RESPONSIBILITY ACCOUNTING – AN OVERVIEW:
Responsibility accounting is basically defined as a method of accounting in which a particular person is given the authority and responsibility to perform a particular task within a specific area of an enterprise and the deviations are identified with the person responsible rather than with the products or activities.
In other words, Responsibility accounting referred to a process in which whole organization is divided into various departments and are put under the responsibility of different managers. These departments are known as responsibility centers. The persons heading the department become responsible for the activity of the entire department’s activities. If the department performs as per the standards set, the concerned person or head of department is motivated by providing them rewards whereas in case of any deviation, the concerned people become answerable to the management for the cause of such failure.
PROCESS OF RESPONSIBILITY ACCOUNTING:
Responsibility accounting involves the following steps in order to effect control within an organization:
- The first step is to divide the whole organization into various divisions known as responsibility centers.
- The second step is to appoint a particular person as the head of each department and to define its responsibility as well authority for controlling the particular department.
- The third step is to set targets as well as budget for each responsibility center and that too with the consultation of the appointed head of the department.
- The fourth step is to measure the actual performance of each department by comparing the actual figures or data with the budgeted figures.
- The fifth step is to communicate the actual performance to the concerned head of department as well as the top management so that the person responsible should be held liable.
- The last and sixth step is to prepare performance report which helps in determining the variation in the performance and what steps should be taken to make sure that they should be removed and not likely to happen in future.
ADVANTAGES OF RESPONSIBILITY ACCOUNTING:
Responsibility accounting, being an important method of management accounting offers the following advantages:
- HELPFUL IN DECISION MAKING:
Responsibility accounting involves setting targets and budgets on the basis of past performances. Management can get to know that where they had made mistakes in the past and hence can improve those mistakes in future by taking correct decisions.
- CHECK ON EMPLOYEES:
Under responsibility accounting the performance of various departments is measured and reported regularly hence, it provides an overall control and check on the employees.
- MOTIVATIONAL FACTOR:
The employees as well as the head of department know very well that their performance is continuously checked and will be rewarded if their performance is up to the mark. It motivates them to give their best performance.
- IMPROVES OVERALL PROFITABILITY:
BY keeping a check on performance variation and taking immediate action to remove any deviation in the actual figures will ultimately improves the overall profitability of the business.
- COST PLANNING:
Measuring performance requires full information about the cost and revenue and further help in cost planning. The figures provided can also be used in fixing standards and preparing budgets.
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