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Hi Karen,
I use Xero at my work (I'm the finance manager there) and we use the departments quite extensively - we're a project based business and each project gets its own department, in a year we can have up to 200 different departments.
I've found Xero to be very flexible with this - the term they use is 'tracking' rather than 'department', and if you wanted you could have multiple different tracking categories (eg for a clothing shop you might have 'store sales' and 'online sales' as one category and also split it into clothes, shoes, accessories... you get the idea!).
You can also produce reports such as a P&L or account transactions for each department, or even multiple departments at a time - once you get to grips with it it's streets ahead of Sage. In fact, I'm using Sage at home for my ICB studies and I'm finding the whole thing quite clunky and restrictive compared to Xero! I would certainly recommend the change myself.
Just google 'xero tracking' - there's plenty of help and tutorials out there that can show you this in more depth.
Garry
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