Everything About Responsibility Accounting

Responsibility accounting is a controlling system under management accounting where responsibilities are assigned to control unnecessary costs. 

Controlling costs begins with delegating the proper authority to the individuals capable of performing work with the standards. Under this kind of accounting system, the emphasis is on the workforce rather than the methods.

Moreover, in social responsibility accounting, the management collects and reports actual accounting information about the outputs and input of various responsibility centres. And compare them to know the correct functioning of the accounting system. The work of assessment is the work of managers specially appointed for maintaining the social responsibility accounting records. 

Let us know the features, objectives, pros, and cons of keeping responsibility accounting in detail.

What is Responsibility Accounting?

In accounting, the employees prepare monthly and annual budgets for the individual centre. They also record the costs and revenues of the company and provide the feedback report to the concerned managers. Talking about responsibility accounting mainly focuses on responsibility centres.

For example, if Mr Z, the unit manager, prepares the budget for his department. He tries to keep the budget minimal and opt for all the required information about the department costs. If the expenditure incurred is superior to the provided budget, Mr Z will take necessary reduction measures. Further, he will be solely accountable for his unit performance.

Features of Responsibility Accounting

Here are some features of responsibility accounting that make it different from others.

• Revenues and Costs 

The implementation of social responsibility accounting depends only on the details of revenues and costs. Correct information can lead to the preparation of accurate accounts.

• Helpful in Budgeting

The correct financial data is also helpful in making accounting plans and forecasts. Those managers communicate further to the top management. 

• Defines Clear Difference between Accountability and Responsibility

With social responsibility accounting, it is possible to distinguish between one person’s accountability and responsibility towards the management. Here every employee knows properly what management expects from him and what he needs to do to fulfil his duties.

• Creation of Social Responsibility Centres 

The start of responsible accounting can be possible only after the design of centres. Those represent all decision points of the company. 

• Reporting of Performances

The primary goal of maintaining responsibility accounts is the reduction of any deviations that occurred in the plan. For this purpose, managers prepare timely feedback reports. Under which the performance recording of responsibility centres come. 

Kinds of Responsibility Centres

Responsibility centres are business entities that have definite goals and objectives. Moreover, they have dedicated personnel to do duties strived at creating financial reports. Following are the centres that may exist in every company: 

• Profit Centre

In this centre, all evaluation of all revenue and costs happens. This evaluation helps in the creation of profit and loss. For instance, the product line is a profit centre of the product manager. And he manages all the activities of it.

• Cost Centre

This centre of the company includes costs of a specific department. For example, costs incurred for housekeeping are carry-forward under the housekeeping department.

• Revenue Centre

This centre includes only the incomes generated from the sales department of a company.

• Investment Centre

This centre of the organisation includes profits and returns earned on investments. Moreover, it includes the fund, which the company invests further for its operations. For example, you can take a subsidiary unit of the company. And the responsibility of managing everything goes to the subsidiary president. 

Advantages of Responsibility Accounting

1. It helps the management learn about the company’s errors. That occurred during the revision of problems.
2. It makes the managers attentive toward every variation that starts in the company.
3. It is beneficial in making comparisons of achievements between the standards and actual outputs.
4. Not only these, but social responsibility accounting is also very effective for improving employees’ efficiency. And pretty much helpful in making them cost-conscious.

Disadvantages of Responsibility Accounting

1. Responsibility accounting can be beneficial when there is a proper distinction between controllable and uncontrollable costs of the company. It is the foremost thing that managers consider while identifying responsibility centres. But due to practical problems, it is challenging to find which costs come under which centres.
2. A little conflict between individual and company interests can bring the whole system to loggerheads. The happening of disputes can lead to severe differences as well. Moreover, it is impossible to construct new policies and plans in such situations.
3. In social responsibility accounting, the organisational structure becomes clumsy and confusing. That ultimately affects the overall performance of the workforce.
4. This tool of accounting systems can be effective only when there is a proper reporting system of execution because the absence of the system can lead to the misappropriation of funds and incomes.
5. Last but not least, the disadvantage list also includes the absence of highly trained staff. That knows just what management needs to know about the company’s performance since any failure in the communication process may produce incorrect results.

Conclusion

We conclude that responsibility accounting can be a very effective tool for any business association, whether big or little can adopt. Under it, managers should be active and aware of their role in making budgets, policies, and plans. These plans are quite beneficial in comparing the actual performance with the standards set. 

Moreover, managers enjoy crucial control over all functional activities under social responsibility accounting. Under their supervision, the executives form performance reports. Those contain all necessary information about all responsibility centres. Performance reporting is also essential to reduce variances that occur in the executions of units from time to time.