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3.8 Responsibility Accounting

As the title suggests, responsibility accounting is a cost accounting system established on a responsibility basis. A basis is said to be responsible where actual results are as close to planned results as possible. As such, the variances are minimal. Planned results could be stated in budgets and standards. Properly speaking, responsibility accounting is a method of budgeting and performance reporting created around the structure of the organization. Individual managers are hold accountable for the costs within their jurisdiction. The purpose, obviously, is to exercise control over the operations.

Hence, in simple words, it could be described as a system of collecting and reporting accounting data on the basis of managerial level. Moore and Jaedicke rightly define it as “the approach to accountability- identification of cost, with the persons responsible for their incurrence. Performance is evaluated by assigned responsibilities. Reporting on performance is on the lines of organizational structure. There is a separate report for each box of the organization chart.

Responsibility accounting considers both historical and future costs. For some purposes, the activity of responsibility centres is expressed in historical amounts. For others, these are expressed in estimated future amounts.

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