Department - What is a department?
Defined: In accounting, a department is usually understood to be a singluar portion of a larger organization.
The term department can refer to a number of different things - for example an administrative division within a nation, a governmental ministry or even a part of an institution.
The term department can also be used to refer to separate divisions of an organisation. Departments within a company can be organized around a number of different parameters - such as their specific function, products, customers, geographic location or processes.
For some organisations it is interesting or even critical to look at the income and expenses for each department from a financial point of view.
To calculate the income for a department, a department should be attached to its related product or service sales figures.
Likewise, companies may also want (or need to) consider the expenses incurred by each department in order to better understand their costs and efficiency.
Why should a company use departments?
Companies of a certain size could find department breakdowns especially useful, because they provide a more in-depth overview of each unit's performance within a company. This way, companies have a break-down of income and expenses throughout the organization, and are therefore equipped with the knowledge to make specific improvements and so on.
For smaller companies, departments may not be as useful, but each company has their own individual needs and should decide as they see fit.