ERP refers to enterprise resource planning which is a software package that supports all of a business's operations and day-to-day accounting processes. The ERP system of accounting provides an integrated system for an entire business organization by relating and coordinating the basic organizational functions such as financial planning, marketing of goods and services and human resource management. Many business organizations in the world today, both for profit and non-profit adopt the use of ERP due to its ability to integrate and coordinate information from all departments, operations and processes. ERP is a sophisticated system that ensures accuracy and accountability in processing and organizing business functions within an organization. This system generally can manage a business by allowing inventory control, material purchasing, accounting, marketing and distribution.
The ERP system consists of several enterprise software packages acquired based on specific needs, requirements and technical capabilities of a particular organization. Specific ERP modules focus on one area of business processes such as marketing and distribution or product development. Common ERP modules include those responsible for inventory control and purchasing management and accounting. Integration of these modules provides a smooth flow of data across the organization by providing one central repository for all information. The enterprise resource system for accounting provides simplicity in arranging and organizing accounting data in an organization. According to Monk & Wegner (2009, p.64), ERP is a useful tool as it is capable of integrating sales records with a company's accounting records. Research and studies concerning the enterprise resource planning show that the system keeps accounting data up-to-date. This was not the always possible before the adoption of ERP system. The enterprise resource planning systems facilitate pricing and organizing sales in a business. Monk & Wegner (2009, p. 62) explain that, with the installation of an ERP system, a company can configure it for a number of pricing strategies. The system allows a number of discounts per item, based on unit price, based on the total value or on all items. In addition to controlling pricing and discounts, the enterprise resource planning system can enforce limits on the size of discounts to keep sales people from offering unprofitable and unapproved discounts. Research shows that recent ERP systems extend their capabilities into more areas of decision support, management reporting and data mining. Integrating internet connectivity into the ERP systems enables a more sophisticated business's internal operation. Internet connectivity allows users of the system to access the central database directly from the internet wherever they are.
This allows for greater flexibility and simplicity in carrying out the day-to-day business activities. The ERP system for accounting helps the management of an organization to determine the viability of a project before venturing into it. The system does this role by allowing easy management of operations, not just monitor them (Monk & Wegner, 2009, p.32). Utilization of enterprise resource planning significantly reduces cost and improves operational efficiency. This efficiency leads to low cost of products and services and customer satisfaction. Studies by Monk and Wegner (2009, p.36) shows that, a smooth running ERP system within an organization saves a company's personnel, distributors, suppliers and customers much of the frustrations that result from poor systems. The study further shows that, installation of ERP allows companies to improve external customer communications. Good communications improve customer relationships and increase sales. The benefits of enterprise resource planning implementation in accounting are increased flexibility in information generation, increased integration of accounting applications and improved quality of reports.
An ERP system for accounting facilitates easy production and assessment of statements of accounts, improves decisions based on timely and reliable accounting information. In accounting tasks and functions in an organization, enterprise resource planning facilitates accurate reports, statements of accounts and improves service of accounts. Studies from specific organizations that utilize the system confirm that the ERP improves both internal and external coordination and subsequently reduces reporting lags. The system is capable of linking traditional business functions such as production, finance, warehousing and sales into a single database. This is beneficial in accounting terms because it helps to avoid multiple data entry. Recent studies indicate that the ERP system has significant effects in accounting processes and accountants' role. According to Meer (2005), ERP embeds best accounting practices to facilitate organization standardization, and eliminating information asymmetry.
The system also allows simultaneous access to the same database for planning and control. This is advantageous to the management because managerial responsibilities are easier when the necessary information is readily available. Studies by Meer (2005, p. 3) show that companies that effectively utilize the ERP system best practices have obtained considerable benefits. Maintaining all financial balances in a single ledger facilitates easy access to this important information. Meer further explains that, the system automatically synchronizes journals, detail balances and summary balances. Automatic updating of the accounting information in the ERP system provides timely and accurate reports. The enterprise resource system is beneficial in accounting tasks because it ensures financial honesty by maintaining the connection between the old and new account structure, as well as, balances and transactions.
Recent studies and research by Meer (2005, p. 4) shows that, ERP is significantly beneficial in accounting because it supports universal accounting solutions that offer absolute multicurrency support in a single ledger. The system does this by carrying out currency conversion, translation, revaluation and re-measurement in accordance with the generally accepted accounting principles (GAAP). This shows that a comprehensive ERP integrated with the accounting system leads to performance increase, standardized information and synchronization, workflow and complete overview of the enterprise functioning. It also speeds up the pace of carrying out accounting tasks. As one of the managerial responsibility in an organization, ERP enhances corporate financial performance and improves business forecasting. Enterprise resource planning systems facilitate the day-to-day management roles by tracking actual costs of activities and revenue generating activities. Studies show that ERP systems comprise sources of information for new accounting operations and systems can support these practices. Significant benefits of these systems occur in the collection and preparation of accounting data and organizational management accounting information. It is beneficial to accounts because it simplifies the adoption of new management accounting practices.
The new accounting practices enable accountants to carry out effectively routine activities in an organization. To managers, enterprise resource planning systems allow powerful top-down, bottom-up and middle-out budgeting. Managers can define many budget versions and choose from a portfolio. This enhances decision-making and reduction of errors in planning. Research by Grabski, Leech & Sangster (2009, p. 3) indicate that, ERP incorporation results in a considerable alteration in the management accountant's task because they become business partners and not just data providers. The research further points out that ERP results in both data quality and quality of decision-making. In contrast to accounting packages, which handle only specific business functions of accounting, the ERP system handles the entire range of business functions of an organization.
Enterprise resource planning integrates accounting processes and information flows to make maximum utilization of resources in an organization. This helps in time management especially in operational accounting tasks. Operational accounting tasks that benefit from utilization of ERP are closure of monthly, quarterly and annual accounts. It also saves time in the preparation of financial statements. Successful adoption and utilization of the system simplifies work and a single individual can do a large amount of accounting tasks. This is beneficial to an organization because it reduces the labor required in the accounting department. Timely and easy accessing of accounting information also facilitates and improves internal audit functions. User satisfaction is easy to achieve by the use of ERP in accounting than in traditional manual methods of business processing. Research shows that ERP does not only address current requirements of an organization but also provides opportunities for improvements in accounting processing on a continuous process.
The enterprise resource planning systems work by digitally recording every business transaction that a company makes whether it is through purchasing sales or manufacturing. This makes accounting tasks much easier because the system automatically updates this information to reflect each transaction. Studies by Sawyers, Jenkins & Jackson (2009, p. 28) gives an example of how the ERP system works by noting that, when a sales associate of a particular company places an order for a product, information is automatically conveyed to purchasing, accounts receivables and production. This facilitates ordering of materials by the production department, processing of invoices and scheduling of production in relation to the order. These study further points out that ERP system help businesses evolve from data generators to information gathers and to create knowledge and share it.
Effective utilization of these systems allows an organization to achieve higher levels of profitability, accurate and complete accounting information that results in reduced purchasing and manufacturing costs. Efficiency in manufacturing facilitates reduced customer response time, increased quality of products and services and increased customer satisfaction. ERP accounting benefits are not limited to manufacturing sectors alone. Sawyers, Jenkins & Jackson (2009, p. 29) notes that, service…