RESPONSIBILITY ACCOUNTING

MEANING AND CONCEPT OF RESPONSIBILITY ACCOUNTING

An organization uses various techniques of costing such as Standard Costing, Budgetary Control for Control of Costs and so on. Under these costing techniques, focus is given on the cost and not on the person who has the authority to control the costs. In every well-structured organization, the responsibilities of every person's actions are clearly

defined and a manager is engaged in every section of actions of the organization. Every such person is accountable to his/her superior authority for the responsibility assigned

to him/her.

Responsibility Accounting may be defined as a system of control where a responsibility is assigned to different executives of a concern for control of cost or increase of revenue. It is one of the basic components of a good control system. In this system, an executive

is held responsible only for those activities for which he/she has been delegated a responsibility.

A business unit that can utilize capital to directly contribute to a company's profitability. Companies evaluate the performance of an

investment center according to the revenues it brings in through investments in capital assets compared to the overall expenses.

An investment center is sometimes called an investment division.

'Investment Center'

Cost centers and profit centers are typically treated differently within an organization. Because a cost center doesn't produce a

profit directly from its activities, managers of cost centers are responsible for keeping their costs in line or below budget.

Examples of cost centers include marketing, human resources and research and development.

'Cost Center'

'Profit Center'

A branch or division of a company that is accounted for on a standalone basis for the purposes of profit calculation. A profit center is responsible for generating its own results and earnings, and as such, its managers generally have decision-making authority related to product pricing and operating expenses. Profit centers are crucial in determining which units are the most and least profitable within an organization.

Responsibility center

Entity within an organization that holds responsibility for the management of revenue, expenses, and investment funds. This center is controlled by a responsibility manager that works with other individuals in the organization to establish procedures and accounting practices to ensure that the necessary expense and revenue information is reported accurately. The responsibility center will also work with accountants to make sure that the organization is meeting requirements set by the Internal Revenue Service.