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Introduction to Responsibility Accounting

One of the foremost uses of management accounting is the managerial control. Among the various control techniques, ‘responsibility accounting’ plays a significant role .

 

The remaining control techniques are applicable to the organisation as a whole. But responsibility accounting represents a method of measuring the performance of various divisions of an organisation. The main aim of this chapter is to describe the organizational structure in which the management controls processes through responsibility accounting. Responsibility accounting is similar to any other system of cost but with greater emphasis on fixing the responsibility of the person assigned and executed a specific job.

 

DEFINITION

 

Eric Kohler defines responsibility accounting as “a method of accounting in which costs are identified with persons assumed to be capable of controlling them rather than with products or functions. It differs from activity accounting in that it does not in itself requires an  organisational grouping by activities and sub activities or provide a systematic criterion of system design.,

 

Robert Anthony defines responsibility accounting as “the type of management accounting that collects and reports both planned and actual accounting information in terms of responsibility centres”.

 

Principles of Responsibility Accounting

 

(i)                 To identify the responsibility centres within an organization.

(ii)               To define the responsibility for each responsibility centre.

(iii)             It lays greater emphasis on human factor.

(iv)             To specify controllable and uncontrollable activities at various levels of responsibility.

(v)               To provide information about the performance report.

 

Requirements of Effective Responsibility Accounting

 

(i)                 The entire organisation is divided into responsibility centres i.e., various responsibility  centres should be created.

(ii)               To establish a sound organisation structure.

(iii)             To define the authority and responsibility in a clear-cut way.

(iv)             To prepare a detailed budget with full involvement of concerned managers.

(v)               To obtain sufficient top management support for implementing responsibility accounting.

(vi)             The actual performance of the responsibility accounting is to be communicated to

the concerned managers ..

(vi)             The performance reports for all the divisions should be prepared and if corrective

measures are suggested or taken it is also communicated to the respective

managers.

(viii)     A healthy organisational environment should exist.