Backflush Costing

What is 'Backflush Costing'

Backflush costing is 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.

BREAKING DOWN '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. Cost Accounting

    A type of accounting process that aims to capture a company's ...
  2. Activity-Based Costing - ABC

    An accounting method that identifies the activities that a firm ...
  3. Direct Cost

    A price that can be completely attributed to the production of ...
  4. Production Cost

    A cost incurred by a business when manufacturing a good or producing ...
  5. Operating Cost

    Expenses associated with the maintenance and administration of ...
  6. Variable Cost

    A corporate expense that varies with production output. Variable ...
Related Articles
  1. Markets

    Examining Costs Of Goods Sold (COGS)

    Learn more about the costs that go into production.
  2. Investing

    Understanding Periodic Vs. Perpetual Inventory

    An overview of the two primary inventory accounting systems.
  3. Markets

    Understanding Cost of Revenue

    The cost of revenue is the total costs a business incurs to manufacture and deliver a product or service.
  4. Markets

    What is the Cost of Funds?

    Cost of funds is the interest cost financial institutions pay to use the funds they deploy in their business.
  5. Investing

    Explaining Cost Control

    For a business, cost control entails managing and reducing expenses.
  6. Investing

    What is Incremental Cost?

    Incremental cost is the added cost of manufacturing one more unit.
  7. Investing

    Explaining Prime Cost

    Prime cost is a way of measuring the total cost of the production inputs needed to create a given output.
  8. Investing

    What are Direct Costs?

    Direct costs for finished goods refer to the items and services directly used in production. Other costs such as rent and insurance for the production site are indirect costs. These costs may ...
  9. Investing

    Explaining Cost Of Capital

    Cost of capital is the cost of funds used to finance a business.
  10. Investing

    What is Involved in Inventory Management?

    Inventory management refers to the theories, functions and management skills involved in controlling an inventory.
RELATED FAQS
  1. What are the differences between period costs and product costs?

    Find out why GAAP separates all company expenses into either period or production costs and how this impacts the way expenses ... Read Answer >>
  2. How are fixed costs treated in cost accounting?

    Learn how fixed costs and variable costs are used in cost accounting to help a company's management in budgeting and controlling ... Read Answer >>
  3. How is the marginal cost of production used to find an optimum production level?

    Understand more about production cost calculations, and specifically how the marginal cost of production is used to determine ... Read Answer >>
  4. Do production costs include the marginal cost of production?

    Learn more about marginal costs of production and production costs. Find out how businesses can use marginal cost calculations ... Read Answer >>
  5. How do fixed and variable costs each affect the marginal cost of production?

    Learn about the marginal cost of production, how to calculate the marginal cost, and how fixed costs and variable costs affect ... Read Answer >>
  6. What are the main objectives of cost accounting?

    Learn about the main benefits of cost accounting systems, why they are different from financial accounting and why they are ... Read Answer >>
Hot Definitions
  1. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  2. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  3. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  4. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  5. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
Trading Center