responsibiliy accounting

7/30/2019 Responsibiliy Accounting

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Responsibility accounting is a system under whichmanager are given decision making with authority andresponsibility for each activity occurring within a specificof the company.

Under this system Manager is made responsible for theactivities of segments. These segments may be calleddepartment or divisions.

INRODUCTION


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DEFINITION OF RESPONSIBILITY ACCOUNTING

The essence of responsibility accounting is the accumulation of costsand revenue according to areas of responsibility in order that deviationsfrom standard cost and budgets can be identified with the person or

group responsible.-William,L.Ferrara

Responsibility Accounting is a system under which costs are

accumulated and reported at each level of responsibility so that theaccounting and costs data may be used by the management at eachlevel in controlling the operations and their costs.

-R.M. Bhandari


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Elements/Features of Responsibility Accounting:

All cost are classified according to responsibility centres.

It is a tool for controlling the action of the executives.

It is an accounting system which collects and report both planned andactual accounting data in terms of sub units which are recognized asresponsibility Centre's.

At each responsibility Centre, only those costs are collected over whichthe executive of that Centre has control.


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The organization structure of the business should be divided into various centre's like responsibility centre.

A sound organization structure with strictly and well definedauthority and responsibility should exist .

Adequate, acceptable and Accurate budgets with full participationof concerned managers should be developed.

It should have top management support.

Some steps of an effectiveResponsibility Accounting System:


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Responsibility Centres

Expense Centre - A cost centre is a smaller segment of activity for which costs can be accumulated.in case of certain centers ,it may not

be possible to measure the output in terms of monetary units.

Revenue Centre- The revenue centre is the smallest segment of activity for which only revenues are accumulated. Revenue purely concerned with raising sales revenue and as such marketing departmenthappens to be a revenue centre.


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Profit Centre- A profit centre is a big segment of activity for whichboth revenues and cost are accumulated. As such, the structure of centre is measured in terms of expenses it incurs(input) and revenueit earns (output).

Investment Centre Investment Centre is a segment of activity or area of responsibility in which the manager of centre is held

responsible for the use of assets on the hand and for profit on theother hand .


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Merits of Responsibility Accounting: It introduces the sound system of control.

It is effective tool of cost control and cost reduction.

It help the management to make an effectives delegation of authority and required responsibility as well.

It is very useful in applying budgetary control and standard costing.


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Demerits of Responsibility Accounting :

This system ignores the personal reactions of the personnel who are

involved in the implementation. There is need for a good reporting system without which the tool

becomes useless and meaningless.

It is very difficult to design an organization chart which might clearly delineate lines of responsibility and grant authority requisite toresponsibility assigned.

There is likely to be a conflict between individual interest andorganization interest leading to serious problems in implementation of the system of responsibility accounting.


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responsibiliy accounting

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