Responsibility Accounting is a management accounting system in which an organization is divided into smaller responsibility centers. It is based on the controllability principle, where each center is managed by a designated person who is accountable for its overall performance.
The Controllability Principle states that a manager should be held responsible only for those costs, revenues, profits, or activities over which he/she has significant control or influence. In simple words, a manager should not be held accountable for things that are beyond his/her control.
Example: Production Manager
- The production manager can control certain factors such as labour efficiency, material wastage, and machine maintenance costs. However, he cannot control external factors like the rise in raw material prices due to inflation or any increase in the factory rent.
- Therefore, as per the controllability principle in Responsibility Accounting, the production manager will be evaluated and held responsible only for labour efficiency and material wastage. He will not be held accountable for the increase in raw material prices, as these are beyond his control.
Example: Sales Manager
- The sales manager can control several key areas such as sales volume, selling expenses, and discount policies. However, he cannot control certain decisions like the credit policy laid down by top management or quality-related issues arising from the production department.
- Therefore, as per the controllability principle in Responsibility Accounting, the sales manager will be held responsible only for sales and selling expenses that are under his control. He will not be held accountable for matters like credit policy or production quality problems, as these are beyond his authority.
Responsibility accounting is a management control system that assigns specific functions to units known as responsibility centers (RCs) โ cost centers, revenue centers, profit centers, and investment centers. Improving Accountability and Control:-
- Clear Accountability: โ Each manager is responsible for the costs and performance of their RC. โ This reduces ambiguity and enhances accountability for decisions and outcomes.
- Focus on Managers: โ Emphasizes the importance of managers rather than just products or services (Horngreenโs View)
- Performance Evaluation: โ Performance reports compare actual results to budgeted figures. Regular evaluations prompt managers to stay vigilant and proactive.
- Delegating Authority: โ Promotes decentralization, allowing managers to make decisions within their RCs.
- Timely Corrective Actions: โ Performance reports help quickly identify issues
- Flexible Budgeting: โ Aids in efficient resource allocation by identifying high and low-performing areas
- Management by Objectives and Exception: โ Encourages setting specific objectives and focusing on significant variances for decision-making.
- High Morale and Efficiency: โ Linking rewards to performance enhances morale among managers.
{Management by Objectives (MBO): Clear objectives are set for managers, and performance is monitored.
Management by Exception: Focus on major deviations rather than all items.}
Social Accounting is the process of measuring, monitoring, and reporting to stakeholders the social and environmental effects of an organizationโs actions.it is closely related to the economic concept of externality.
|
Social accounting |
Traditional accounting |
|
|
|
|
|
|
|
|
|
|
