Definition: A responsibility accounting system is an accounting program that gathers and provides information for management to evaluate how well department managers are performing. In other words, it’s a system that is used to gauge how well departments are managing expenses and controlling costs.
What Does Responsibility Accounting System (RAS) Mean?
The responsibility accounting system is based on the idea that proper management should take place as closely to the departments as possible. The officer and executive level should not be in charge of the day-to-day operations of the individual departments. This would be inefficient and not cost effective because the executives don’t have first hand experience dealing with the problems of each department. The individual managers do, however.
The responsibility accounting system allows department heads to control and allocate expenses and costs based on what they need at the time. There are less top-level executives telling them how to run their operations. Instead, the executive management uses the RAS to track the performance of the managers to make sure they are properly organizing and maintaining their departments. Periodically, the top-level reviews the performance of the lower-level management.
To do this, the executives usually print out responsibility accounting performance reports from the system to help analyze the overall performance of the individual departments. If the numbers and stats look good and meet the company objectives, the top-level management usually approves the responsibility accounting budgets for the departments. Otherwise, the budgets are tweaked until they meet the company objectives.
Keep in mind; lower-level department managers don’t have full control over all expenses and costs in their area. Typically the RAS only allows department heads the ability to control and allocate controllable costs—not all costs. However, they do have to record all costs and report them in the system.