Responsibility accounting involves a company’s internal accounting and budgeting. The objective is to assist in the planning and control of a company’s responsibility centers – such as decentralized departments and divisions. It also involves a company’s internal accounting and budgeting. It is a system of accounting under which managers are given decision making authority and responsibility for activities occurring within specific areas of a company.
According to Anthony and Reece: “Responsibility accounting is that type of management accounting that collects and reports both planned actual accounting information in terms of responsibility centers”.
According to Louderback and Dominiak: “Responsibility accounting is the name given to that aspect of the managerial process dealing with the reporting of information to facilitate control of operations and evaluation of performance.”
Responsibility accounting usually involves the preparation of annual and monthly budgets for each responsibility center. Then the company’s actual transactions are classified by responsibility center and a monthly report is prepared. The reports will present the actual amounts for each budget line item and the variance between the budget and actual amounts. Responsibility accounting allows the company and each manager of a responsibility center to receive monthly feedback on the manager’s performance. The performance of the manager and his or her subordinates are evaluated based on the achievement of these goals.