THE EFFECT OF DEPARTMENTAL ACCOUNTING ON ORGANIZATIONAL PERFORMANCE
TABLE OF CONTENT
Table of content
1.1 Background of the study
1.2 Statement of problem
1.3 Research questions
1.4 Objective of the study
1.5 Significance of the study
1.6 Scope of the study
1.7 Definition of terms
2.2 conceptual review
2.3 empirical review
3.0 Research methodology
3.1 sources of data collection
3.3 Population of the study
3.4 Sampling and sampling distribution
3.5 Validation of research instrument
3.6 Method of data analysis
DATA PRESENTATION AND ANALYSIS AND INTERPRETATION
4.2 Data analysis
This study examines the effect of departmental accounting on organizational performance. 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. 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.
1.1 Background of the study
One of the goals of accounting is to report to management performance results, specifically financial performance. Since most businesses sell more than one product or render more than one service, management is interested in understanding the performance of the respective products or service. To successfully report this information, the accountant uses departmental accounting to divide the products or services into categories. Departmental Accounts are accounts relating to the several departments or sections of a business drawn up with a 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 carryout 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 Account for each department.
Departmental accounting is very effective in isolating both beneficial and underperforming aspects of any business operation. To appreciate its informative utility the accountant must first understand its scope and limitations. Its function within the income statement and why overhead is excluded from its use. Departmental accounting is a tool to break a businesses’ performance down into groups of information based on a product or service to evaluate that group’s overall contribution to the business. It is really an income statement (profit and loss statement) modification with accounting. Basically, it is limited to the revenue generated by that product/service and its direct cost. In effect, departmental accounting stops at the gross profit line for that respective product/service or location’s value. Departmental accounts may be stated as a procedure of book-keeping and accounting, the reason of which is to find how much profit (or loss) is made by each section or department of a business. In this context the term ‘department’ means an income making department, as dealing outcomes will not be obtained for non-revenue making department for example maintenance, trading or management, etc. (Pendlebury & Groves, 2004). If an enterprise comprise of five independent activities, or is divided into five departments, for carrying on separate functions, its management is generally involved in finding out the working outcomes of each department to ascertain their relative efficiencies. This can be made likely only if departmental accounts are prepared. Departmental accounts are of great help and assistance to the managements as information for commanding the enterprise more intelligently and effectively, since thereby all kinds of waste either of material or of cash 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 (Pendlebury & Groves, 2004).
1.2 STATEMENT OF THE PROBLEM
The primary drawback of departmental accounting is misunderstanding its purpose. Many entrepreneurs want to know the overhead costs of the respective department too. They want a financial performance picture of the department as if it stood alone as a single entity. In small business, this is nearly impossible to do. In large to medium size operations (tens of millions in sales per year) the company can use an allocation model based on cost drivers to allocate expenses to each department. In addition, large business operations can hire highly educated managerial accountants to calculate these results. In small business, it isn’t practical. So this method is only effective to the gross profit line. It is in view of this that the study becomes pertinent.
1.3 OBJECTIVE OF THE STUDY
The study has one objective which is further broken down into general and specific objective, the general objective is to examine the effect of departmental accounting on organizational performance. The specific objectives are;
- i) To ascertain the effect of departmental accounting on organizational efficiency
- ii) To ascertain if there is any significant relationship between departmental accounting and organizational profitability
iii) To examine the role of departmental accounting in ensuring organizational transparency
- iv) To proffer suggested solution to the identified problem
1.4 RESEARCH QUESTION
The following research questions were formulated by the researcher to aid the completion of the study;
- i) Is there any effect of departmental accounting on organizational efficiency?
- ii) Is there any significant relationship between departmental accounting and organizational profitability?
iii) Does departmental accounting play any role in ensuring organizational transparency?
1.5 RESEARCH HYPOTHESES
The following research hypotheses were formulated by the researcher to aid the completion of the study;
H0: There is no significant relationship between departmental accounting and organizational profitability
H1: There is a significant relationship between departmental accounting and organizational profitability
1.6 SIGNIFICANCE OF THE STUDY
It is believed that at the completion of this study, the findings of the study will be of important to departmental managers, as the study seek to explore the merit of departmental accounting to departmental managers and the organization management in general, the study will also be of importance to intending or potential entrepreneur on the importance of adequate and effective accounting system across various department of the prospective organization, the study will also be of importance to researchers who intend to embark on a study in a similar topic as the study will serve as a reference point to further studies. Finally, the study will be of significance to students, teachers, academia’s and the general public as the findings of the study will contribute to the pool of existing literature and also contribute to knowledge on the subject matter.
1.7 SCOPE AND LIMITATION OF THE STUDY
The scope of the study covers the effect of departmental accounting on organizational performance, but in the course of the study, there were some factors that inhibit the scope of the study which were beyond the researchers reach;
AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
TIME: The time frame allocated to the study does not enhance wider coverage as the researcher have to combine other academic activities and examinations with the study.
FINANCE: The finance available for the research work does not allow for wider coverage as resources are very limited as the researcher has other academic bills to cover.
1.8 OPERATIONAL DEFINITION OF TERMS
Bookkeeping is the recording of financial transactions, and is part of the process of accounting in business. Transactions include purchases, sales, receipts, and payments by an individual person or an organization/corporation
Accounting or accountancy is the measurement, processing, and communication of financial and non-financial information about economic entities such as businesses and corporations
Departmental Accounts are accounts relating to the several departments or sections of a business drawn up with a view to ascertaining their individual performances.
1.9 ORGANIZATION OF THE STUDY
This research work is organized in five chapters, for easy understanding, as follows
Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlight the theoretical framework on which the study its based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding. Chapter five gives summary, conclusion, and recommendations made of the study.