Concept of Responsibility Accounting for Management

Control of factory overhead and concept of responsibility accounting:  Responsibility — Defined. Webster’s dictionary defines responsibility or being responsible as “liable to respond; likely to be called upon to answer; accountable; able to respond or answer for one’s conduct and obligations.”

Concept of Responsibility Accounting : Kohler’s A Dictionary of Accountants defines responsibility as “the obligation prudently to exercise assigned or imputed authority attaching to the assigned or imputed role of an individual or group participating in organizational activities or decisions.”

The N.A.(C.)A. Research Series No. 22, says: “A responsibility may be defined as an organizational unit having a single head accountable for activities of the unit.”

Concept of Responsibility Accounting—Basic Concepts. The concepts enumerated below are prerequisites to the initiation and maintenance of a responsibility accounting system.

1. Structure and concept of Responsibility accounting is based on a classification of managerial responsibilities (departments) at every level in the organization for the purpose of establishing a budget for each. The individual in charge or with the authority for each responsibility classification should be made responsible and held accountable for the expenses of his activity.

This concept introduces the need for the classification of costs into controllable and those not controllable by a department head. Generally, variable costs are charged to a department and are controllable by its manager. Fixed costs, though charged to a department, generally are not controllable by its manager.

2. The starting point for a responsibility accounting information system rests with the organization chart in which the spheres of jurisdiction have been determined. Authority leads to the responsibility for certain costs and expenses which are forecast or present in the budget established with the knowledge and cooperation of the supervisor, department head, or manager.

3. Each individual’s budget should clearly identify the costs controllable by him. The chart of accounts should be adapted to permit recording of controllable or accountable expenses within the jurisdictional framework.

We have to understand the Concept of Responsibility Accounting before adopting it and to get desired results.