Responsibility Accounting

Responsibility Accounting

A management control system that assigns accountability for financial performance to specific individuals by dividing the organization into responsibility centers, holding managers accountable only for revenues, costs, and investments within their control.

For example, in a manufacturing company, the production manager might be responsible for a cost center evaluated on production efficiency and cost control, while a sales director might oversee a revenue center measured on sales growth and market share, with both reporting to a division head accountable for a profit center’s overall profitability.

Responsibility accounting aligns authority with accountability by matching evaluation metrics to decision-making authority. Common responsibility center types include cost centers (accountable for costs only), revenue centers (accountable for revenue generation), profit centers (accountable for both revenues and related costs), and investment centers (accountable for profits relative to invested capital). The approach requires clearly defined areas of responsibility, appropriate performance metrics, relevant budget targets, meaningful variance analysis, and fair performance evaluation. Effective implementation provides several benefits: improved accountability, better resource allocation, enhanced performance visibility, and increased management focus, while avoiding potential pitfalls like suboptimization, short-term focus, or dysfunctional behavior resulting from inappropriate metrics.