Responsibility Accounting describes the decentralisation of authority with performance of the decentralised units measured in terms of accounting results.

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Responsibility Accounting recognises various decision centres throughout an organisation and trace costs, revenues, assets and liabilities to the individual managers who are responsible for making decisions about the costs in question.

 

It is a ‘ system of accounting that segregates revenues and costs into areas of personal responsibility in order to assess the performance attained by persons to whom authority has been assigned’.

 

Accounting reports are provided so that every manager is aware of all the items which are within his/her area of authority so that he is in a position to explain them.

 

There are three responsibility centres or units. A responsibility centre is’ a unit or function of an organisation headed by a manager having direct responsibility for its performance’.

 

Type of unit Manager has control over Performance Measurement
Cost centre Controllable costs Variance Analysis,
    Efficiency measures
     
Profit centre Controllable costs Profit
  Sales volume/prices  
     
Investment centre Controllable costs Return on Investment
  Sales Residual Income
  Investment in fixed/ WC assets Other financial ratios

 

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