Responsibility accouting
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Responsibility accounting is a management system that aims to develop performance measures to evaluate segment managers. It provides the right information to managers at the right time. Responsibility accounting categorizes segments as cost centers, revenue centers, profit centers, or investment centers depending on whether managers are responsible for costs, revenues, profits, or capital invested. Evaluation tools may include cost standards, contribution income statements, or rates of return on invested funds depending on the type of responsibility center.
Responsibility accouting
- 2. Responsibility Accounting is a management system that aims to develop performance measures by which segment managers are evaluated. The essence of responsibility accounting is to communicate the right information to the right person at the right time.
- 3. Relating to the responsibilities of individual managers. To evaluate managers on controllable items. An accounting system that provides information . . .
- 4. A subunit in an organization that is headed by a responsible manager. A subunit in an organization that is headed by a responsible manager.
- 5. Under responsibility accounting responsibility centers are broadly categorized as: Cost centers – segments whose managers are held responsible only for costs but not for revenue or investments. Revenue centers- segment is responsible for the revenue of particular unit or center. Profit centers – segments whose managers are held responsible for both costs and revenues but not for investments. Investment centers – segments whose managers are held responsible for the capital invested as well as the profits made in the segment.
- 6. Cost CenterCost Center SSegment hasegment has control overcontrol over the incurrencethe incurrence of costs.of costs. Cost CenterCost Center SSegment hasegment has control overcontrol over the incurrencethe incurrence of costs.of costs. The Paint DepartmentThe Paint Department in an automobile plant.in an automobile plant. RevenueRevenue CenterCenter SegmentSegment is responsibleis responsible for the revenuefor the revenue of a unit.of a unit. RevenueRevenue CenterCenter SegmentSegment is responsibleis responsible for the revenuefor the revenue of a unit.of a unit. The ReservationsThe Reservations Department of an airline.Department of an airline.
- 7. Profit CenterProfit Center Segment hasSegment has control overcontrol over bothboth costs andcosts and revenues.revenues. Profit CenterProfit Center Segment hasSegment has control overcontrol over bothboth costs andcosts and revenues.revenues. Company-owned restaurantCompany-owned restaurant in a fast-food chain.in a fast-food chain. InvestmentInvestment CenterCenter Segment hasSegment has control overcontrol over profits andprofits and invested capital.invested capital. InvestmentInvestment CenterCenter Segment hasSegment has control overcontrol over profits andprofits and invested capital.invested capital. A division of aA division of a large corporation.large corporation.
- 8. CostCost standardsstandards CostCost standardsstandards Contribution income statement Contribution income statement Rate of returnRate of return on investedon invested fundsfunds Rate of returnRate of return on investedon invested fundsfunds Evaluation ToolEvaluation Tool CostCost CenterCenter CostCost CenterCenter InvestmentInvestment CenterCenter InvestmentInvestment CenterCenter Profit Center Profit Center
- 9. Cost Responsibility Reports Responsibility Reports Prepared for each individual who has control over revenue or expense items