Financial-Based Responsibility Accounting and Activity-Based Responsibility Accounting

Subject: Accounting
Pages: 1
Words: 252
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Responsibility accounting is a key component of accounting systems for companies when the measurement process for performance gets more intricate; the process requires the allocation of the responsibility of accounting to a specific person or group for particular segments of the company. These segments are usually organized as responsibility centers whereby their specified supervisors or managers have the authority to make decisions about the center and the responsibility for the performance of the center. Proper power and authority are accorded to individuals so that they have the ability to keep up with their performance, and if for any reason their performance is not up to the predetermined standards, the individuals are held personally responsible. In responsibility accounting, the emphasis is put on people and not systems. The main essential features of responsibility accounting include; planned and actual information, costs, and revenues or inputs and outputs, as well as identification of responsibility centers, which are usually classified into cost centers, profit centers, and investment centers.

Financial-based responsibility accounting uses variances and budgets to hold people accountable for the costs that they have the mandate to incur, making them manage costs instead of the activities that bring about the cost. Activity-based responsibility accounting is the tool for cost flow and interdependence analysis in elaborate manufacturing settings, and it provides an integral part of the management control system where costs reported and activities highlighted can influence organizational and employee behavior. It redefines accountability from costs to group-based activities.