Accounting is an important part of business. Accounting procedures can be relatively minimal at many small businesses, and sometimes consist of just basic bookkeeping for sales and inventory and whatever record-keeping is required to pay taxes. However, accounting is much more involved at almost all larger businesses, both because of the economy of scale and because of complicated regulatory requirements regarding accounting.
Traditional accounting is a codified set of principles by which the financial affairs of a business are reported. These accounting principles developed over time in response to the needs of businesses and the requirements of governments, and they have become quite complex and in many cases report data that is not useful and not necessary to operate modern businesses. Traditional cost accounting is the process of allocating overhead costs to specific products, and this aspect of accounting has been especially problematic for businesses operating on modern lean management principles.
Lean accounting is the natural corollary to lean management. Lean management attempts to operate a business as efficiently as possible with just-in-time inventory processes and carefully considered and maximally space- and time-efficient manufacturing and delivery methods. Traditional accounting often does not accurately capture the efficiencies of lean management techniques, so lean accounting is designed to allow companies to report financial data as value streams rather than cost per unit as with traditional cost accounting systems. Value streams allow companies to see and report all the benefits of their modern lean management methods.
Lean Accounting and GAAP
According to Jean Cunningham, the chief financial officer of Lantech, properly implemented lean accounting systems absolutely do meet Generally Accepted Accounting Principles, or GAAP requirements; they simply report the financial data in different terms. Some proponents of lean accounting have even suggested that lean accounting more closely adheres to the spirit of GAAP, given that lean financial reports are generally simpler and easier for a non-accountant to understand.
Issues With Lean Accounting
One major issue that crops up in transitions to lean accounting systems is being able to accurately price products and determine profitability. Value streams can be broken down and the data used to calculate pricing and individual product profitability, but it takes some adjustments by both accountants and business managers to determine the process and what information is actually needed. Traditional accounting is also more exact in the sense that all costs are allocated, whereas lean accounting is designed to report costs more simply, in a reasonable, relatively accurate manner.