What is Responsibility Accounting?
Responsibility accounting is a system within management accounting where information is provided to all tiers of an organization based on the responsibilities of individual managers. It allows organizations to track and control costs and revenues, making those directly responsible for expenditure and income accountable for their outcomes.
Key Features:
- Decentralization: Assigning specific financial targets or objectives to managers responsible for certain areas.
- Performance Measurement: Comparing actual performance against pre-determined standards.
- Budgetary Control and Standard Costing: Tools used to measure managers’ performance.
Examples
Example 1: Manufacturing Company
In a manufacturing company, different departments such as production, purchasing, and sales are managed independently. Each manager is responsible for meeting specific budgets, and their performance is evaluated based on how well they manage the costs and revenues under their control.
Example 2: Retail Chain
A large retail chain may utilize responsibility accounting by assigning budgetary goals to each store manager. Store managers are responsible for managing their staff, controlling expenses, and meeting sales targets. Their performance is then assessed by comparing actual data to budgeted figures.
Frequently Asked Questions (FAQs)
What is the main objective of responsibility accounting?
The main objective is to align individual managers’ performance with organizational goals, ensuring accountability, and effective control over revenue and expenditure.
Does responsibility accounting apply to all types of organizations?
Yes, responsibility accounting can be implemented in various types of organizations, including manufacturing, retail, service businesses, and non-profits.
How does responsibility accounting help in performance evaluation?
By comparing actual performance to budgeted figures and pre-established standards, managers can identify variances, analyze underlying issues, and implement corrective measures.
What are some of the key tools used in responsibility accounting?
Some key tools include budgetary control, variance analysis, and standard costing. These tools help in planning, monitoring, and evaluating the financial performance of different responsibility centers.
What are responsibility centers?
Responsibility centers are specific segments or units within an organization where managers are accountable for certain financial outcomes. These can include cost centers, revenue centers, profit centers, and investment centers.
Related Terms
Management Accounting
A field of accounting focused on providing financial information and analysis to support managerial decision-making, planning, and control.
Budgetary Control
A method for controlling an organization’s finances by comparing actual results to budgeted figures and analyzing variances.
Standard Costing
A costing method that assigns expected costs to products or services and compares them to actual costs to determine variances.
Online Resources
- Investopedia: Management Accounting
- Accounting Coach: Budgetary Control
- CPA Canada: Standard Costing
Suggested Books for Further Studies
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“Managerial Accounting” by Ray H. Garrison and Eric Noreen
- This book provides a comprehensive overview of managerial accounting principles, including responsibility accounting, budgetary control, and performance measurement.
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“Cost Accounting: A Managerial Emphasis” by Charles T. Horngren
- A well-regarded textbook in the field of cost accounting with in-depth coverage of standard costing and other tools used in responsibility accounting.
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“Accounting for Decision Making and Control” by Jerold Zimmerman
- An analytical approach to management accounting, with a focus on decision-making and control mechanisms such as responsibility accounting.
Accounting Basics: “Responsibility Accounting” Fundamentals Quiz
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