backflush accounting

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A method of costing a product based on a management philosophy that includes having the minimum levels of stock available; in these circumstances, the valuation of stocks becomes less important, making the complex use of absorption costing techniques unnecessary. Backflush accounting works backwards; after the actual costs have been determined they are allocated between stocks and cost of sales to establish profitability. There is no separate accounting for work in progress.

Subjects: Accounting.

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