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
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 .
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 .
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 .
Comparison of Actual performance with standards and targets
Company compare each department's employee's actual performance with their targets .
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.
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 .