The Transition from Manual Accounting to Present Day ERP
Introduction: Before two years when I was asked to understand what ERP actually mean, at that time it was nothing but very complex software beyond the capacity of a common accountant like me to understand. Since I was supposed to learn and work on an ERP without any choice the situation thus created push me into learning mode and finally I am some how able to do or get the routine work done in an ERP environment. After I started learning I had interaction with number of professional and or non professional accountants to understand what actually ERP means for them and the response was the same –complex software difficult to understand. This prompted me to share my experience with my accounting community. My little experience which I want to share is for accountants and ERP here is only concerned about book writing or in technical words we can say Finance Module.
Manual Book keeping: There was a time when account books were maintained on single entry system. Under this system daily business transactions were recorded in a day book and clubbed together under different heads of accounts at the end of a period to derive the closing balances of assets and liabilities. Since the system was week on highlighting the errors this gave birth to double entry system of book keeping. Historically every transaction was recorded into the Journal. Journal was the first entry point for all transactions into the accounting system. After recording the transactions for the day into Journal Book next step was to post entries to the respective ledgers. At the time of posting it was experienced that bulk of transactions so recorded goes into few ledgers e.g. Cash Account, Petty Cash Account, Bank Accounts, Sales Account, and Purchases Account etc. To save time , manpower and for getting quick information about balances of these accounts an easy system of book keeping was created by pulling these ledger accounts out of the ledger book by giving them the shape of separate books. By doing so, we use to enter transactions directly into the respective ledgers on the one side and at the time of posting on the other side of the ledger. In the due course of time we had Cash Book, petty Cash Book, Bank Books, Sales Register and Purchase Register etc. At the end of the period closing balances of these Books and ledgers were transferred to Trail Balance. Once Trail Balance tallies the process of finalization of accounts would start and concluding step was finalization of Balance Sheet.
Computerization of Book keeping. With the passage of time business houses started growing their activities which gave birth to the multi location, multi product and multi national companies. The volume of transactions in numbers reached to such levels that it became next to impossible to maintain books of accounts manually. This prompted software people to come with software programs which can handle recording of business transactions with ease and efficiently these accounting softwares usually handle entries from feeding level to the level of drafting a Balance Sheet. There use saved lot of time in recoding transactions due to the fact that once the entry is punched into the system it takes care of making changes from day book to Balance Sheet automatically. Thus major work of Book Keeping was handled by these softwares quickly, efficiently and that too with accuracy. However these softwares were not able to produce information required by the management for making strategic decisions required within and or outside the organizations. Since present day business houses are so complex in nature that running such organizations without continuous flow of real time information is dead impossible.
The difficulties being faced by the management under present business conditions got solved by new software termed as ERP (enterprise resource planning). ERP is nothing but a higher version of the software which used to take care of day to day book keeping and to some extent generate few basic reports. ERP works on module basis e.g. Financial, inventory, costing, manufacturing, logistics etc etc. Every module is a specialized tool to deal with a set of transactions. Here we will be discussing Financial Module only. Almost all the financial modules have following interfaces to deal with.
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Chart of Accounts
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representing
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Trail Balance
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General Journal
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is used for
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Journal Book
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Cash management
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is used for
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Cash Book and Bank Book
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Receivables
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is used for
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Sales Book and Customers/Debtors
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Payables
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is used for
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Purchase Book and Vendors/Creditors
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Fixed Assets
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is used for
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Sale/purchase/maintenance/depreciation/FA Register
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Periodic Activities
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Is used for
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Generating periodic reports for tax purposes to file returns under different tax laws
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Reports/Analysis
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Is used for
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Generating different reports as designed and desired by the management and end users to make their working easy and save time
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Setup
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Is used for
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This helps the implementation team to make different set ups to design the basic structure of book keeping as per the requirements of a particular organization. This is basically the facility provided by the software to design flow of data of entries according to the specific requirements of an organization of course with in the overall parameters made available by the a particular software.
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Thus we have specialized windows to deal with data input. These specialized windows are case sensitive and have been designed to perform tasks in a particular manner so that there is little or no job left for manual interference to generate desired information as and when required. All the calculations and changes can be printed or viewed through reports on real time basis. Once data entries are made the same gets stored in different tables and can be used for creation of different reports. ERP is embedded with another feature i.e. analysis. Analysis is basically used for generation of reports and can be used to design reports as per the needs of an organization.
Analysis and reporting gives us freedom to design reports as per the requirements but all depends on the quality of data input. Thus before going for implementation of ERP certain things need to be given a serious thought so that action plan can be drawn and process of implementation can take care of the requirements.
ERP vs. Traditional Accounting Software:
Traditionally we used to feed data entries into accounting software and at the end of a particular period will extract trail balance and if possible Profit & Loss Account and Balance Sheet from the software. In the case of reports as required by the management, auditors, tax authorities, Banks or others the same used to be prepared by getting the relevant ledger prints and prepare the reports manually either using Excel or word or any other software. This process was a time consuming job and some times bound to create delays. In certain cases reports use to become irrelevant by the time they were ready. Present day business houses have grown to such levels, it was felt that the use of traditional software will not help in any way to provide real time MIS to the management or reports as required by different agencies . Let us assume we have to prepare a depreciation schedule for a company which is multi location having offices in different countries in non ERP environment it will take a lot of time and manpower to prepare the same at different places and then get consolidated at the head office level but it will take no time if our accounts are being maintained in ERP environment. The basic difference between ordinary accounting software and ERP starts from the data punching level. Under non ERP environment we feed entries by debiting one account and crediting another and maximum flexibility we can enjoy is pushing the same entry to subsidiary ledgers. The aim here was to feed the entries and to maintain book keeping in a software which can save time otherwise getting wasted in posting, casting, making Trail Balance to agree and finally draw final accounts or at the most get some general reports generated by the system itself. But in the case of ERP we feed an entry with the same principle yet attaching tags along so that the entry can be picked back for drawing a purposeful report required by the organization. Suppose we are a trading organization and we require real time information as under:
a. Total Sale to date or a particular day or a particular period
b. Continent wise total sale
c. Country wise total sale
d. Region wise /district wise sale
e. Product wise sale
f. Sales made under a particular Country Head/Regional Head/District Head or even by a particular salesman.
In an ERP environment we can have all these reports generated from the system on real time basis by any person who is authorized to do so. In the above case while feeding a sales entry we will attach tags/dimensions i.e. continent, country, region, district, product name, and sales people responsible as per hierarchy. The attaching of tags technically called dimensions will help us in picking entry for generating any desired report. It is like attaching strings at different parts of the body of a puppet which help us to make the puppet dance or move a particular part. So in an ideally perfect ERP setup we can have live information about all the expenses, incomes, liabilities and assets that too with comparison against budgets, previous periods/years/individuals/divisions/departments. In addition to the above we can generate n-number of reports as per the requirements of the organization to utilize its available resources in most optimum manner to create higher levels of efficiency by reducing wastages resulting in higher rate of earnings. To mention few benefits of book writing in an ERP environment are:
a. Final accounts can be drawn on real time basis.
b. For multi location organization consolidated final accounts including branch wise final accounts can be drawn on real time basis.
c. Reports showing actual performance vs. budgets can be generated on real time basis.
d. Reports required by Management, Auditors, Tax authorities, Bankers etc. can be generated at any time by the click of a button.
e. Reports which can help in analysis of different parameters of business can be generated easily.
f. In a perfect ERP environment, ERP itself can be useful in deployment of available resources in whatever form in the most efficient manner.
The Precaution:
Implementation of ERP is just like making a film. The first step of any film director is to conceive the idea from the beginning of the picture to create a wonderful ending. Similarly, a team responsible for the implementation of a perfect and successful ERP should have enough experience in the functional area to create road map from data entry level to the final level of generating Balance Sheet and reports. The most important stage in any ERP is data feeding because it is this stage where we attach tags/dimensions to the data for our future use. Thus implementation team needs to have a crystal clear vision about the future use of data and the types of reports needed by an organization in future. A proper and extensive discussion with the management, end-users, functional consultants and the software team will provide you the solution. Around 50% of the budgeted time should go into this exercise because this is the pillar on which failure or success of the implemented software depends. Second stage is putting the out come of the first stage in black and white which becomes the base for the actual implementation in the software. Once the implementation is done a brief and to the point but useful training to the end users is required. Once the training is over testing of the software in a dummy company by making data entry of the actual vouchers by the end users needs to be done and efforts should be made to generate reports required as per original plan. In case any deviation is reported the same needs to be corrected immediately. Testing of software helps us in building confidence level of end users, judging the efficiency of the implemented software and creating semi-skilled end-users having actual feel of the software. This is the time when we shall impart a well defined training to the end users to prepare them to handle feeding, generation of day to day reports and also deal with small day to day problems. For operating ERP, knowledge of software is not required as they are menu driven.
The Cost Factor :
Presently there are number of ERP software available in the market. One has to evaluate the kind of software required by a business house considering the size of business and the benefits it wants to derive from its implementation. Now a day’s cheap software is available in the market to fit into any budget. Thus the old notion that ERP software is very costly is obsolete now. However, proper evaluation as to the requirements of an organization and saving in terms of different organizational costs and time saving plays a vital role in deciding whether or not to go for implementation of ERP.
The End
At the end we can conclude that the process of data entry into any system whether Manual or non-ERP software or in the ERP environment is the same but it is only ERP software which helps generation of ready made reports a required by the management from time to time on real time basis. In a complete ERP set up the advantages are immense e.g. it helps to create an environment whereby an organization can ensure that the resources deployed in whatever form are utilized to their optimum level by reducing the wastage in whatever form to the level which can be equal to or near acceptable level.
Dilip K Raina
Chartered Accountant and Microsoft Certified Professional in Navision and Axapta
CAclubindia
