Backflush Costing

AAA

DEFINITION of 'Backflush Costing'

A product costing system generally used in a just-in-time inventory environment. Backflush costing delays the costing process until the production of goods is completed. Costs are then "flushed" back at the end of the production run and assigned to the goods. This eliminates the detailed tracking of costs throughout the production process, which is a feature of traditional costing systems.

INVESTOPEDIA EXPLAINS 'Backflush Costing'

By eliminating work-in-process accounts, backflush costing simplifies the accounting process. However, this simplification and other deviations from traditional costing systems mean that backflush costing may not always conform to generally accepted accounting principles (GAAP). Another drawback of this system is the lack of a sequential audit trail.

RELATED TERMS
  1. Full Costing

    A managerial accounting method that describes when all fixed ...
  2. Make To Order - MTO

    A business production strategy that typically allows consumers ...
  3. Just In Time - JIT

    An inventory strategy companies employ to increase efficiency ...
  4. Goods In Process

    An inventory account that is usually identified on the balance ...
  5. Activity-Based Costing - ABC

    An accounting method that identifies the activities that a firm ...
  6. Expanded Accounting Equation

    The expanded accounting equation is derived from the accounting ...
Related Articles
  1. The Working Capital Position
    Investing Basics

    The Working Capital Position

  2. Inventory Valuation For Investors: FIFO ...
    Fundamental Analysis

    Inventory Valuation For Investors: FIFO ...

  3. Understanding The Cash Conversion Cycle
    Investing Basics

    Understanding The Cash Conversion Cycle

  4. Vital Link: Manufacturing And Economic ...
    Fundamental Analysis

    Vital Link: Manufacturing And Economic ...

comments powered by Disqus
Hot Definitions
  1. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  2. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  4. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  5. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  6. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
Trading Center