THE IMPACT OF JIT INVENTORY CONTROL ON ACCOUNTING

The Japanese system of inventory control has been variously called the "Toyota system," the "just-in-time system," and the "Kanban system" (Johnson, 1993, 52). Just-in-time means, quite literally, that an assembler on a line receives his consignment of parts "just in time" to use them (Bacharach, Bamberger, & Mundell, 1995, 11). The system is based on an ideal situation in which a part arrives just in time to be used, even though that optimal level of usage is never actually reached. As such, the system operates on the strength of very small lot quantities of replacement parts.

On a typical assembly line, any particular worker might receive an hour's worth or two hours' worth of parts, and would be resupplied very frequently. The term Kanban refers to a card system in which a worker, on an assembly line for example, would post a card on a mast at his or her station when about to run out of parts. This card signifies that they need to be resupplied with new inventory. When the replacement inventory is delivered, the card is removed from the mast (Fleming, 1997, 36).

The theory behind a just-in-time system is that by substituting very frequent, small-lot resupply for traditional larger shipments, the manufacturer is able to avoid the significant cost -- and cash-flow drain -- of maintaining a large standing inventory of parts (Bacharach, Bamberger, & Mundell, 1995, 18). For manufacturers, this mea

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chases the same product at one price during the first quarter and another price during the second quarter, but the items purchased during the second quarter are sold first, then the value placed upon the remaining inventory, the products purchased during the first quarter, would be the cost incurred at that time. If a company maintains accurate inventory records, it should be able to value inventory according to its dollar amount as well as when items move in and out of stock. Using that data, it is possible to then determine the value of the total inventory, whether it is finished goods, works-in-progress, or raw goods. The Accounting Standards, published by the Financial Accounting Standards Board, state that "The major objective [in accounting for the goods in inventory] is the matching of appropriate costs against revenues in order that there may be a proper determination of the realized income. Thus, the inventory at any given date is the balance of costs applicable to goods on hand remaining after the matching of absorbed costs with concurrent revenues." Traditionally, inventory accounting has had two separate types: "LIFO" (Last In, First Out) or "FIFO" (First In, First Out) as a costing method for inventory valuation.
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Approximate Pages = 11 (250 words per page)

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