Throughput accounting

[1] It differs from costing, in it is cash focused and does not allocate all costs (variable and fixed expenses, including overheads) to products and services sold or provided by an enterprise,[2] and it does not replace the need to prepare formal company accounts, although promoters of TA note that management decisions are not generally based on formal company accounts anyway.

[3] Only costs that vary totally with units of output (see the definition of TVC below) e.g. raw materials, are allocated to products and services.

Throughput Accounting actions include obtaining the maximum net profit in the minimum time period, given limited resource capacities and capabilities.

These resources include machines, capital (own or borrowed), people, processes, technology, time, materials, markets, etc.

Throughput Accounting uses three measures of income and expense: Organizations that wish to increase their attainment of their goal should therefore require managers to test proposed decisions against three questions.

Will the proposed change: The answers to these questions determine the effect of proposed changes on system wide measurements: These relationships between financial ratios as illustrated by Goldratt are very similar to a set of relationships defined by DuPont and General Motors financial executive Donaldson Brown about 1920.

It does not rely solely on GAAP's financial accounting reports (that still need to be verified by external auditors) and is thus relevant to current decisions made by management that affect the business now and in the future.

Throughput Accounting is used in Critical Chain Project Management (CCPM),[11] Drum Buffer Rope (DBR)—in businesses that are internally constrained, in Simplified Drum Buffer Rope (S-DBR) [12]—in businesses that are externally constrained (particularly where the lack of customer orders denotes a market constraint), as well as in strategy, planning and tactics, etc.