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The term lean accounting has caused some confusion as it continues being adopted throughout industry. Lean accounting is often mistakenly defined as “applying lean principles to the accounting function,” just as lean is applied to operations. Applying lean principles to accounting is a necessary step in becoming a lean enterprise, but the term lean accounting was adopted nearly a decade ago to represent something much larger.

 

Lean accounting might better be described as “accounting for the lean enterprise.” This movement seeks to move from traditional cost accounting to a system that measures and motivates good business practices in the lean enterprise.

 

• Measure - Those in operations have long argued that accounting does not accurately reflect the positive gains made through lean initiatives. For example, a reduction in inventory, cycle time, or new found capacity in operations is not accurately reflected or understood. The problem comes when business strategy is made with wrong or misguided metrics.

• Motivate - Traditional accounting practices often motivate wrong behaviors in the lean enterprise. For instance, attempts to meet efficiency measures may motivate shift supervisors to create needless inventory.

In summary, lean accounting seeks to shift from traditional accounting practices to practices that accurately measures and motivates the lean enterprise.