Responsibility accounting is a structure that segments an organization into various departments or responsibility centers, where each is assigned certain duties and allocated a particular revenue. The concept focuses on the actual and planned performance of the different unit centers. Each of these responsibility centers has a manager who is accountable for the departments’ performance. In most firms, the responsibility accounting system aids uphold management formulation in the business. A system of a dynamic working environment is established enabling a company to meet its target prescription faster due to decentralization of work activities.
There are various components that this concept relies on to acquire validity. One is the budgets which are known as a plan of action in formal status that is expressed financially. It usually has two categories which are the fixed budget and the flexible budget ( Responsibility Accounting Systems Tutorial Summary , n.d ) . Secondly, performance reports are essential and known as statements showing the actual departmental results. Variance reports is another profound element which demonstrates the difference in the budgeted and actual performance of a responsibility center. Transfer prices are the last components which depict the amount of service or products transferred from department to another. They can be cost-based, market-based or negotiated-based.
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Nevertheless, responsibility accounting relates to a company’s financial goals in some ways. It gives room to counter-check whether money allocated or spent is reasonable to the external causes ( Responsibility Accounting Systems Tutorial Summary , n.d ) . Accountability is upheld as funds allocated get to be adequately accommodated for. Additionally, it gives a domain to examine whether or not the goals set are achievable. The more realistic they are they give room to a manager to make achievements. It enables interdependence where managers can offer each other some opinions regarding something. It is essential for business entities to incorporate the responsibility accounting approach to enjoy the enormous benefit it holds.
References
Responsibility Accounting Systems Tutorial Summary . (n.d.). Retrieved on 31 July 2017 from http://courseware.hbs.edu/tutorial_resources/item/622/PUB/summary.pdf.
