Back flush accounting is a type of accounting where the accounting procedures are not conducted until the final manufacturing of the product is not completed. After the completion of manufacturing the accounting is done for all the issues that were carried out from the manufacturing to inventory required for the creation of the product. The benefit of this approach is that it avoids all the manual cost transactions that are required to be written down in record during the entire process of manufacturing the product. Hence Back flush accounting helps in eliminating manual clerical labor work. The formula of back flush accounting can be shown as follows
Numbers of units of products produced x number of units counted in the bill of materials = Number of units of raw material removed from inventory
Although back flush accounting eliminates a lot of manual work however it has certain problems including it is difficult to implement. Moreover back flush accounting requires a hundred percent accurate product count to produce accurate result. Another requirement for this type of accounting is the presence of an accurate bill of materials along with having an excellent reporting about the scraps produced during the production of the product. Another requirement of the back flush accounting is a fast production cycle as the products are not removed from the inventory until and unless the entire production is finished.
If the production process is extra long the back flush accounting is not advisable approach to use as it will take a long time in completion of the product and eventually removal of the items from the inventory.
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