Before the managers can embark on the preparation of budget, they should at least know about the following basics pertaining to budgeting:-
- The Objectives of Budgeting(Part1)
- The Benefits & Limitation of Budgeting(Part2)
- Key Success Factors for Budgeting(Part3)
- Steps Involved in Budgeting(Part4)
- Difference between Budget & Budgetary Control System(Part5)
- Key features of budgetary control(Part6)
- Objectives & Purposes/Roles Of Budget Commitee(Part7)
- Budget Manual(Part8)
- Types Of Budget-Flexible Budget(Part9)
- Types of Budget-Incremental Budget(Part10)
- Types of Budget-Zero Based Budgeting(Part11)
- UNDERSTAND WHAT IS RESPONSIBILITY ACCOUNTING(PART12)
Here in this Part 12, Responsibility Accounting is narrated as it’s very closed linked to budgetary control/budgeting.
Responsibility Accounting is a system where:
- managers are held responsible for the difference between the actual performance and those budgeted;
- the managers are closely involved in the planning and controlling of the resources and
- has a Responsibility centre which is a division or department in the organization for them to be responsible for their performance.
There are basically the following four types of Responsibility centres:
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COST CENTRE |
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Here, the manager is responsible for costs. Examples like the manager for Purchasing department and Maintenance department
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REVENUE CENTRE |
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Here, the manager is responsible for generating sales. A typical example is the Sales Department
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PROFIT CENTRE |
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The manager is responsible for both revenue and cost. The reason been Revenue minus Cost is the Profit.
The manager is therefore overall responsible or accountable for making profit for the company. A company has many restaurants which are all profit centre. A manager is assigned to each restaurant to make sure it is a profit centre.
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INVESTMENT CENTRE |
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An example of an investment centre is a Corporate division responsible for project investments.
Here, the manager is responsible for the investments which includes all the revenue, costs and investments (invested capital or assets)
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