© BMA Inc. 2008. All rights reserved.

Lean Accounting and GAAP

© BMA Inc. 2008. All rights reserved.

The Purpose of Lean Accounting Statements is Different from GAAP

• Lean Accounting statements are tailored to managing a lean value stream—for internal purposes

• GAAP statements are tailored for presentation of financial statements for shareholders and lenders to the company—for external purposes

© BMA Inc. 2008. All rights reserved.

Lean Accounting Statements Depict Internally Generated Working Capital and/or Cash Flow from Value Stream Operations

• Revenues are recorded when an item is shipped

• Expenses are shown when the commitment to spend is incurred as when--- – materials are received from a supplier– Labor is incurred– Depreciation is accrued– Other expenses are incurred

© BMA Inc. 2008. All rights reserved.

GAPP Statements Depict the Profit of the Company for the Period

• Revenues are recorded generally when an item is shipped

• Expenses are recorded to match the timing of the revenue recognition for items shipped– Costs of the items shipped—labor materials and other

costs included in “overhead”– Costs of items produced but not shipped remain in

inventory– Costs are matched against revenue generally on the

basis of a convention such as First in First Out

© BMA Inc. 2008. All rights reserved.

Lean Accounting Statements Must be Adjusted to Conform to GAAP

• The difference between Lean Accounting and GAAP statements lies in the change in inventory balances/items during the period

• Increases in inventory will require an adjustment to decrease Value Stream Cost of Sales

• Decreases in inventory will require an adjustment to increase Value Stream Cost of Sales