Concept of departmental stores

Departmental Accounts are accounts relating to the several departments or sections of a business drawn up with view to ascertaining their individual performances. A business may have a number of departments each dealing in a different type of goods. For instance, Departmental Store is an example of large-scale trading by a retail trader.

In order to carry out business more efficiently, a businessman divides his store into many sections, each section is called a Department. In order to ascertain the profit or loss made by each department, it is desirable to prepare separate Trading and Profit and Loss Accounts for each department.

1. It enables to compare the performance of one department with that of another and to measure the progress of the department itself by comparing year-wise performance.
2. It enables the measurement of the profitability of each department. In the absence of departmental accounting, if there is a loss, the businessman thinks that the whole business is at loss. Thus, he may stop the business and may start a new business, because he is unable to understand the performance of each department. But, by preparing departmental accounts separately, the contribution of profit made by each department can be known. Thus, a good profit-making department can be developed and the department which gives a small margin of profit, or no profit can be closed down. It is also possible to check the profit of a department, not to be eaten away by the department which makes no profit.
3. It helps in formulating new policies and to adopt new and latest techniques in the departments, thereby further profitability of the department can be expected.
4. Departmental Managers of the profit-making department can be encouraged by adopting a method of commission on the basis of departmental profit. This step will further boost the profit-making department.

1. Independent Basis:

   In this method, accounts of each department are maintained separately. Each department prepares Trading and Profit and Loss Accounts. Finally, the profit or loss of each department is transferred to the (General) Profit and Loss Account for all the departments. The independent departmental book-keeping is an expensive one.

2. Columnar Basis:

   In this method, there is a single set of books. All accounts of all the departments are maintained together but in a columnar or tabular form. In order to enable the preparation of departmental trading and profit and loss accounts, various subsidiary books, such as purchases, sales, and returns books, are prepared in a columnar form and this shows the record, in detail, for each department.