What is responsibility accounting?

Responsibility accounting involves a company's internal accounting and budgeting. The objective is to assist in the planning and control of a company's responsibility centers—such as decentralized departments and divisions.

Responsibility accounting usually involves the preparation of annual and monthly budgets for each responsibility center. Then the company's actual transactions are classified by responsibility center and a monthly report is prepared. The reports will present the actual amounts for each budget line item and the variance between the budget and actual amounts.

Responsibility accounting allows the company and each manager of a responsibility center to receive monthly feedback on the manager's performance.