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Responsibility Accounting

Essay by   •  June 23, 2016  •  Coursework  •  413 Words (2 Pages)  •  504 Views

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A system of reporting which gathers cost, income and profit details at the rank of those particular managers who are directly accountable to them. The objective is to deliver information to the people who can judge the performances and act accordingly. This accounting is used in the organizations which delegate responsibilities through corporate grading. It includes internal budgeting and accounting of a company. The aim of responsibility accounting is to give assistance in the planning and control of responsibility centers of a company like divisions and departments. It involves drawing up monthly and annual budgets for every responsibility center. It also aids in getting feedback on the performance of manager from company and manager of a responsibility center. To execute responsibility accounting,/ the enterprise must be organized in to assign responsibility to individual director. The basis of the report of liability is a chart of an organization. The managers must be defined and also their responsibility lines must be cleared. The various responsibility centers include cost center, revenue center, investment center and profit center. It helps to motivate managers at a lower level and also the employees.

Principles of responsibility accounting- Each responsibility has a fixed target. Target is then communicated to concerned management level. Real performance is compared with the planned. The variations are analyzed to attest responsibilities on the centers. Top management takes reformatory action, and the same is conveyed to individuals. Policy costs and costs apportioned are not included in determining the value of responsibility.

Advantages of responsibility accounting- It helps in establishing a proper control system. It gives pressure on top level management to take into consideration the structure of the organization, delegate the authority and inspect who is accountable for what. It boosts budgeting so as to compare the actual performance. Responsibility accounting helps to raise awareness and interest of the managers and officers to make clear about the variations. The ejection of items which are not in the scope of responsibility of individual helps in simplification of the reports and also prompt reporting.

Prerequisites of responsibility accounting- Proper organizational structure to clearly identify divisions for centers of responsibility. The delegation of authority and duties should be appropriate. The reporting system should be appropriate.

Limitations of responsibility accounting- if conditions of prerequisites do not exist, it will be difficult to have accounting system of responsibility. If routine reports and accountability reports do not match,/ then it would be difficult for individual managers to introduce the system.



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