Activity Based Costing, Time-Driven Activity Based Costing and Lean Accounting: Differences Among Three Accounting Systems’ Approach to Manufacturing

Abstract

AbstractChoosing an appropriate accounting system for manufacturing has always been a challenge for managers. In this article, we try to compare three accounting systems designed since 1980 to address problems of traditional accounting system. In the first place, we present a short overview on background and definition of three accounting systems: Activity Based costing, Time-Driven Activity Based Costing and Lean Accounting (LA). Comparisons are made based on the three basic roles of information generated by accounting systems: financial reporting, decision making, and operational control and improvement. The analysis in this paper reveals how decisions are made over the value stream in the companies using Lean Accounting while decisions under the Activity Based Costing (ABC) Accounting system are taken at individual product level, and finally, we will show how Time-Driven Activity Based Costing (TD-ABC) covers both product and process levels for decision making. In addition, this paper shows the importance of nonfinancial measures for operational control and improvement under the Lean Accounting and TD-ABC methods whereas ABC relies mostly on financial measures in this context.KeywordsAccountingActivity based costingTime-driven activity based costingLean accountingManufacturing