Responsibility accounting is a fundamental tool of managerial control and is defined by four essential elements: (1) assigning responsibility, (2) establishing performance measures or benchmarks, (3) evaluating performance, and (4) assigning rewards. The objective of responsibility accounting is to influence behavior in such a way that individual and organizational initiatives are aligned to achieve a common goal or goals. Exhibit 5-3 illustrates the responsibility accounting model.
A particular responsibility accounting system is defined by hot the four elements in Exhibit 5-3 are defined. Three types of responsibility accounting systems have evolved over time: financial (functional)-based, activity-based, and strategic-based. All three are found in practice today. of the three, only financial-based and activity-based will be discussed in this chapter. The strategic-based responsibility accounting systems are discussed in Chapter 16.