Responsibility Accounting is the collection and reporting of financial information about the decision centers in an organization. It is also called "activity or profitability accounting". In this system, individual managers are primarily responsible for making decisions regarding costs, revenues and profits. This method is appropriate when there is a delegation of authority from top management in decision making. Responsibility Accounting is one of the tools to judge the manager's performance. This system of accounting is applicable in diversified organizations which are difficult to be managed in a single unit or segment and which are decentralized into different manageable parts. These parts or divisions or segments are referred as responsibility centers. Generally revenue centers, cost centers, profit centers and investment centers are included among the responsibility centers.
This approach makes the segment managers accountable and responsible to their respective centers. For a revenue center, the aim is to increase the greater revenue with relatively lesser cost. For a cost center which normally generates costs only, the influence can be for reducing costs, increasing profits and as a measure of profitability, the influence can be overall. In case of investment center, the manager can influence and control the acquisitions, assets, revenues and costs. Responsibility accounting can be attributed as one of the most logical segment or component or sub-component of an organization. Sometimes it includes a department, a branch or a service center. |
