Responsibility Accounting & Transfer Pricing

Responsibility accounting and transfer pricing are two concepts used in accounting.

Responsibility accounting is the practice of dividing large organizations into segments to perform specific responsibilities. Transfer pricing is a procedure used by companies to reduce costs of goods and services by transferring goods between related companies.

Responsibility Accounting

In responsibility accounting, each segment of a business is designed to perform specific duties. The segments include revenue centers, profit centers, investment centers and cost centers.

Purpose of Responsibility Accounting

Dividing a company into segments allows for a more specialized approach by the managers in charge. Each segment focuses on one aspect of the business, allowing the segments to have a great amount of influence on the one topic they are responsible for. This division also promotes good internal controls within an organization.

Transfer Pricing

In transfer pricing, the related businesses must all be part of one group, such as a parent and subsidiary company or two divisions in the same company. This procedure is used to transfer goods or services to other divisions of a company in order to efficiently manage profits and losses in a business.

IRS Regulated

Transfer pricing is regulated by Section 482 of the Internal Revenue Code. The IRS allows this procedure to take place but places some controls over it. Transfer pricing is not allowed to avoid paying taxes.

References

• Management and Accounting Web: What is Responsibility Accounting?
• College Accounting Coach: What is Responsibility Accounting?
• Degree Search USA: IRS Rule on Transfer Pricing