accounting article discussion post reply
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The uses of responsibility accounting
The article that I found talks about the uses of responsibility accounting. “Responsibility accounting is a method for establishing where the work of an organization originates and who manages it†(Ferrara, 1982, pg. 40). The article states that today’s managers are learning to appreciate the value of responsibility accounting in the control function, in setting goals for employees, and planning which is the most important thing (Ferrara, 1982). “The foundation of responsibility accounting is the idea that individuals or groups should be charged for only those things that they control or significantly influence†(Ferrara, 1982, pg. 40). It also states that the nature of responsibility accounting is substantially influenced by the perspective we take on the organizational chart (Ferrara, 1982). Of course it shows some table and figures to comprehend more about responsibility accounting. An interesting piece of information I found is that visual observation and preventive controls are fundamental to responsibility accounting (Ferrara, 1982). It states that the role of visual observation is especially critical since the formal reporting process may not be responsive to the unanticipated (Ferrara, 1982). For so many years the responsibility accounting addressed itself almost entirely to the detection of variances between budgeted amounts and actual results (Ferrara, 1982). In the article it suggest at least four provocative conclusion about responsibility accounting: 1. Cash flow is more important than net income 2. Systems for evaluating and rewarding managerial success may have to be different for different segments of the product portfolio 3. Personal attributes of managers for different segments of the product portfolio may have to be different 4. Profitability and ROI, even on a cash-flow basis, may be applicable only at an aggregate level. “Using responsibility accounting, strategic planners must consider the entire life cycle of a product at different stages of the cycle†(Ferrara, 1982, pg. 50).
Reaction:
My reaction is ever since I began classes for this degree I get surprise of the new things I am learning. Still, “The definition of responsibility accounting is based on the assumption that every cost incurred must be the responsibility of one person somewhere in the company†(AccountingTool.com, 2018). So my understanding after looking for a definition and re-reading the article, is that in a company every department should be responsible for their own cost. For example, in a retail clothing store, one manager is only responsible for the men’s section costs, as for another manager would take care of the jewelry section costs. This is why if one section does not do well in their section, they won’t get rewarded with funds for their section. Well this is how I understand it.
Link:
Ferrera, W. L. (1982). The uses of responsibility accounting. Advanced Management Journal (03621863), 47(1), 40.
AccountingTools.com (2018). Responsibility accounting. Accountingtools.com. Retrieved from https://www.accountingtools.com/articles/what-is-r…
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