What is accounting of liability?

Accounting of liability is an internal system used to better manage costs and performance. Its main focus is to force individual managers responsible for those elements of the performance of the company they can control. In most cases, he has no responsibility for the purpose of the company's public account. For example, if the company has a team of travel agencies, it can have a separate travel department to organize their trips and accommodation. In most cases, such a department will only spend money and will not directly generate revenue. Although travel agreements can be an important part of the sale process, the resulting sales revenues are likely to be recorded in accounts for separate departments. The relevant manager will be assessed how well it meets these goals. It is similar to most target systems, but it will usually work on a financial basis. The important distinction is that this financial assessment does not necessarily have been a net profitability measure.

In most responsibilities accounting systems, each department is classified into one of the four categories. The cost center will be assessed purely from how low it spends; The travel department in the above example would fall into this category. The income department, such as the sales team, will be assessed purely from the income it generates. The profitable center will be assessed on the basis of standard profit or loss. This could apply to individual trades in the chain.

The final category is an investment center. This can literally include financial investments, but it could also be included in long -term projects. The departments in such a category are usually assessed using a longer -term perspective that takes into account problems, such as capital expenditures, where the resulting income will not be collected in the first year.

In general, accounting of liability is purely internal measures. It is possible that the details of its operation and results couldI will include in the company's report, for example as information on the details of the change that the Company has made. This data would only be used as a way of sharing information with investors and potential investors. Details are usually not part of the compulsory financial information that the company must include in its public accounts.