SELECT, IMPLEMENT & USE TODAY’S ADVANCED BUSINESS SYSTEMS

1. MODERN ERP SELECT, IMPLEMENT & USE TODAY’S ADVANCED BUSINESS SYSTEMS Second Edition Chapter 8: ERP Financials

2. Financial Accounting • Objective: to provide the information needed for sound economic decision making • Must conform to GAAP (Generally Accepted Accounting Principles)

3. Financial Accounting • General Ledger – an accumulation of balances from transactions and postings • Monthly, quarterly, and yearly financial statements are generated • Parallel accounting – enables a company to keep several GLs simultaneously according to different accounting principles to ensure that local and international reporting requirements are met • Consolidation – enablesthe combining of financial statements for multiple entities within an organization

4. Financial Accounting • Accounts Payable subledger – identifies the balances owed to every vendor calculated from purchases, returns and allowances, purchase discounts, payments, and other adjustments • Information regarding vendor invoicing and payment due dates • Support international methods of payment, track open items, provide account analyses, due date forecasts, and risk assessments • Three-way match – payment authorization whereby the ERP system will attempt to “match” every incoming invoice to a valid purchase order and an approved packing slip or receiver • AP aging report – used to group vouchers by due date in 30-day increments, providing focus on those payable items that may be past due

5. Financial Accounting • Accounts Receivable subledger – records all account postings generated as a result of customer sales activity • Identifies the balances owed by customers • Credit management – supports alarm reports for various issues including over credit limit and non-payments the automatic update of AR balances • AR aging report – groups receivables into 30 day increments, supporting cash flow projections and providing focus on those balances that are oldest • Cash Management – functionality related to investments, cash flow, and the accounting requirements these cycles generate • Other functionalities: using cash to generate greater returns, cash flow analysis in any currency and in multiple time periods, and capital budgeting

6. Management Accounting • Focus: taking revenue and expense items generated through financial accounting and “slicing and dicing” them to add even more meaning for management (does not have to conform to GAAP) • Used for applications including strategic management, risk management and performance management, designing, evaluating and optimizing business processes, budgeting and forecasting, and implementing and monitoring internal controls • Cost accounting – establishes budget and actual costs of operations, processes, departments or product and analyzes variances and profitability

7. Management Accounting • Overhead Costing – helps with planning, allocating, and controlling indirect costs, or costs that cannot be directly assigned to a specific product (Direct costs – costs that have true origins and are more easily assigned to the proper product) • Activity Based Costing – helps to more objectively assign costs by tracing overhead based on the cause and effect of relevant cost drivers, or activities that cause a cost to be incurred • Product Costing – help determine the cost of products manufactured or services provided (using direct materials, direct labor and overhead)

8. Management Accounting • Profitability Analysis – considers certain segments of the organization and determines: • Profit generated by a certain product line • Sales made to certain industries • Margins supported by specific distribution channels • Performance of specific regions, decentralized sales offices, or other semi-automated business units • Cost/Profit Center Accounting • Cost centers are units in which the manager is responsible only for controlling costs because the unit it is not revenue-generating. Examples are the accounting, IT or HR departments. • Profit centerare units where the manager is responsible for both revenues and costs of the center. Examples of profit centers would be the manufacturing units that produce products for sale to consumers or other businesses.

9. Asset Management • Planning – dedicating resources to the project and establishing expectations about the execution of steps • Approval – sanctioning the project and requesting the budget assignment and approval • Budgeting – ensuring sufficient cash will be available to meet expenses as they arise • Implementation – executing and validating the steps of the PP&E project plan

10. Asset Management • Settlement and Capitalization – since the overhaul may have affected the value of the machine, this new value will impact the PP&E account and related future depreciation • Maintenance and Use – maintenance costs associated with that asset are continually monitored • Retirement – provides information for an asset retirement such as its accumulated depreciation, salvage value, and whether the asset could be overhauled and put back in service • Replacing Investment – case to replace an asset is based on maintenance and operation costs

11. Investment Management • Investment Management – provides the tools for pre-investment analysis during the planning stage of the asset management life cycle • Cost savings or revenue increases • Enterprise image improvement • Future payoff of the investment (Internal rate of return, pay-back period, and net present value) Figure 8-4: Fixed Asset Investment Decisions