Responsibility Accounting
Responsibility Accounting focuses on providing financial information useful in evaluating the efficiency and effectiveness of managers or department heads on the basis of the financial performance directly under their control. It is a system that collects, summarizes, and reports accounting data relating to the responsibilities of individual managers; in a sense it holds managers accountable for their actions in their individual departments.
As long as certain conditions exist, Responsibility Accounting can be used in every level of management. These condition are: Cost and revenue can be directly associated with the specific level of management responsibility; the cost and revenues can be controlled by employees at the level or responsibility with which they are associated; budget data can be developed for evaluating the manager’s effectiveness in controlling the costs and revenues. Responsibility Accounting is especially effective in decentralized companies where segments are used to identify separate areas of responsibility.
These segments are known as responsibility centers and are again broken down into several sectors. The sectors are cost center, profit center, and investment center. These sectors indicate where the responsibility of the individual manager lies, and on what basis the manager will be evaluated.
A cost center is a segment that incurs costs and expenses, but does not produce revenue. The success of management in a cost center can be measured by the ability to control these costs and staying within a given budget. Examples of cost centers include production, manufacturing service, maintenance, and quality control departments. They can also include IT and human resources; even the accounting department could be considered an example of cost centers. In a way any department that does not produce revenue can be