Responsibility Accounting

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What is Responsibility Accounting? – Definition

Responsibility Accounting is a basic part of good budgeting; budgets should be prepared by the people who will be responsible for achieving them.

Explanation

Budgets should be prepared by the individuals who will be responsible for achieving them. This ensures that full use is made of the knowledge of the people who know most about the detail. It also means that managers and their subordinates are committed to, and regard their budget as their intention.

The more ‘grass roots’ level the budgeting process starts from, the better chance there will be of getting realistic results. With the greater involvement of staff, cost control will also be better.

  • Budgeting and responsibility accounting implies providing management control information. This feedback system compares the performance and effectiveness of operating, with the plan. It also provides the opportunity for reappraisal and adjustment of plans.
  • Budgeting helps to determine priorities. Management information produced by the budgeting process makes the complicated matter of running a business a lot easier. We are not just looking for a means of explaining variances; we need a flexible system, a guide, not a straitjacket. Given information, better decision making is possible as well as effective monitoring of progress.
  • Budgeting is concerned with Management Effectiveness. It is better to do the right job moderately well than to do the wrong job superlatively well. Of course, it is better still to do the right job superlatively well!
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