Backflushing inventory is a simplified approach to assigning production costs to products.
Simple, right? Wrong.
Backflushing is a challenging and complex method — though some businesses might call it a saving grace — of handling the technicalities of accounting for products and inventory. But let’s take it from the top.
The backflushing strategy involves recording inventory transactions after the completion of the production process. The term describes the retrospective incorporation of costs into the system. That’s because the costs associated with the manufacturing of goods are calculated only after production is complete.
Pompous etymology aside, the advantages of backflushing inventory range from reduced transaction costs to more timely financial reporting to an improved cash flow. And, just like Céline Dion’s heart, the list of backflushing benefits will go on.
If you’re looking to find out why Rose didn’t make room for Jack on that floating door, we don’t know. But if you’re looking for answers to questions like “What exactly is backflushing inventory? How to manage backflushing inventory? And what’s the big deal anyway?”, you’re in the right place.