Responsibility accounting

Definition

Responsibility accounting is a system of accounting that segregates revenue and costs into areas of personal responsibility to assess performance. It allows for accountability by holding managers responsible for the financial results of their specific segments or units.

5 Must Know Facts For Your Next Test

1. Responsibility centers can be classified into four types: cost centers, revenue centers, profit centers, and investment centers.
2. The primary purpose of responsibility accounting is to motivate managers to act in the best interests of the organization.
3. Performance measurement in responsibility accounting includes both financial and non-financial metrics.
4. Managers are evaluated based on controllable elements within their responsibility center.
5. Decentralization often accompanies responsibility accounting, allowing lower-level managers more decision-making authority.

Review Questions

• What are the four types of responsibility centers in responsibility accounting?
• Why is performance measurement important in responsibility accounting?
• How does decentralization relate to responsibility accounting?

Related terms

Cost Center: A unit where the manager is responsible only for controlling costs.

Profit Center: A division where the manager is responsible for both revenues and costs, thus profits.

Investment Center: A segment where the manager has control over revenues, costs, and investments.