What best defines responsibility accounting?

Responsibility accounting is best defined as the practice of using budgets as performance targets. This method emphasizes the accountability of various departments or managers for their financial results. It enables an organization to measure how well each segment of the business is adhering to its budgetary targets, facilitating better financial oversight and performance evaluation.

In responsibility accounting, managers are held accountable for the financial results that correspond to their specific areas of responsibility. By setting budgets as performance targets, organizations can compare actual performance against these budgets, allowing for variances to be analyzed and addressed. This approach fosters a sense of ownership among managers and encourages them to perform efficiently and effectively in their roles.

Setting budgets based on corporate objectives involves a broader strategic framework but does not specifically capture the essence of accountability that responsibility accounting emphasizes. A one-size-fits-all budgeting approach undermines the tailored nature of responsibility accounting, which requires customizing budgets to the unique circumstances of different departments or divisions. Fixing all company budgets to a baseline does not align with the objective of promoting accountability at various levels, as it could ignore the specific performance and context of different units within an organization.