Lean accounting is accounting for the lean enterprise. It seeks to move from traditional cost accounting to a system which measures the practices and applies lean principles to accounting. Traditional accounting systems are anti-lean and they are large, complex, and wasteful processes which include non-value work. Generally, the information is related to the measurement of labor efficiency, overhead allocation and absorption which leads to large batch production. There is no way to identify the financial impact of lean accounting. The problem is that understanding the lean accounting report can be done only by a few people. Standard costing is used which may lead to wrong decisions with regard to profitability, sourcing, make or buy decisions and product rationalization. Value is the main focus in the case of lean accounting. Only value-added activities are considered and non-value-added activities are eliminated. Lean accounting recognizes problems with standard costing and also activity-based costing. It includes allocations of labor and overheads to product. Generally, cash flows are taken into consideration. The accounting process includes one-day financial closure. Lean accounting is based on cash benefits only. Simple general ledger is followed. Payments are made only on the receipt of materials.
The operational managers are criticizing that whatever the profits gained through lean initiatives are not accounted for, such as reduction in the inventory and cycle time.
Because of the gap between traditional accounting and lean benefits, wrong behaviors can be motivated in lean enterprises. For example machine efficiency measures may motivate shift production to create needless inventory.
|
