Definition
of Accounting
According to American Accounting Association,
1966(ASOBAT)
The committee defines accounting as the process of
identifying, measuring, and communicating economic information to permit
informed judgments and decisions by users of the information.
Responsibility
accounting
is the system for collecting and reporting revenue and cost information by
areas of responsibility. It operates on the premise that managers should be
held responsible for their performance, the performance of their subordinates,
and all activities within their responsibility center. Responsibility
accounting is also called profitability accounting and activity accounting.
Planning & control are essential for achieving
good results in any business. Firstly, a budget is prepared and, secondly,
actual results are compared with budgeted ones. Any difference is made
responsibility of the key individuals who were involved in (i) setting
standards, (ii) given necessary resources and (iii) powers to use them.
In order to streamline the process, the entire
organization is broken into various types of centers mainly cost centre,
revenue centre, profit center and investment centre. The organizational budget
is divided on these lines and passed on to the concerned managers. Actual
results are collected and displayed in the same form for comparison.
Difference, if any, are highlighted and brought to the notice of the
management. This process is called Responsibility Accounting.