How to Eliminate Operating Segments in Accounting

by Travis Ames

Eliminating operating segments is an important part of keeping your small business in the black. An operating segment is a term for a department within your company that has expenses, revenue and a clear record of this information. These segments are regularly examined by accountants and executives to ensure that their revenue is consistently exceeding its expenses. If a segment is causing a loss for your business, it may be in your best interest to eliminate it.

Eliminating a Segment

1. Evaluate your company’s various departments to determine which ones will be considered operating segments. Be sure these segments have a clear expense and revenue line. Your accountant should have a clear record of these segments on the books.

2. Look at your operating segments and determine the amount of revenue that each one makes. Each segment or department should have a specific amount of money coming in. Note this amount and make a list of every operating segment’s incoming funds.

3. Determine the cost of running these operating segments. Every segment in your company will cost a certain amount of money to run, whether that be the amount of salary you pay your employees or the cost of everyday goods such as paper or staplers. Make a list of the cost for each of your operating segments.

4. Compare your segments’ revenue and the amount it costs to run them. From there, find the operating segments that are costing your company the most money. These would be the segments that cost more than the amount of revenue they are bringing in. Since these operating segments are costing you money, it may be in your best interest to eliminate them to prevent your business from going in the red.


  • Once you have get rid of a segment, you can spread the cost and revenue of that segment throughout the rest of your company’s departments to ease the burden that may occur following an elimination.


  • When eliminating operating segments, understand that you may put additional pressure on the remaining segments in your company. This may cause the surviving segments to take on the costs of the eliminated ones, meaning that they may be in the red for the financial quarter following the segment elimination.

About the Author

Travis Ames has written for numerous publications since 2007 and has been writing instructional articles online since 2010. His areas of expertise are wide and include travel, politics, arts and entertainment, technology and finance. He currently lives in Portland, Oregon where he will begin teaching in the fall of 2011.

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