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What is lean accounting and how can you make it work for your company

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It is difficult to understand the principles of lean accounting if you do not first understand the basics of lean manufacturing.Lean manufacturing is a manufacturing process that seeks to eliminate waste and therefore reduce costs.There are many different ways of reducing costs.One such way is to follow the Just-in-Time method.This method dictates that a product only needs be manufactured when it is directly requested by a customer.This means that the costs associated with inventory and excess production are eliminated.Waste can also be reduced by increasing efficiency of machines and better training employees so that fewer employees are needed to do a high quality job.

When a company uses lean manufacturing there are some very significant financial savings that exists as a result, however traditional accounting methods do not account for these lean savings.The goal of lean accounting is to measure the good business practices of a lean organization and reflect those financially sound practices in their accounting.Of course since the practice of lean accounting is not set in stone, there are different ways to make lean accounting work for your company.You will need to know the following techniques if lean accounting is to be incorporated successfully.

How to measure in lean accounting

There is a strong argument for the fact that accepted accounting practices do not account for the positive gains that are made by a company that has incorporated principles of lean manufacturing.After all, there is no standard way to account for increases in efficiency or the benefits of only producing the products as they are needed, thus decreasing many other costs that will never have to be recorded in the first place. Certainly there is monetary value in that.However the metrics system does not agree with this business strategy.CPA's who recognize the value in practicing lean manufacturing have implemented their own methods of lean accounting that are designed to more accurately describe the level of performance that lean manufacturers are achieving.These lean accountants look at the numbers in a lean business differently.Costs are associated with value instead of a certain pre-determined category or department.Variables in accounting are seen as value that is reasonably associated with an individual product or the entire product line.

Motivate better business behavior through lean accounting

Traditional accounting practices often motivate behaviors that are contrary to the principles of lean manufacturing because of the disappointing numerical findings that are often found.If a company that has just implemented lean principles sees through traditional accounting that the hard numbers of the change to not make the change monetarily advantageous, the lean principles may be deemed ineffective and abandoned.Lean accounting principles work well for your company when you can illustrate with numbers the monetary effectiveness of lean changes that yield improvements.


Difficulty with transitioning to using lean accounting

While using lean accounting can solve some of your problems and work well to more accurately reflect your company's position, it cannot solve all of the discrepancies with traditional accounting that may exist.For example, accountants cannot always accurately price products solely based on potential for profitability or by means of the process of production.It is also difficult to come up with an accounting approach that values speed and quality.

Use lean accounting as a supplemental tool

Because of all the conflicts that are possible with lean accounting as a primary means of accounting, most companies decide to use traditional accounting methods and then to supplement those methods with the results of a lean accounting calculation.Lean accounting is ultimately designed to be a tool that companies can use to gage the effectiveness of their different process implementations.

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