Responsibility Accounting

Question

Explain the term Responsibility Accounting and types of responsibility centres with example?

Answer 1

Responsibility accounting is a management control system based on the principles of delegating and locating responsibility. Managers are held responsible for the variances in the actual and budgeted performances.

Responsibility accounting is a “system of accounting in which costs and revenues are accumulated and reported to the managers on the basis of the manager’s control over the costs and revenues. The managerial accounting system that ties budgeting and performance reporting to a decentralized organization is called responsibility accounting.”

The implementation of responsibility accounting system is possible by determination of Responsibility centre. There various types of responsibility centres are namely:-

Illustration:

The concept of responsibility accounting shall be explained with the help of the example of United Service Automobile Association (USAA). The company is a fortune 500 company offering valuable services like banking, investing and insurance to people or families of those serving United States Military. The company is a pioneer in direct marketing.