What is Responsibility Accounting

Responsibility Accounting

There are two major parts of managerial accounting – firstly, Product Cost Accountancy, and, secondly, Responsibility Accounting. Product Cost Accounting keeps an account of the cost of the produced material, whereas in the Responsible Accounting, an account of the responsibilities of the people is kept. In order to enforce the responsible accounting control system, all the activities of the enterprise are divided into separate groups and somebody is appointed as the head of each group. The groups thus established are called Responsibility Centre’s and the entire responsibility for the success or failure of these Centre’s lies on the head or the departmental manager.

In order to evaluate the progress of the departmental manager the costs are divided into two parts:

(i) Controllable costs

(ii) Non-controllable Costs.

Controllable costs can be minimized by the manager by using his authority. On the contrary, uncontrollable costs are those in respect of which a manager has got no authority. A departmental manager can be held responsible only in respect of controllable costs.

It is important to make it clear that the responsibility accounting does not oppose the principles of the traditional system of accounting although both lay stress on the different aspects of costs. In traditional accounting, the cost of production is sought to be known through the medium of product cost accountancy, while in responsibility accounting stress is laid upon the responsibility for the increase or fall in the cost of production.
In short, it can be sald by way of declining responsibility accounting that “Responsibility Accounting , can be defined as a system of accounting under which each departmental head is made responsible fort performance of his department.”

• Process of Responsibility Accounting

Following steps are included in the process of responsibility accounting: (1) Establishment of Responsibility Centre’s: From the point of view of control first of all the activities of the business are divided into groups. Each working group becomes a responsibility Centre According to Robert N. Anthony, “A responsibility center is simply an organization unit headed by a responsible person.”

Responsible Centre’s are of three types:

(1) Cost or Expense Centre: Cost or expense Centre is that unit of the enterprise on which expenditure is incurred but its output cannot be measured in terms of money. For example, an office is cost Centre which involves expenditure on administrative activities but it cannot be said what income via result on these expenses.

(ii) Profit Centre: Profit Centre is that unit of the enterprise whose aim is determined in the formed profit. It is a unit whose success or failure is evaluated on the basis of profit by finding out the difference between income and expenditure. For example, a factory is a profit Centre because the cost of goods produced therein and the difference in selling price indicates the amount of profit.

(iii) Investment Centre: Investment Centre is a unit of the enterprise where the manager is held responsible for the effective use of the assets of the department along with the income and expenditure d. the department

(2) To Develop a System of Accounting: In the second step of responsibility accounting? system of accounting is prepared under which the accounts of every responsibility Centre can be prepared separately.

(3) Determination of Goals: In the third step of responsibility accounting the goals for all the departments are determined.

(4) Determination of Controllable and Non-Controllable Costs: After determining goals the costs of every department are divided into two parts –

(i) on which control is possible (controllable),

(ii) on which control is not possible (non-controllable). Managers can be held responsible only in case di the first type. –

(5) To Take Necessary Action: In the last step of responsibility accounting, a record of the acta progress of the department is maintained and deviations are sought to be found. Then the progress repo is sent to the officers concerned and appropriate action is suggested after fixing responsibility.

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