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. Nonadmitted Balance

    An item on an insurer’s balance sheet that represents reinsured ...
RELATED FAQS
  1. No results found.
Related Articles
  1. Investing Basics

    The Working Capital Position

    Learn how to correctly analyze a company's liquidity and beat the average investor.
  2. Fundamental Analysis

    Inventory Valuation For Investors: FIFO And LIFO

    We go over these methods of calculating this component of the balance sheet, and how the choice affects the bottom line.
  3. Investing Basics

    Understanding The Cash Conversion Cycle

    Find out how a simple calculation can help you uncover the most efficient companies.
  4. Fundamental Analysis

    Vital Link: Manufacturing And Economic Recovery

    Manufacturing output is one of the clearest signs that an economy is recovering from a recession.
  5. Investing

    What's a Debit Note?

    A debit note is a document used by a seller to inform a purchaser of a dollar amount owed. As the name indicates, it is a note from the seller that a debit has been made to the purchaser’s account. ...
  6. Investing

    What's Capitalization?

    Capitalization has different meanings depending on the context.
  7. Investing

    Deferred Tax Liability

    Deferred tax liability is a tax that has been assessed or is due for the current period, but has not yet been paid. The deferral arises because of timing differences between the accrual of the ...
  8. Fundamental Analysis

    The Best 5 Online Accounting Systems For Small Business

    Running a small business can be difficult, but thanks to these online accounting services, taking care of payroll doesn't have to be.
  9. Investing

    Understanding Cost Accounting

    Cost accounting is the method of financially allocating expenses to goods that are manufactured for resale. Cost accounting is also referred to as managerial accounting, because managers use ...
  10. Investing

    What are Prepaid Expenses?

    A prepaid expense is an asset on the balance sheet. Due to accounting principles, expenses are often accrued on the balance sheet and expensed in a later period.

You May Also Like

Hot Definitions
  1. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  2. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  3. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  4. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  5. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  6. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
Trading Center