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SolveYourProblem Article Series: Accounting
Home & Small Business Accounting

    

     

Keeping Business Records for
Multiple Departments

 

If you sell several different types of merchandise, you will find it helpful to organize your operations and your recordkeeping by departments. The primary purpose of this is to get a better picture of your operating results. Even though your overall operations may be profitable, you may find, by keeping departmental records, that one department is producing most of the profits while others are barely breaking even or perhaps even losing money. You can then attack the problem of what to do to improve the profit of the departments with a poor showing. You may even decide to drop a department or reduce its activities.

There are other advantages to keeping records by departments. Many statistics about typical operations are available through trade associations, governmental publications, and so on. These statistics can be very useful in finding weak spots in your own store's performance. But they are published on a departmental basis. Unless your business is largely a one-department operation, they would be useless for comparison with figures covering your whole store.

How far you want to departmentalize will depend on the size and nature of your business. A grocery store, for example, might have some or all of the following departments: fresh produce, meats, bakery products, dairy products, frozen foods, dry groceries, and taxable items (if you are in a jurisdiction where foods are not taxed). A drugstore, with the many products carried today, might have any number of departments. Don't overdo it, though. A specific type of merchandise or service should not be set up as a separate department unless the volume of sales justifies such a separation.

Departmental Purchases & Sales Record: The basic tool for breaking down your records by departments is a Departmental Purchases and Sales Record. When entering departmental purchases, the amount entered in total purchases of the Departmental Purchases and Sales Record should, of course, equal the sum of the amounts entered for the individual departments. It should also agree with the merchandise purchases for that day shown in a Cash Disbursements Journal.

The breakdown by departments is obtained by analyzing the invoices paid or set up as accounts payable. Each invoice should be marked to show to which department it is charged. In some cases, one invoice may be distributed to more than department. In that case, the amount charged to each department should be shown on the invoice.

Entering Departmental Sales: The breakdown of sales by departments is obtained from a Daily Summary of Sales and Cash Receipts or by analysis of sales checks and/or cash-register tapes. The amount entered in total-sales should equal the sum of the entries for the individual departments and should agree with the total sales for that day shown in the Sales and Cash Receipts Journal.

Other entries. Occasionally, an entry in the Departmental Purchases and Sales Record may be necessary to record transactions other than purchases or sales. For example, a refund from a vendor might be received and recorded in the Sales and Cash Receipts Journal as a reduction in purchases. Or a check might be drawn to a customer as a refund and recorded in the Cash Disbursements Journal as a reduction in sales. Since these entries are not routine, they should be entered on a separate line in the Departmental Purchases and Sales Record.

# # # # #

SolveYourProblem.com : 2007

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