The Theory of Responsibility Accounting

BY: MOHAMMAD WAHID ABDULLAH KHAN

Summary: The dimension of profit in a profit centre type or responsibility accounting is also complex by the problem of transfer prices. The inference of the transport worth is that for the promotion division it will be a foundation of revenue, where as for the trade division it is an element of cost.

Introduction: Responsibility accounting is an important part of management accounting responsibility. Accounting engages collecting, reporting and revenue where pertinent on the basis of the manager, who has the influence to make the day to day decisions about the items,

Under Responsibility accounting a manager performance is evaluated on matters directly under the manager control Responsibility accounting can be used at every level of management

Definition Responsibility accounting

Responsibility accounting is the collection, summarization, and reporting of financial information about various decision centers throughout an organization;

In additional Responsibility accounting center of attention on providing financial information useful in assessing efficiency and effectiveness of managers or department heads, on the basis of financial performance directly under their control.

Finally Responsibility accounting  suggestions costs, revenues, or profits to the individual managers who are primarily responsible for making decisions about the costs, revenues, or profits in question and taking action about them. Responsibility accounting is appropriate where top management has delegated authority to make decisions. The idea behind responsibility accounting is that each manager's performance should be judged by how well he or she manages those items under his or her control.

Responsibility accounting:

Responsibility accounting is an underlying concept of accounting performance measurement systems.  It traces costs, revenues, or profits to the individual managers who are primarily responsible for making decisions about the costs, revenues, or profits in question and taking action about them. Responsibility accounting is suitable where top management has delegated authority to make decisions. The idea behind responsibility accounting is that each manager's performance should be judge by how well he or she manages those items under his or her control.

According to the Institute of Cost and Works Accountants of India (ICWAI) Responsibility Accounting is “a system of management accounting” under which accountability is recognized according to the responsibility entrusted to various levels of Management and management information and reporting structure introduced to give sufficient feed back in terms of the entrusted responsibility. The basic idea is that large expanded organizations are not easy, if not impossible to manage as a single piece, thus they must be decentralized or estranged into controllable parts. These parts or sections are referred to as responsibility centers that include (I) revenue centers, (II) cost centers, (III) profit centers and (IV) investment centers. This approach allows responsibility to be dispensed to the segment managers that have the greatest amount of authority over the key elements to be managed.

Finally Responsibility Accounting or productivity accounting or activity accounting which means the same thing, is a system that identifies different assessment or responsibility centers during the organization and traces costs and revenue, assets and liabilities  to the individual managers who are primarily responsibility for making decisions about the costs in question.

Objectives of Responsibility Accounting

Responsibility accounting is a technique of separating the managerial makeup into a variety of responsibility midpoints to calculate their presentation.

01. To decide the involvement that a dissection as a sub-unit creates to the overall business.

02. To offer a foundation for assessing the excellence of the divisional managers presentation. Responsibility accounting is used to calculate the presentation of managers and it.

03. To stimulate the divisional manager to function his dissection in a method dependable with the essential objectives of the business as a complete

Conclusion: Responsibility accounting is a management organizes system for measurement of division presentation of an organization. Responsibility accounting meeting points on responsibility centers such as cost centre, profit centre and investment centre. For efficient accomplishment of answerable accounting confident morality must be followed. Responsibility accounting helps not only in control but in planning and decision making too.

About the Author

MOHAMMAD WAHID ABDULLAH KHAN

S/O MOHAMMAD SAADULLAH KHAN

Dhaka, Bangladesh

Mr. Mohammad Wahid Abdullah Khan is the Project director of “Max Textiles Ltd”.Mr. Wahid has been in accounting field since 1999. Prior to that he had completed over ten (10) years in various fields of Business like - Accounts, Finance, Internal & External Audit, project budgeting and project costing related positions in some of the largest group companies & the join venture companies in Bangladesh.

He consults about small- medium business owners and services professionals, business consulting service and project process. He is most experience in Financial Risk Assessment, Financial analysis, Financial Advising and Project Cost Analysis. He has published more than 200 articles & case study in different international journals. Such as Business, finance, personal finance, international finance, auditing, Risk assessment topic and performance & industrial related,

Mr. khan’s most popular articles is  “WAK” Model - The way of best solution for an organization internal audit process,( 1st,2nd,& 3rd part)  “WAK” Model”- for successful financial resource , “Wahid khan”- cost analysis, Wahid theory – the key of dynamic series for successful financial consulting, Wahid techniques – the Significance and dependability manner for Performance audit(1st,2nd,& 3rd part) Wahid’s Opinion - non-conformity among the performance audit and financial audit, Wahid’s view- The cogent task and the confront of financial/economic analysis in the modern business decision making , Wahid’s outlook - The Business Financial Analysis Should Be Included several required Documents with the analysis report or plan, WAHID’S JUDGMENT- difference strategic plan as opposed to an operational plan ,WAHID’S METHOD– the charismatic and fruitful guideline for financial investment decision making ,WAHID’S MEASURE - the influential and evaluated of similarity between profit & non- profit business planning & Wahid’s philosophy- The examined & careful consideration of strategic planning against business planning, PPBS MODEL,

He has consulted with more than 30 service & product companies,  in recent years Mr. khan has been spending most of his professional time for financial consulting , Mr. Wahid is the owner of “WAM Associates” and “WAK business solutions”

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