© Prentice Hall, 2005: Enterprise Resource Planning, 1 st Edition by Mary Sumner 5-1 Enterprise Resource Planning, 1 st Edition by Mary Sumner Chapter 5: ERP Systems: Accounting and Finance

© Prentice Hall, 2005: Enterprise Resource Planning, 1 st Edition by Mary Sumner 5-2 Objectives Examine accounting systems within ERP Understand ERP financial systems Review the interrelationships among business processes supporting finance and accounting

© Prentice Hall, 2005: Enterprise Resource Planning, 1 st Edition by Mary Sumner 5-3 Case: Atlantic Manufacturing Inaccurate and/or incomplete paperwork produces problems Exchange of information between departments made manually Unable to supply quantity discount information to sales force Lack of coordination between departments

© Prentice Hall, 2005: Enterprise Resource Planning, 1 st Edition by Mary Sumner 5-4 Accounting Processes Operational management level –Production of transactions Paychecks, invoices, checks, purchase orders

© Prentice Hall, 2005: Enterprise Resource Planning, 1 st Edition by Mary Sumner 5-5 Management Control Processes Budgeting –Analysis of allocations, expenditures, revenues Cash management –Cash flow analysis –What-if analysis Capital budgeting –Evaluation tools: NPV, IRR, pay-back period Investment management

© Prentice Hall, 2005: Enterprise Resource Planning, 1 st Edition by Mary Sumner 5-6 Accounting Systems Traditional –Provide operational-level software Produce invoices, checks, statements Financial accounting –Financial statements for external reporting purposes Management accounting –Information on profitability

© Prentice Hall, 2005: Enterprise Resource Planning, 1 st Edition by Mary Sumner 5-7 Accounting Systems v. ERP Modules ERP –Information shares integrated database –Provides up-to-date information –Seamless –Creates document flow of transactions Accounting systems –Manual or separate transfer of information –Multiple platforms

© Prentice Hall, 2005: Enterprise Resource Planning, 1 st Edition by Mary Sumner 5-8

© Prentice Hall, 2005: Enterprise Resource Planning, 1 st Edition by Mary Sumner 5-9 ERP Financial Accounting Module External reporting –Set by general accounting standards –Legal requirements Includes accounts receivable subsystem –Interfaces with cash management –Monitors accounts and updates, handles payments, creates due date lists, produces statements Accounts payable –Handles payments, applies available discounts to maximize profits

© Prentice Hall, 2005: Enterprise Resource Planning, 1 st Edition by Mary Sumner 5-10 Management Accounting Modules Internal accounting perspectives for directing and controlling operations Information on variances between planned and actual data Key activities –Cost center accounting –Internal orders as a basis for collecting and controlling costs –Activity-based costing of business processes –Product cost controlling for profitability analysis –Profitability analysis by market segment –Profit center accounting of individual areas of organization –Consolidation of financial data for accounting perspectives Enable management to better allocate resources, maximizing profitability and performance Central clearinghouse for accounting information

© Prentice Hall, 2005: Enterprise Resource Planning, 1 st Edition by Mary Sumner 5-11 ERP Systems Provide on-line, real-time data –Operational data Feedback on quality and efficiency of processes Information must be timely and specific Used for real-time operational control –ABC data Information on profitability and products Real-time data Estimates are sufficient Strategic information Basis for continuing improvement to operations

© Prentice Hall, 2005: Enterprise Resource Planning, 1 st Edition by Mary Sumner 5-12

© Prentice Hall, 2005: Enterprise Resource Planning, 1 st Edition by Mary Sumner 5-13 Featured Article: The Changing Landscape of Computerized Accounting Systems Define each of the “in-technologies and systems”. What is their relationship to the success of ERP?

© Prentice Hall, 2005: Enterprise Resource Planning, 1 st Edition by Mary Sumner 5-14 Featured Article: The Changing Landscape of Computerized Accounting Systems, continued New types of accounting software –Fair pricing –Database management standardized Ease of mobility –PC-based New markets –ERPs dominate highest end –Mid-levels are SQL-based and non-SQL-based –Low-end systems range from very low end to more robust –E-commerce and e-business drive most mid- and high-level systems, as well as a few low-level

© Prentice Hall, 2005: Enterprise Resource Planning, 1 st Edition by Mary Sumner 5-15 Featured Article: The Changing Landscape of Computerized Accounting Systems, continued Internet-based commerce –Hottest technology –E-business Quicken allows remote entries through Web EDI and EFT –E-commerce Amazon.com and on-line securities trading Dell Computer ERP –Internet additions –Prices decreasing

© Prentice Hall, 2005: Enterprise Resource Planning, 1 st Edition by Mary Sumner 5-16 Featured Article: The Changing Landscape of Computerized Accounting Systems, continued Best practices –Improve bottom line –Create air of control Structured Query Language –Database of choice

© Prentice Hall, 2005: Enterprise Resource Planning, 1 st Edition by Mary Sumner 5-17 Summary Most accounting processes operate at the operational management level –Additional software enables financial and management accounting –Each department or division may operate different software and databases ERP systems’ integrated database allow for seamless information sharing –Easier reporting –Includes all operational data and ABC data –Coordinates with management accounting modules