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An introduction of the topic is necessary to understand its significance. So, here is a brief idea on Responsibility Accounting.
What does Responsibility Accounting mean?
Responsibility Accounting is a reporting system. It is concerned with the internal accounting and budgeting of a company. The aim of Responsibility Accounting is to help in planning and controlling the responsibility centers of a company – mainly decentralized departments and divisions. Such responsibility centers include cost centers, revenue centers, profit centers and investment centers.
The process generally involves preparation of monthly and annual budgets for each of the centers. Responsibility center then classifies the actual transactions of the company. Then a monthly report is made presenting actual amounts for each item in the Budget and the Variance between this Budget and Actual amounts.
Responsibility Accounting helps in evaluating the performance of the managers of each Responsibility Center.
Advantages of Responsibility Accounting
Some advantages of Responsibility Accounting that a company enjoys are:
- It helps in managing otherwise unmanageable organizations.
- Putting responsibility on the lower level manager’s help to keep them motivated.
- Consequently, high- level managers can leave the responsibility on lower level managers and focus on more grave issues like formulating long term plans and policies.
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