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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-

  1. 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.

  1. Better System of Control

It enhances a system of closer and effective control of the company’s operating activities.

  1. Efficient communication

Through Responsibility Accounting, the objectives of the company and individual goals are defined and communicated in a better way.

  1. 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.

  1. Better planning

It leads to better planning for future revenues and costs of the overall organization.

  1. 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.

  1. Cost effective

Known as a suitable cost control tool, this generates ‘cost-consciousness’ among employees.

  1. Prompt reporting

It simplifies the structure of reports and leads to prompt reporting.

  1. Necessary actions

Corrective actions are taken to have efficient control over the cost of the company.