Monday, May 25, 2020

Responsibility Accounting - What is responsibility accounting concept?

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Responsibility accounting
Responsibility Accounting

What is responsibility Accounting

Responsibility Accounting is the collection, summarization and reporting of financial information, where any manager is held responsible for a certain cost, revenue or assets of the company.

In all the organizations, powers and duties ar delegated to the managers at different levels, therefore, it becomes necessary to evaluate that how that manager has performed his duty as per the events under his control and this is called Responsibility Accounting.It is also known as profitability accounting or activity accounting.

Types of Responsibility Centres

The responsibility centres can be classified in the following four categories 

a) Cost Centre:

The manager of such a division or centre is responsible for the cost incurred in that division. The main focus of the manager is at minimization of cost. 

b) Revenue Centre:

The manager of this division or centre is responsible only for maximization of revenue but no responsibility towards the cost.

c) Profit Centre: 

The manager of this centre or division is responsible for both cost and revenue. Therefore his performance is evaluated on the basis of profit generated by this division. 

d) Investment Centre:

The manager of this division is not only responsible for the profit generated but also the value of assets it is using for generating this profit. In other words, the manager is responsible for generating appropriate returns on the value of assets, it is using.

Advantage of Responsibility Accounting

a) By this method, duties and responsibility of an employee can be clearly defined.

b) Due to clearly defined of duties and responsibility, the employee can be directly held responsible for any discrepancy they occurred.

c) It will enhance awareness in employees regarding any job given to them. The employees will work hard for achieving their goal which given to them.

d) With its help, one can easily compare before and after being given responsibility.

e) It helps to enhance control over its employees which ultimately helps in achieving effective and efficient result to an organization.

f) This may also help in controlling the cost of an organization.


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Written by - Pankaj Kumar

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