Question

Not-for-profit entities :

a) do not use responsibility accounting.

b) utilize responsibility accounting in trying to maximize net income.

c) utilize responsibility accounting in trying to minimize the cost of providing services.

d) have only noncontrollable costs.

Answer 1

Solution

Not for profit entities:

Correct option is C. – Utilize responsibility accounting in trying to minimize the cost of providing services.

Explanation – Responsibility accounting identifies the responsibility centres in the organization and make them accountable for budgets, expenses, revenues and profits.

The responsibility accounting assists in planning and control.

Not-for-profit entities usually receive contributions from third parties. The aim is to provide services with minimum expenses. The not for profit entities do not focus on earning or maximizing profits. The emphasis is on delivering quality service by keeping costs at low. The use of responsibility accounting aims to install accountability for funds received as contributions and minimize the cost of providing services.