Lean Accounting and GAAP

1. Lean Accounting and GAAP

2. 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

3. 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

4. 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

5. 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