What is Absorb in Accounting?

In accounting, to absorb is to spread a cost from one account to other accounts. Usually, this means distributing the costs in an overhead cost pool to various cost objects, such as products, product lines, sales regions, or departments. This is done either to gain a better understanding of the full cost of a cost object, or to be in compliance with the requirements of an accounting framework. For example, the Generally Accepted Accounting Principles framework mandates that factory overhead costs be absorbed by all units produced in an accounting period, so that the cost of these units contains the full production cost.

The absorption process involves allocating a cost based on a consistently applied methodology. Ideally, absorption is based on how the cost in the originating account is used.