What is Backflush?Process, Definition, and Benefits

What is Backflushing

Which costing is delayed until goods are finished. Costs are then ‘flushed’ back at the end of the production process and assigned to the goods. This approach helps in eliminating all work-in-process accounts and manual assignments of costs to products during the various production stages.

Backflush accounting is entirely automated, with a computer handling all transactions. Backflush costing may not always conform to generally accepted accounting principles (GAAP) and also lacks consideration of sequential audit trail.

Backflushing is not suitable for long production processes, neither for the production of customized products.

Implementing Backflushing in Your Inventory System

• Whenever a production order is made, only the basic information is entered which usually includes the requested quantity, the item number, and the date of delivery. This list of information is then used to create a ‘parts-list’ or a ‘pick list’ (also called a material list) as well as the routing for that specific order.
• Whenever it is time to begin the production process, there are several methods that are used to gather the required materials. One of the many methods is to used the parts-list to pick the materials from their destination and transfer them to the production area. Once this is done, the routing of all the components in the specific production order is then done by software.
• You (the user) will have the complete authority over the components that are present in the production line, which material to push in, in what quantity, etc. Now, backflushing is essentially the post-production process. While backflushing, you are not issuing the components until the final production is reported.
• Once the operation is completed, the operator will enter all the information about the production in the inventory management software. This software will then bring up a summing report after using the sum of the good quantity and the scrap quantity to recalculate what quantity of components will be further required to keep the production working.

Through this, the operator will then issue all the materials in a single transaction exactly the way they want it in their production line.

Blind backflush is also an option wherein the operator is not aware of the reports that the production reporting software creates.

Here are some potential benefits of backflush accounting:

1. Simplicity : Backflush accounting is simpler compared to traditional methods because it reduces the number of journal entries and transactions. This simplicity can result in cost savings in terms of accounting personnel time and resources.
2. Reduced Transaction Costs : With backflush accounting, fewer transactions are recorded, leading to reduced paperwork and transaction costs. This can streamline the accounting process and make it more efficient.
3. Real-Time Costing : Backflush accounting allows for real-time costing, as costs are only recorded when goods are completed and ready for sale. This can provide a more accurate and up-to-date picture of product costs.
4. Timely Financial Reporting : Since backflush accounting delays the recording of costs until goods are completed, financial reporting may be more timely. This can be beneficial for decision-making and analysis purposes.
5. Savings on Tracking Work in Process (WIP) : Traditional accounting systems often require detailed tracking of work in process (WIP) inventory. Backflush accounting eliminates the need for continuous WIP tracking, simplifying the inventory management process.
6. Reduced Complexity in Variances Analysis : Traditional systems may involve tracking and analyzing various types of variances, such as material, labor, and overhead variances. Backflush accounting simplifies this process by minimizing the number of variances to analyze.
7. Focus on Value-Added Activities : Backflush accounting allows companies to focus more on value-added activities rather than spending excessive time and resources on detailed tracking and recording of intermediate costs.
8. Improved Cash Flow : With costs only being recorded when goods are completed, there may be a positive impact on cash flow, as companies do not tie up in work-in-progress inventory for an extended period.