Enterprise Resource Planning (ERP)

Total Word Count: 1203
   Send article as PDF   

<p align=”center” style=”text-align:center;line-height:200%”>Integration of information Technology (IT) in a business environment complements day-to-day activities of an institution. Enterprise Resource Planning system (ERP) support undertakings at the operational level and provide data to the high-level management to assist them in making critical decisions &nbsp;(Matengu &amp; Swami, 2011). Additionally, the system supports the functional areas of business, such as marketing, finance, accounting, and human resource management. ERP is critical to survival of the organization as they have strategic consequences. At the entry level, organizations start with a simple form of ERP system, which evolves depending on their future needs and requirements. &nbsp;Emerging trends in the business environment, such as globalization, privatization, and deregulation lead to transformation of organizations into multinational corporations. To guarantee the profit maximizing objective, multinationals and companies with presence in different geographical regions integrate these systems into their operations. It is essential for organizations to keep up with the rapid transformation of technology to retain their competitiveness; ERP automate business processes, relay information across an organization, and produce real time data. The study will review the significance of ERP systems and their impact on accounting functions of an organization at the operational, tactical, and strategic level&nbsp;(Malinic &amp; Todorovic, n.d.).</p>
<p style=”text-indent:.5in;line-height:200%”>ERP systems focus on maintaining records concerning flow of funds in an organization and produce financial reports, such as balance sheets and income statements. They produce routine and repetitive information outputs that are essential in the working environment of an accountant, such as pay checks, payments to vendors, purchase orders, invoices, and stock reports. A strong financial system is a critical factor to success at the operational level of an organization. ERP systems for accounting comprise a series of subsystems that can integrate with one another and also work autonomously. Modules present in such a system have the following essential modules: general ledger, fixed assets, sales ordering process, accounts receivable and payable, inventory control, and payroll among others. Upon successful integration, subsystems receive inputs from other modules in the system and also provides output to the others.</p>
<p style=”text-indent:.5in;line-height:200%”>Incorporation of ERP systems in organizations transforms the accounting environment of many organizations. Notable changes in the practice of the profession include profit analysis by either product or by business segment, and internal audit checks and controls. These changes stem from integration of applications and availability of real-time data, which is critical to decision-making&nbsp;(Oracle, n.d.). ERP systems assist in sharing information across entire departments in an organization to bring cohesion and control in purchases, management of the supply chain, and logistic functions. Notwithstanding ERP&rsquo;s popularity in Europe, companies in North America have adapted its usage over a period of 5-6 years. Benefits associated with ERP include accommodation of business growth, integrated cross functional application and business processes. ERP systems complement the accounting profession by enhancing efficiency and quality of customer service in their department.</p>
<p style=”text-indent:.5in;line-height:200%”>The ERP system reduces the transaction processing cost of an organization with its application in various departments including the accounting division at the operational level without having to wait for monthly reports. Organizations may use less amounts in replacing older systems in comparison to fixing them. The general ledger subsystem provides managers with periodic financial reports, support in budget preparation, creation of chart of accounts, and enables them to establish their accounting period&nbsp;(Ponorica, Al-Saedi, &amp; Sadik, 2015). The fixed asset component of the system maintains records of non-current assets of an organization, such as property, plant, and equipment. ERP systems assist in recording the original purchase price of an asset, rate of depreciation and its accumulation, and the book value. The fixed assets subsystem provides input data to the general ledger subcomponent to update balances of fixed assets. It also provides accountants with a platform for recording gain or loss on the sale of immovable assets, which assists them in preparing forms like special income tax reports, a requirement of the federal government. ERP systems complement accountants in recording of turnover with the sales order processing subsystem at the operational level. The functions of the subcomponent include routine recording of sales orders, furnishing inputs to other subsystems such as inventory data, and recording tax data. It also provides sales invoices to the accounts receivable subsystem to update customer accounts.</p>
<p style=”text-indent:.5in;line-height:200%”>At the Tactical level, ERP systems support management decisions by providing managers with summary and exception forms, ad hoc reports, and information that help chief accountants and other top level personnel in the department in allocation of resources to pursue their organizational goals. The budgeting system allows them to track revenues and expenses and compare them with the budgeted amounts. It also allows them to compare their budget to those of previous years, competitors, divisions and departments, and industry data. This allows management accountants to assess how an organization uses resources to achieve the profit maximization objective. Cash management systems complement the tactical level of accounting for management accountants, which is essential in safeguarding liquidity of an organization to guarantee availability of funds to offset maturing short-term financial obligations. Furthermore, it allows them to invest excess funds accruing from a given accounting period and to borrow cash in the presence of deficits in the cash flows of an organization. The subsystem, as such, complements decisions on purchasing, borrowing, and investing in an institution. Capital budgeting systems complement accountants in planning acquisitions, disposing fixed assets, and comparing spending plans&nbsp;(Jackling &amp; Spraakman, n.d.). Investment management subcomponent of the ERP assists in overseeing decisions on investing in portfolios, such as shares and bonds, to achieve objectives of an organization.</p>
<p style=”text-indent:.5in;line-height:200%”>ERP systems complement strategies of a venture with strategic level subsystems, which assist accountants in setting of financial goals and directing the organization on how to pursue activities. Financial condition analysis subsystems assist accountants with tools for analyzing ratios in reports to measure the performance of an organization and devise ways of improving the financial condition. Long range forecasting subsystems estimate factors that may impair performance in future with the use of data generated by the ERP system. The presence of these guarantee the financial health of an organization and strategic accounting.</p>
<p style=”text-indent:.5in;line-height:200%”>In conclusion, the researcher introduces ERP systems and notes their importance at all levels of management in an organization. The study notes their significance at the operational level of an organization, noting how they complement undertakings in the purchase, sales, inventories, and receivables divisions of accounting. The research explores the contribution of the system at the tactical level, noting their influence in the process of making budgets, cash management, capital budgeting and investment. The review concludes with stating the contribution of ERP systems in strategic accounting and highlights their essence in analyzing financial conditions and preparing forecasts of various financial variables.</p>

Scroll to Top