Responsibility Accounting is a system where costs of a responsibility centre are identified with the person accountable for it. These responsibility centres are managed and controlled by an individual manager.
Advantages of responsibility accounting are as follows-
- Decentralized Decision Making
The company’s top-management is forced to consider the existing organizational structure. This leads to effective allocation of authority and responsibility placement.
- Better System of Control
It enhances a system of closer and effective control of the company’s operating activities.
- Efficient communication
Through Responsibility Accounting, the objectives of the company and individual goals are defined and communicated in a better way.
- Comparison of Performance
This encourages the comparison of performance between the actual achievements and the pre-determined goals. This way an employee’s individual performance is judged.
- Better planning
It leads to better planning for future revenues and costs of the overall organization.
- Better responsibility
Responsibility Accounting generates a sense of responsibility within individual employees. Every employee knows what he needs to do and he cannot escape from any error committed by him.
- Cost effective
Known as a suitable cost control tool, this generates ‘cost-consciousness’ among employees.
- Prompt reporting
It simplifies the structure of reports and leads to prompt reporting.
- Necessary actions
Corrective actions are taken to have efficient control over the cost of the company.