Responsibility Accounting (#65)

In this podcast episode, we discuss the nature of responsibility accounting, and how such a system can be operated. Key points made are:

  • Every cost incurred must be the responsibility of someone within the organization.

  • A separate cost report should be issued to each responsible party, reporting on only the items for which that person is responsible. These reports may be laid out as profit centers, cost centers, or revenue centers. There will probably be only a few profit center reports, but there could be several hundred cost center reports. Revenue center reports are issued to the sales staff and product managers.

  • Allocating overhead within these reports is not a good idea. Overhead costs should only be reported to those people who are directly responsible for those costs.

  • The report format could be budget vs. actual, but a better approach is the 12-month rolling report, which is useful for spotting trends.

  • Set up responsibility reports in the reporting writing software of the accounting system, so that they print automatically as a batch.

  • Could issue responsibility reports in batches, with each batch associated with a different level of the organization.

  • When it appears that no one is responsible for an expense, have the CFO assign it to someone.

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