See the steps of the system of Responsibility accounting

Responsibility accounting may be defined as a type of management accounting in which information of responsibility centres are collected and on these information , the responsibility of each employee of company is determined .
Under this system of accounting whole organisation is divided in responsibility centres and powers are given to each employee to do specific work and his performance is recorded and on his performance his responsibility is determined . This is the technique of budgetary control .

Steps taken for establishing the system of Responsibility accounting

1st step

Division of company into departments

For calculating the responsibility of each employee , whole company is divided in segments , departments and different responsibility centres and in these responsibility centres , we also given different names like investment center , profit center and cost center .

2nd Step

Determination the objective of each department

Company's above authority designs different objectives and standards of each and and every department . These works have to do by each employee in that specific department .

3rd Step

Calculation of Actual performance

Under general accounting system , company calculates the actual performance of each employee and this will be recorded under different responsibility centers .

4rd step

Comparison of Actual performance with standards and targets

Company compare each department's employee's actual performance with their targets .

5th Step

Calculate the value of Variance

After this company calculate the value of employee's actual and standard performance's variance . It may favorable , if actual performance is better than target which is fixed by company.

6th step


Corrective measures

Because this is the main aim of responsibility accounting to control each center , so if the employee's performance is negative , corrective measures are taken by company . It may in the form of transfer , suspension or training to employees .