Responsibility Accounting

Learning Outcomes

  • Define responsibility accounting

What if your boss came into your office on a Friday afternoon asking why the phone bill is so high? What if you have no control over the phone bill, and don’t even have a company phone? Would it be fair to expect you to know what was up?

This is where responsibility accounting comes in. You, as a manager, can only be held responsible for the things you can control. If you are the sales manager, you may have control over company sales in your product line, but you may not have control over the salary budget line for the plant manager.

In larger companies, it may be impossible for one person to have responsibility for the entire budget, thus the responsibility gets broken down by department, production line or some other segment, so that variances can be noticed and reviewed.

As a manager, it is also important to take the initiative to review the budget and analyze variances to determine a plan of corrective action. The point of an effective responsibility accounting plan is to insure that things don’t fall through the cracks, but someone is reacting quickly to deviations from the budget.

Practice Questions