RESPONSIBILITY ACCOUNTING
By
Dr.J.SUNDARARAJ
Associate Professor
Department of Commerce
Annamali University
Content
Concept of responsibility accounting,
Steps in Establishing/Designing
Responsibility Accounting System
Benefits/Advantages/Merits/Uses of
responsibility accounting
Limitations of Responsibility Accounting
Essentials of Success Of Responsibility
Accounting
The Concept of Responsibility Accounting
The framework of responsibility accounting was
developed by Professor A.J.E. Sorgdrager
titled “Particularisation of Indirect Costs”.
Responsibility accounting is a cost accounting
system established on a responsibility basis
Responsibility accounting is a method of
budgeting and performance reporting created
around the structure of the organization.
Responsibility accounting is a method of
budgeting and performance reporting created
around the structure of the organization.
Defintion:
Responsibility accounting is a system of
accounting that recognizes various
responsibility centres throughout the
organization and reflects the plans and
actions of each of these centres by assigning
particular revenues and cost to the one
having the pertinent responsibility. It is also
called profitability accounting and activity
accounting.”
-Charles T Horngren
“Responsibility accounting as that type of
management accounting that collects and
reports both planned and actual accounting
information in terms of responsibility centre”.
- Robert N Antony
“A method of accounting in which costs are
identified with persons assigned to their
control rather than with producers or
functions”.
-Eric I Kohler
Meaning
In simple words, it could be described as a
system of collecting and reporting
accounting data on the basis of managerial
level.
Responsibility accounting is the approach to
accountability- identification of cost, with
the persons responsible for their incurrence.
Performance is evaluated by assigned
responsibilities. Reporting on performance is
on the lines of organizational structure.
There is a separate report for each box of the
organization chart.
Responsibility accounting is an
arrangement under which managers are
given decision making authority and are
made responsible for their area of
assigned activity occurring within a
specific department/division of the
company
4.2 Steps in Establishing/Designing
Responsibility Accounting System
1. Establishing Responsibility Centers
2. Limits to Controllable Costs
3. Flexible Budgeting
4. Performance Reporting
Merits/Advantages/ Uses/Benefits
of Responsibility Accounting
1. Performance Evaluation
2. Delegating Authority
3. Motivation
4. Corrective Action
5. Management by Objectives
6. Management by Exception
7. High Morale and Efficiency
Limitations of Responsibility
Accounting
Failure of support of top management
Unorganized structure of the organization
Unrealistic goals
Defective reporting system
Impact of behavioural system
Reference
Famning, David. Responsibility Accounting in
Handbook of Management Accounting . England :
Gower Publishing Co., 1983.
Horngren, Charles T., Srikant M. Dater, George
Foster, Madhav Rajan, and Christopher Ittner. Cost
Accounting: A Managerial Emphasis. 13. New York :
Pearson, 2015.
Lal Nigam B.M., and G.L.Sharma . Practical Costing.
Mumbai : Himalaya Publishing House, 2006.
Saxena , and Vashist. Cost and Management
Accounting . New Delhi : Suiltan Chand and Sons ,
2008.
Thank You
