When evaluating ERP (Enterprise Resource Planning) Accounting software, distribution and wholesale businesses need clarity regarding ERP accounting software features and its concepts. ● What is ERP accounting software? ● What is ERP in accounting?
An ERP Accounting Software is one that automates the tasks performed by various users in the finance department of a company. These users could be accounts clerks, accountants, or managers. The software could either be installed on Cloud Servers in which case it is called Cloud ERP or ERP on Cloud.
An accounting in ERP allows you to configure the system accurately so that all the transactions are accounted for accurately and reported automatically.
ERP Accounting Software is mostly used by the Finance department. The department has three major tasks, Corporate Finance and treasury (CF&T), Accounting and Reporting, and Financial Control.
The Finance Department has 3 Major Tasks
Corporate Finance & Treasury :
Corporate Finance handles negotiations for raising long and short-term loans and restructuring of existing loans. They negotiate with investment managers for creating and marketing debt instruments like debentures that they sell to the investing community to raise capital. They are also responsible for handling investor relations and statutory compliance and reporting.
Treasury management is the task of planning, organizing and controlling the funds flow to ensure adequate liquidity for the company. The treasury department deals with investment of surplus cash and meeting working capital requirements. It also manages the relations with banks. CF&T is a separate team in the finance department.
Accounting and Reporting are the operational tasks of the finance department. These involve accounting for transactions, summarizing them, completing period end activities, posting to General Ledger, extracting key performance reports, and sharing them with the internal and external stakeholders.
Financial Control :
Cost accounting involves tasks like setting up of cost standards, tracking cost elements, analyzing variances, and reporting the cost information to the internal stakeholders.
The payables department handles the interaction with vendors and performs transactions like the entry of invoices, vendor payments, and creation of credit and debit memos. The Receivables department tracks collections from customers.
The finance department is the owner of the Fixed Assets of the Organization. It is responsible for creating, transacting, depreciating, and retiring assets.
The financial control activities include setting up and tracking approval mechanisms, setting budgets and tracking variances, and setting up transactional controls like maker/checker and holds.
The transactions handled by the finance department are voluminous, complex, and have the potential for errors. It needs a well-designed ERP system to handle the challenges.
ERP Accounting Features:
A well-designed ERP Accounting system should support transaction accounting and review, period-end adjustments and provisioning, period-end reconciliation, and month-end and year-end closure. The table below lists a few features that an ERP application should support.
• Real-time view of financial data • Single source of truth: Define once, use everywhere • Ease of reporting based on different accounting standards • Ease of month-end and year-end processing. • Improved cash flow and reduction in working capital requirements • Alerts and notifications enable timely action.
Accounting ERP Features
Feature needed by company size
Must have features
Supports the accounting standards of Country of Operation
All
Yes
Supports multiple accounting standards
Large
No
Allocations
All
Yes
Automatic reversals
All
Yes
Journal Approvals
All
No
Manual and Adjustment journals
All
Yes
Month-End Closure
All
Yes
Year-End Closure
All
Yes
Third party transactions (Vendor / customer)
All
Yes
Asset Tracking and Automatic Depreciation
All
No
Bank Transactions and Reconciliation
All
Yes
Generating Financial Reports
All
Yes
Ability to integrate with external applications
All
No
Multiple currency transactions
All
No
Currency revaluation and translation
Large
No
Excel upload and download
All
No
Transaction Drilldown
All
Yes
Create and Track Budgets
All
No
Country Localization
All
Yes
Top ERP Accounting Software
An ERP for Finance should have the following applications.
General Ledger :
This is the accounting book. Finance managers can create manual journals and period-end adjustment journals directly in the application. In addition, through internal integration, applications like payables, receivables, and assets (called sub-ledgers) transfer the accounting reflections of transactions to the General Ledger. The application uses the information collected by it to generate financial reports like Trial Balance, Balance Sheet, Profit and Loss, and Cash Flow Statement. The application is also used to create budgets and track variances.
Payables :
Another name for this application is Vendor Ledger. This tracks the transactions entered with the Vendors including Invoices, Payments, Credit Memos, and Debit Memos. This application also interfaces with cash management to handle vendor payments. In the case of a full ERP setting, this application also ‘talks to’ Purchasing and Inventory applications for invoice matching purposes.
Receivables :
This application is also known as Customer Ledger. This application tracks Customer Invoices, Collections/receipts, and commissions for Sales Person. This application also interfaces with cash management to handle customer receipts. In a full ERP setting, this application also talks to the Shipping application for shipment information (for revenue recognition) and the Inventory application for COGS information.
Cash Management:
This application handles cash transactions including payments and receipts. This also handles reconciliation between the bank statements and cash book.
Fixed Assets:
This application owns the fixed assets of the organization and is responsible for asset creation, depreciation, and retirements. The application shares the accounting reflections of these transactions with General Ledger. This is a standalone application and is optional
Treasury (for CF & T):
This application manages the treasury operations of an organization including loans, advances, and investments. This is an optional application.
Evaluating ERP Software to support the needs of Finance & Accounting departments
Business factors
Maps to your business size: There are applications with a number of features that may not be required for a company of your size. Going for such applications will be unnecessary and expensive.
Scalable: There are two aspects to scalability. The application should handle a sudden surge in demand. In addition, the application should handle the potential long-term growth of the business.
Extensible to other business areas like Purchasing, SCM, and Inventory: As your business grows, the current ERP system should be able to extend to upstream applications.
Scalable approval and notification workflows: As the business grows, the approval requirements will become complex. The approval workflows should scale to handle the complexity.
The application meets the key requirements of your company: This is the most important factor. Many of the ERPs are just account books. To call an application ERP, it must have integration between different applications and 360-degree transaction visibility.
Localization support: This is one of the key drivers of buying ERP. Any ERP system should be able to handle Localization in a simple and intuitive manner.
Statutory Compliance support: An ERP application should be easily able to integrate with Government portals and easily submit month-end compliance reports.
Support factors
Availability of local support: This is a nice-to-have feature. With the advancement in technology and remote working, onsite/near-site support is not a mandatory requirement. Such rigid requirements may prevent you from effectively expanding to other locations.
People factors
Is the team IT Savvy? A team of young and IT-savvy people will more readily embrace technology. Their technology learning curve will be shorter.
Does the team feel the need for an ERP? If the team does not feel the need for ERP, the adoption may be slow. It is important to communicate the need for ERP to the team and ensure their buy-in.
Technical Factors
Security and access control: ERP Applications should support role-based access to the users. For example, an invoice entry user should not have access to making payments.
Reporting flexibility: The application should have both parameterizable standard reports and flexibility to develop custom reports in the required formats
Holds: These are transaction controls used to handle uncertainties. For example, when a vendor disputes a debit note, that transaction is put on hold and remains there until the dispute is resolved. The ERP System should support holds.
Other factors
Modular: Organizations with tight budgets should be able to install the applications as modules. A new application should have plug-and-play integration with existing applications.
Great user experience: This includes requirements like a pleasant look and feel intuitive navigation, and configurable themes the application should have the ability to automatically save transactions, and the alerts and notifications should be actionable
Value for money: ERP Applications should provide the best value for money. Organizations should have clear criteria for identifying value. A quick payback period is normally used to measure value for money.
Auditor’s recommendation: The auditor is a key stakeholder in the finance department. An auditor would have expertise in different ERP applications and would know which application is suited for a business of such type and size.
ERP Accounting FAQs
What are ERP and Accounting?
Accounting systems focus on controlling financial activities whereas ERP has many functionalities including finance, sales, purchase, AR, AP, HR, Admin, and many more that centralize the business process and make decision-making faster for any company.
How is ERP Software used in Accounting?
ERP software helps to automate the accounting process. ERP accounting system simplifies accounts payable operations, accounts receivable and improves cash flow problems with cash management. It becomes easier to manage the entire business process by generating and compiling company data.
What is ERP financial accounting?
ERP financial accounting is used for financial management. ERP Accounting Systems provides functions including profitability analysis and revenue management. ERP Accounting software is made to integrate business processes into a single software that runs on a central database.
What are Examples of ERP accounting?
Some of the popular examples of ERP accounting include Oracle, Ximple Solution, and SAP. Ximple Solution is specially designed for wholesale distribution accounting.
Do accountants use ERP systems?
Yes, accountants used the ERP system, Accounting ERP helps them by integrating data and streamlining all of their accounting processes. ERP also helps to speed up all accounting and financial management processes that save time and money with the ability to make faster and better decisions for your business.
What are the benefits of ERP in accounting?
ERP and accounting software work separately, but ERP software provides valuable financial insights for businesses. Below are the main benefits of the ERP system for accounting for organizations.
Automate and streamline data entry
Better management of data
Easy to access company data
Enhanced customer relationships
Customized accounting packages based on business
Eenhanced cash flow process
Customized accounting packages based on business
Enhanced cash flow process, and better asset management
ERP Accounting FAQs