Monday, March 19, 2012

What are the Advantages of Responsibility Accounting?

Better System of Control
It enables the management to management to delegate authority to responsibility centres while remaining overall control with itself
Decentralization of Decision Making
It forces the management to consider the organisational structure to result in effective delegation of authority and placement of responsibility.So it will compel individual manager to take right decision
Comparison of Performance
It encourages the comparison between Actual Achievements with Budgeted figures.It compels the setting of realistic goal
Increases the interest of staff
It increases the interest of supervisory staff as they are answerable about  deviations of  responsibility centers which they are responsible
Simplifies the structure of reports and facilitates the prompt reporting 
Because of exclusion of those items which are beyond the scope of individual responsibility




Important Features of Responsibility Accounting

Some of the essential features of Responsibility Accounting are as follows

  • Information for both output and input resources
  • Transferring of pricing policy
  • Information for planned and actual performance
  • Identification of responsibility centre
  • Reporting of Performance
  • Reporting deviations from original plan

Definitions of Responsibility Accounting

Charles T Horngren-"Responsibility accounting is a system of accounting that recognizes various decision centres throughout an organisation and traces costs to the individual managers who are primarily responsible for making decisions about the costs in question"

Eric L Kohler-"A method of accounting in which costs are identified with persons assigned to their control rather than with products or functions"

David Fanning-"Responsibility accounting is a system or mechanism for controlling the wider freedom of action that executives-decision centre managers in other words-are given by senior management and for holding those executives responsible for the consequence of their decisions"




Responsibility Accounting

Responsibility accounting involves accumulating and reporting costs on the basis of individual manager who has authority to make day to day decisions.Under responsibility accounting the evaluation of manager's performance is based only on the matters directly under managers control.it can be also called as profitability accounting.In this system,the accountability is established according to the responsibility delegated to various levels of management and they are made responsible to give adequate feedback in terms of delegated responsibility.The basic idea behind responsibility accounting is that managers's performance in comparison to budgeted results