What is Throughput Accounting? Throughput Accounting Definition
Throughput Accounting is the Theory of Constraints method of accounting which does NOT allocate costs but instead places emphasis on increasing Throughput.
Throughput Accounting reflects the operating realities in which companies operate but is simple, yet highly effective. It creates alignment and agreement on decisions, between all levels of an organization. Greater clarity for making decisions in businesses can be rapidly achieved by the use of Throughput Accounting. Additionally, it requires very little to implement in terms of cost and/or effort, yet offers significant improvements over more traditional, complex, and expensive alternatives. Throughput Accounting can be utilized by a company, no matter where it is at in its life cycle, whether a newly-founded startup or a publicly traded company in existence for many years. Its effectiveness is not size or resource-dependent.
Throughput Accounting offers a vastly different take on accounting than traditional forms of accounting such as standard costing, job shop costing, or activity-based costing. I would say it is an improved version of accounting, but that would be to say Throughput Accounting was built on the foundation laid by previous accounting systems. Nothing could be further from the truth. Throughput Accounting is grounded in reality and was built from the ground up as a new form of accounting to achieve the aims other accounting systems attempt, but fail to accomplish.
Unique to Throughput Accounting alone is its ability to cause managers to view decisions with complete clarity and alignment from a financial perspective. With other forms of accounting, decisions are difficult to make, with each manager having his or her thoughts on the results of the decision. With Throughput Accounting, clarity is finally achieved and consensus from a financial perspective can be quickly reached.
Throughput Accounting is the only accounting system that properly prioritizes the three main aspects of a business: Throughput (T), Inventories (I), and Operating Expenses (OE). By utilizing Throughput Accounting, it is amazing how any management team can quickly and easily identify core problems in their businesses, create solutions to these p