MADE BY:ISHPREET SINGH BAGGA

INRODUCTION
Responsibility accounting is a system under which manager are given decision making with authority and responsibility for each activity occurring within a specific of the company.

Under this system Manager is made responsible for the activities of segments. These segments may be called department or divisions.

DEFINITION OF RESPONSIBILITY ACCOUNTING

The essence of responsibility accounting is the accumulation of costs and revenue according to areas of responsibility in order that deviations from standard cost and budgets can be identified with the person or group responsible. -William,L.Ferrara Responsibility Accounting is a system under which costs are accumulated and reported at each level of responsibility so that the accounting and costs data may be used by the management at each level in controlling the operations and their costs. -R.M. Bhandari

Elements/Features of Responsibility Accounting:

All cost are classified according to responsibility centres. It is a tool for controlling the action of the executives. It is an accounting system which collects and report both planned and actual accounting data in terms of sub units which are recognized as responsibility Centre's. At each responsibility Centre, only those costs are collected over which the executive of that Centre has control.

Some steps of an effective Responsibility Accounting System:

The organization structure of the business should be divided into various centre's like responsibility centre.
A sound organization structure with strictly and well defined authority and responsibility should exist . Adequate, acceptable and Accurate budgets with full participation of concerned managers should be developed. It should have top management support.

Responsibility Centres
Expense Centre-A cost centre is a smaller segment of activity for
which costs can be accumulated.in case of certain centers ,it may not be possible to measure the output in terms of monetary units.

Revenue Centre-The revenue centre is the smallest segment of

activity for which only revenues are accumulated. Revenue purely concerned with raising sales revenue and as such marketing department happens to be a revenue centre.

 Profit Centre-A profit centre is a big segment of activity for which

both revenues and cost are accumulated. As such, the structure of centre is measured in terms of expenses it incurs(input) and revenue it earns (output).

Investment Centre Investment Centre is a segment of activity

or area of responsibility in which the manager of centre is held responsible for the use of assets on the hand and for profit on the other hand .

Merits of Responsibility Accounting:

It introduces the sound system of control.
It is effective tool of cost control and cost reduction. It help the management to make an effectives delegation of authority and required responsibility as well.

It is very useful in applying budgetary control and standard costing.

Demerits of Responsibility Accounting:

It is very difficult to design an organization chart which might clearly delineate lines of responsibility and grant authority requisite to responsibility assigned. There is likely to be a conflict between individual interest and organization interest leading to serious problems in implementation of the system of responsibility accounting. This system ignores the personal reactions of the personnel who are involved in the implementation. There is need for a good reporting system without which the tool becomes useless and meaningless.

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