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Investment center. It is defined by C.I.M.A.

, London as a Profit
center whose performance is measured by its return on capital
employed. Thus a responsibility center is an investment center
where is manager is responsible for sales revenue and costs and in
addition is responsible for some capital investment decision relating
to working capital management, capital structure and capitalization
etc. His performance is measured in terms of profit as relate to
capital base.
The following advantages accrue from a system of responsibility
1. Responsibility for adverse performance is clearly identified. As
a result, the individual managers may find it difficult to shift
the responsibility to any other manager.
2. The morale of the managers is high because of there active
participation in decision-making.
3. Responsibility accounting provides increased Job satisfaction
and greater motivation to put in their best effort.
4. It helps in quick reporting of performance-oriented results of
management of various levels.
5. Mangers of responsibility center get an opportunity to gain
valuable managerial skill.
6. Responsibility accounting facilitates stricter control on costs
and revenues.
Responsibility accounting is often focused on the lowest level
managers who have the most day-to-day influence on costs, where
a person can significantly influence the amount of cost through his
own action. A major problem in responsibility accounting is
establishing controllability. In the strict sense, a particular item of
cost is controllable when it can be definitely influenced by a given
manager within a given time span. But the problem is that hardly
any costs are clearly under the sole influence of only one person.
Take the case of material costs. Material prices are influenced by the
purchase manager while material quantities consumed are
influenced by the production manager.
Responsibility accounting can never be a substitute of good
management. It is simply a tool of management. Some systems that
are otherwise sound and never get off the ground because the
managers do not really understand them nor put them to good use.
Nor responsibility accounting is an accounting technique that stands
or falls on the accountants use of it. It is an integral part of the
management process and the accountants role is a technical and
supporting one. Unless the operating managers enthusiastically
support responsibility accounting and make it to work, even the best
conceived system will fail.


Financial Accounting

1. External and
internal users

Financial accounting
information is mainly
intended for external
users like investors,
creditors Govt.
authorities, etc.

2. Accounting

It is based on double
entry system for
recording business
Under company laws
and tax laws,
financial accounting
is obligatory to safety
various statutory

3. Statutory

4. Analysis of cost
and Profits

5. Past and future


6. Periodic and
continuous reporting

7. Accouting

Financial accounting
shows the profit/loss
of the business as a
whole. It does not
show the cost and
profit for individual
products, processes
or departments, etc.
It is concerned with
recording transaction
which have already
taken place, i.e, it
represents past or
historical records.
Financial reports, i.e,
Profit and Loss
Account balance
sheet are prepared
usually on a year to
year basis.
Companies are
required to prepare
financial accounts
according to
accounting standards
issued by the

8. Type of statement

9. Publication and

10. Monetary and


Institute of chartered
Accountants of India.
Financial accounting
prepares general
purpose statements
which are used by
external users.
Financial statement,
i.e., P&L A/C and
Balance Sheet are
published for general
public use and also
sent to shareholders.
These are required to
be audited by the
Financial accounting
provides information
in terms of money


Cost Accounting

1. Scope

Scope of cost
accounting is limited
to providing cost
information for
managerial users.
Main emphasis is n
cost ascertainment
and cost control to
ensure maximum
Various techniques
used by cost
accounting include
standard costing and
variance analysis,
marginal costing and
cost volume profit
analysis, budgetary
control, uniform
costing and inter-firm
comparison, etc.,
Evolution of cost
accounting is mainly
due to the limitation

2. Emphasis

3. Techniques

4. Evolution


5. Statutory

6. Data Base
7. Status in

8. Installation

of financial
Maintenance of cost
records has been
made compulsory in
selected industries
as notified by the
Govt. from time to
It is based on data
derived from
financial accounts.
In the organizational
set up, cost
accountants is
placed at a lower
level in hierarchy
than the
Cost accounting
system can be
installed without

accounting is
generally placed at a
higher level of
hierarchy than the
cost of accountant.
accounting cannot be
installed without a
proper system of cost