they can afford expenses for Department C in next year or not beca do they are not sure whether it can generate profit or not in next.3.0 Four Fundamental Accounting Concepts3.1 Going Concern ConceptThe going mention concept assumes that barter will persist with its art activities in the foreseeable future thus the accountant will not aver that there is a desire to edit back on fear operations or an intention to liquidate. The significance of this concept is that items should be treasured not at their break-up think of but at their net book note prise, based on the estimation of the speak to of the depreciation provision. Without this assumption, preparation of the counterpoise sheet would be much more difficult (Pizzey, 2001).Examples of going concern conceptThe RM 2.6 posterion descent for Sara Ltd in 2012 is reported at the cost originally paid to purchase the inventory. This is a reasonable figure because , in the normal course of business, Sara Ltd can expect to sell the inventory for this amount, irrefutable some profit. But if it were assumed that Sara Ltd would go out of business tomorrow, the inventory would suddenly be worth a lot less. The going concern concept allows the accountant to record assets at what they are worth to a corporation in normal use quite than what they would sell for in a liquidation sale (Pizzey, 2001).Another example is fix assets, we show fixed asset at cost less depreciation to rather their current value in the second-hand market, because they are held by the firm not for immediate resale, but to be employ by the business until their working life is over. This is clearly an assumption on which the balance sheet is based (Pizzey, 2001).Before the accounts are certified as showing a dependable and fair view, the auditor must be satisfied that the company is a going concern and that it will continue to function successful in the future (Pizzey, 2001 ).This the profit measurement calculation is insulated from fluctuations in the value of fixed assets, and the spread of the capital cost of an asset over the years of its serviceable life, by depreciation, is resisted by this principle (Pizzey, 2001).3.2 Matching conceptThis is sometimes called the accruals principle. Its purpose is to match effort to accomplishment by setting the cost of resources utilize up by a certain activity against the revenue or benefits received from that activity. When a profit statement is compiled, the cost of the sobers interchange should be set against the revenue from the sale of those healthys, even though securely currency has not yet been received. Expense and revenue must be matched up so that they concern the same beloveds and time period, if a true profit is to be computed. Costs concerning a future period must be carried forward as a prepayment and aerated in that period, and not charged in the current profit and loss account. Expense s of the current period not yet entered in the books must be estimated and inserted accruals (Pizzey, 2001).Example of matching conceptJason pays rent for his guest house of 1000 RM per year, in a intumescency sum at the end of the year. If he did not use the accruals concept, accounts would show zero rent expenses for the first eleven months of operation and then a heavy rent expense at the end of the 12th month. In order to show more realistic and accurate monthly profit and loss accounts, he should accrue the sum of RM 1000/12 and then adjust for any differences at the end of the year.3.3 Prudence ConceptThe prudence concept is much referred to as the conservatism concept. The preparation of accounts requires judgements to be made close the future and because of the uncertainties associated with this a prudent or cautious nuzzle is required profit determination. Under this concept all pass judgment losses should be interpreted into account immediately they are known about, whereas expected gains are not recognised until actually realized. An example of the widespread use of the prudence concept is closing memory board valuation. The normal rules is that closing stock should be valued at cost but if the market value of the stock falls below cost then the market value should be used. This is the lower of cost or net realizable value that is generally applied to stock valuations (Pendlebury Groves, 2004).The prudence concept is clearly reusable in terms of preventing over-optimistic calculations of profit to be reported. Overstatement of profit dexterity lead excessive dividend payments being made or to incorrect investiture decision being taken. However, the concept of prudence should not be taken to excess because the netherstatement of profit which would result might be just as misleading as overstatement and might discourage enthronisation unnecessarily (Pendlebury Groves, 2004).3.4 Consistency ConceptIn accounting there are often several acce ptable ways of determining asset values and the symmetry of the cost of assets that should be borne by each accounting period. The consistency concept requires there to be consistency if treatment of like items within each accounting period and from one period to the next. In other wrangle once one of the generally accepted method actings is chosen then the method should usually be used consistently from year to year (Pendlebury Groves, 2004).However, if there are compelling and justifiable reasons for changing the method of valuing a finicky item. E.g. closing stock, then this is permitted under the consistency concept, but the impact of the change on current year profit and the impact the change would have had on accounts of the previous year should be reported to provide comparing (Pendlebury Groves, 2004).4.0 Users and Uses of financial statements and accounting studyThere are different kinds of users of financial statements. The users of financial statements may be inside or outside the business. They use financial statements for a large variety of business purposes and their ability to understand and analyse financial statements helps them to succeed in the business world.4.1 Classification of Users of monetary accounting InformationThe five users of financial statements are classified and explained as followsInvestorsInvestors are concerned about risk and return in similitude to their investments. They require instruction to decide whether they should continue to invest in a business. They similarly need to be able to measure out whether a business will be able to pay dividends, and to measure the overall performance of the business management (Riley, 2012).CustomersCustomers require data about the ability of the business to survive and prosper. As customers of the companys products, they have a long-term interest in the companys range of products and services. They may even be dependent on the business for certain products or services (Rile y, 2012).EmployeesEmployees are seeking security of usage and a return for the work they do. Employees would therefore be looking for indications that the company is doing well plenty to continue to trade into the future and is doing well enough to continue to employ them and is able to meet the salary and wages bill each month. If there is any profit or performance think component to the remuneration they will also be interested in the company performance and how close it is to triggering the bonus payments (Riley, 2012).GovernmentThere are many government agencies and departments that are interested in accounting breeding. For example, the IRCE demand information on business profitability in order to impose and collect Corporation Tax. For example Various regulatory agencies (e.g. the Competition citizens committee and the Environment Agency) need information to support decisions about takeovers and grants (Riley, 2012).BankersThe banks are a common source of short term fun ds for an organisation, and the place where cash is deposited as it is received. If the bank gives contribute to the company then 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 company is and how good it is being managed will be important areas they will look at. In the case of grim businesses this will revolve around the faith they have in the owner/manager (Riley, 2012).4.2 Classification of uses of financial accounting informationAccounting provides companies with various pieces of information regarding business operations. It is often conducted by a companys internal accounting department and reviewed by a public accounting firm. Small businesses often have significantly less financial information recorded during the accounting run. However, business owners often review this financial information to determine how well their business is operating. Accounting information can also provide in sight on growing or expanding current business operations (Vitez, 2012).Performance ManagementA common use of accounting information is measuring the performance of various business operations. While financial statements are the classic accounting information tool used to assess business operations, business owners may conduct a more positive summary of this information when reviewing business operations. Financial ratios use the accounting information reported on financial statements and break it down into leading indicators. These indicators can be compared to other companies in the business environment or an industry standard. This helps business owners understand how well their companies operate compared to other established businesses (Vitez, 2012). bring out Budgets business enterprise owners often use accounting information to create budgets for their companies. historical financial accounting information provides business owners with a detailed analysis of how their comp anies 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 their businesses. These budgets can also be adjusted based on current accounting information to ensure a business owner does not restrict outgo on critical economic resources (Vitez, 2012).Business DecisionsAccounting information is ordinarily used to make business decisions. Decisions may include expanding current operations, using different economic resources, purchasing new equipment or facilities, estimating future sales or reviewing new business opportunities. Accounting information usually provides business owners information about the cost of various resources or business operations. These be can be compared to the potential income of new opportunities during the financial analysis process. This process helps business owners understand how current business operations will be requireed when expa nding or growing their businesses. Opportunities with low income potential and high cost are often rejected by business owners (Vitez, 2012).Investment Decisions international business stakeholders often use accounting information to make investment decisions. Banks, lenders, venture capitalists or private investors often review a companys accounting information to review its financial health and operational profitability. This provides information about whether or not a small business is a shrewd investment decision. Many small businesses need external financing to scratch line up or grow. The inability to provide outside lenders or investors with accounting information can severely limit financing opportunities for a small business (Vitez, 2012).5.0 Why company is important for an organisationA topical anesthetic community is a group of interacting people sharing an environment. In humanity communities, intent, belief, resources, preferences, needs, risks, and a number of oth er conditions may be present and common, change the identity of the participants and their degree of cohesiveness (Post, Lawrence, Weber, 1999).Business activity occurs within a community, and it is important that the community is considered in major business decisions. Businesses face community in different roles such as they could be potential employees and customers who can help the organisation be successfully. Without the community there would be no business. Community can influence business in different manners such as (Post, Lawrence, Weber, 1999)Customers as a communityCommunity can reducing demand for an organisations product because customers are also a part of community. If businesses affect community in a negative manner such as providing low quality product, harming environment by pollution and so on, then customers as a part of community will prick reducing their demand for that accompaniment businesses product. If demand for their product will decrease then the company would be making a proficient loss and without making profit, an organisation cannot survive (Taylorr, 2010).Employees as a communityEmployees are also a part of community and they also have a power to influence an organisation. If an organisation does not play a good role in community, then employees can actually strike or stop working in that organisation. Labour strike is a serious problem for an organisation because it can reduce the output. Reduction in production can also be a loss making postal service for an organisation (Taylorr, 2010).Investors as a communityInvestors also play a role as a community for an organisation. By having a liberal two-base hit in community, it stops investors to invest in particular businesses because investors are concern with their return on investments. If an organisation has a bad stunt man on community, chances are high for decrease in stock value of an enterprise, which will effect investors decision of investing in a particula r organisation (Taylorr, 2010).There are many other reasons which create a value of a local community for an organisation while making decisions. The best idea for survival of an entity is to have a good birth with local community.5.1 Corporate Social ResponsibilityCorporate social obligation means that a corporation should be held accountable for any of its actions that affect people, their communities, and their environment it implies that negative business impacts on people and society should be acknowledged and corrected if at all possible. It may require a company to forgo some profits if its social impacts are soberly harmful to some of its stakeholders or if its funds can be used to promote a positive social good (Post, Lawrence, Weber, 1999).5.1.1 How corporate social accountability beganIn the United States, the idea of corporate social duty appeared around the turn of the twentieth century. Corporation at that time came under attack for being too big, too powerful, an d guilty of antisocial and anticompetitive practices. Critics assay to curb corporate power through antitrust laws, banking regulations, and consumer-protection laws.Faced with this kind of social protest, a few farsighted business executives advised corporations to use their power and influence voluntarily for huge social purposes rather than for profit alone. Some of the richesier businesses leaders for example steelmaker Andrew Carnegie became great philanthropists who gave much of their wealth to educational and charitable institutions. Other like, automaker Henry Ford, developed paternalistic programs to support the recreational and health needs of their employees. The point to emphasize is that these business leaders believed that business had a state to social that went beyond or worked in parallel with their efforts to make profits (Post, Lawrence, Weber, 1999).As a result of these early ideas about businesss expanded role in society, two broad principles emerged which are The Charity Principle and The Stewardship Principle. These principles have shaped business view about social responsibility during the twentieth century and are the base stones for the modern ideas of corporate social responsibility (Post, Lawrence, Weber, 1999).5.1.2 Importance of Social plaque in businessesAn easy way to build its brand, reputation and public penBeing socially answerable creates goodwill and a positive image for an organisation. Trust and a good reputation are some of companys most valuable assets. In fact, without these, one wouldnt even have a business. integrity can nurture these important assets by being socially trusty (Taylorr, 2010).It is however, crucial that an organisation devise the right socially responsible program for their business. When used properly, it will open up a myriad of new relationships and opportunities. Not only will an association success grow, but so will companys culture. It will become a culture which an entity, its sta ff and the wider community genuinely believe in (Taylorr, 2010).It attracts and retains staffSocially responsible companies report increased employee commitment, performance and job satisfaction. By attracting, retaining and engaging staff, doing well for others reduces an organisations recruitment costs and purifys work productivity (Taylorr, 2010).It attracts more customersBranding business as socially responsible differentiates it from competitors. The Body Shop and Westpac are companies who have used this to their advantage. Developing innovative products that are environmentally or socially responsible add values and gives people a good reason to demoralise from that organisation (Taylorr, 2010).It attracts more investorsInvestors and financiers are attracted to companies who are socially responsible. These decision-makers know this reflects good management and a positive reputation. Businesses should not underestimate this influence it can be just as important as a companys financial performance. In fact, it may be the deciding factor in choosing to support company (Taylorr, 2010).It encourages professional and personal growthEmployee can develop their leadership and project management skills through a well-designed corporate social responsibility program. This may be as simple as team make exercises, encouraging employees to form relationships with people they would not normally meet (Taylorr, 2010).It helps to cut business costsEnvironmental initiatives such as recycling and conserving vigor increase in-house efficiency and cut costs. Introducing a corporate social responsibility program gives an organisation a good reason to examine and improve on its spending (Taylorr, 2010).6.0 ConclusionAfter conducting this report we have get that departmental accounting is irresponsible for an organisation with more than one department because it make business activities more effective. Another thing we have look at is it very important for a survival in a local community to perform corporate social responsibilities, without doing right for community its hard for an organisation to survive in long term. Furthermore we have learnt that it is compulsory for businesses to apply fundamental concepts while preparing financial statements.