Responsibility Accounting: Meaning, Steps and Limitations

In this article we will discuss about Responsibility Accounting:- 1. Steps in Responsibility Accounting 2. Centres 3. Limitations.

Steps in Responsibility Accounting:

To make responsibility accounting effective and efficient, the following steps are suggested:

(i) Targets are set and should be communicated to each manager Or executive.

(ii) A continuous appraisal of actual performance is to be made and actual results are to be conveyed to each manager of concerned responsibility centre.

(iii) The variances are to be reported to the higher management together with the names of managers of responsibility centres.

(iv) The corrective measures are to be suggested or taken and communicated to the concerned manager of each responsibility centre.

Responsibility Centres:

Responsibility Accounting is a system of control that focuses attention on the responsibility centres.

There are four types of responsibility centres that can be established in an organisation. They are:

(i) Expenses centre.

(ii) Revenue centre.

(iii) Profit centre.

(iv) Investment centre.

Limitations of Responsibility Accounting:

Like other management tools, responsibility accounting suffers from some limitations. Some of the limitations are stated below:

(i) It is practically difficult to design an organisation chart which might delineates lines of responsibility and grant authority required for responsibility assigned.

(ii) There is likely to be a conflict between individual interest and organisation interest leading to serious problems for implementation of policies.

(iii) A lot of passive resistance may be faced as a result of which basic objectives of the organisation may be lost.

(iv) This system ignores the personal reactions of the personnel involved in the process of implementation.

(v) There must exist a good reporting system without which the tool becomes useless and meaningless.

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