Responsibility Accounting: Example

What is Responsibility Accounting?

Responsibility accounting is a kind of management accounting that is accountable for all the management, budgeting, and internal accounting of a company. The primary objective of this accounting is to support all the Planning, costing, and responsibility centres of a company.

The accounting generally includes the preparation of a monthly and annual budget for an individual responsibility centre. It also accounts for the cost and revenue of a company, where reports are accumulated monthly or annually and reported to the concerned manager for the feedback. Responsibility accounting mainly focuses on responsibilities centres.

For instance, if Mr X, the manager of a unit, plans the budget of his department, he is responsible for keeping the budget under control. Mr X will have all the required information about the cost of his department. In case, if the expenditure is more than the allocated budget than Mr X will try to find the error and take necessary action and measures to correct it. Mr X will be personally accountable for the performance of his unit.

Additional Reading: Difference Between Cost Accounting and Financial Accounting

Advantages of Responsibility Accounting:

• It urges the management to acknowledge the company structure and checks who is accountable for what and fix the problems.
• It enhances attention and awareness of the managers as they have to explain the variations for which they are responsible.
• It helps to compare the achievements between the pre-planned goals and actual results.
• It creates a sense of efficiency within individual employees as their work and achievements will be reviewed.
• It guides the management to plan and structure the future expenditure and revenue of a company.
• Being a cost control tool, it creates ‘cost consciousness’ among workers.
• Individual and company goals are established and communicated in the best way.
• It improves and controls the company’s operating activities for an effective and efficient outcome.
• Simplifies the report structure and guides to prompt reporting.

The above mentioned is the concept, that is elucidated in detail about ‘What is Responsibility accounting?’ for the Commerce students. To know more, stay tuned to BYJU’S.