Responsibility Accounting And Its Purpose

Responsibility Accounting is a program engulfing all operating management for which the accounting, cost, or budget divisions provide technical assistance in the form of daily, weekly, or monthly control reports. Responsibility reporting encompasses the reporting phase of responsibility accounting. In fact, the terms “responsibility accounting” and “responsibility reporting” are generally considered synonymous in that accounting should imply reporting and vice versa.

In Responsibility Accounting,Reporting to the various levels of management can be divided into responsibility performance reporting and information reporting. A clear distinction between the two is important; each serves different goals or objectives.

Purpose of Responsibility Accounting:

Responsibility performance reports are accountability reports with two purposes:

1. To inform the manager and his superior how he has done in the areas for which he is directly responsible for performance.

2. To motivate the manager and his superior to generate the direct action necessary to improve performance.

Information reports are issued for the purpose of providing the manager with information relevant to his areas of interest, although not necessarily directly associated with his specific responsibility for performance. Information reports serve a broader and different set of goals than performance reports.

In the short view, responsibility-performance reports are more important than information reports because of the immediate and pressing needs to keep the business on course. However, from the long view, information reports bearing on the progress and growth of the business are also important

Responsibility accounting is an accepted traditional accounting control systems which provides an entity with a number of advantages. It provides a path to manage an entity that would otherwise be unmanageable. Assigning responsibility to lower level managers allows higher levels to concentrate on other activities like long-term planning and policy making. It also motivate lower level managers and workers. Managers and workers tend to be motivated by measurements that emphasize their individual performances.

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