In backflush costing, all product costs are first accumulated in the Cost of Goods Sold account; at the end of the accounting period, they are “flushed back,” or worked backward, into the appropriate...

In backflush costing, all product costs are first accumulated in the Cost of Goods Sold account; at the end of the accounting period, they are “flushed back,” or worked backward, into the appropriate inventory accounts. Backflush costing is commonly used to account for product costs in a JIT operating environment. It differs from the traditional costing approach, which records the costs of materials purchased in the Materials Inventory account and uses the Work in Process Inventory account to record the costs of direct materials, direct labor, and overhead during the production process. The objective of backflush costing is to save recording time, which cuts costs.