The common fact about Benefits of Finance Module in ERP is, the organization, having an ERP system, normally have a tight control on financial health of the organization. Finance and Accounts or also termed as F & A is the most important part of any ERP. Normally small ERP systems do not have this module. Why, because it requires a lot of expertise in financial sector. Largely, IT companies which have Accounting functionality in their ERP Software, employ a good team of experienced finance domain experts.
Normally the companies employ Chartered Accountants, Cost Accountants, Company Secretaries as functional leaders in organizations. Their main job is to provide all technical information to production or accounting teams and keep a tight control on the outcome of even a minute functionality of the system. Now, the organizations, which shall be using this ERP system with Finance module , will be able to give a tight control of overall financial health to decision makers.
If we think about Finance, it has only 4 (four) major dimensions or can say revolve around only in these areas-
It has been seen, largely the financial software available in the market work only as accounting software rather than Finance and Accounting in totality. They do not cover most important part from Asset side – Fixed Asset Register and Depreciation.
Basically the information provided by such applications is not complete and based on that taking any strategic decision is not an easy task.
As we know every system has two main features
- Data Input (Transaction)
- Data Presentation (Repots)
Here in Finance module of any ERP, transactions can be divided mainly into two segments
- Data coming from some other ERP module
Data implicitly punching in Finance module
What Data comes from other modules in Finance Module of ERP?
Based on customer orders, Sales and dispatch department generate Invoices and if the ERP software, installed in the organization is capable of handling this commercial transaction to route in financial module, this invoice will easily reflect and update accounting heads for this sale like Debtors (Party) ledger, Finished Goods Stock ledger, sales head automatically.
Purchase is the main pillar of any business. If it is not tightly controlled, financial instability may come any time. Normally the process of procurement is Generation of Requirement àGeneration of Purchase order against requirementàMaterial PurchaseàBooking in StockàParty Bill transfer in Accounts.
Now based on commercial inputs at the level –Booking in Stock, Accounts department just fetch that data and pass the bill and Accounting heads like Supplier ledger, Stock ledger and purchase heads automatically gets updated.
This purchase can be of any type like Spares, Raw Material or any general item but the procedure will be same.
Based on material requirements, when any store handover the material to any department and does transaction in its system, the transaction implicitly updates its commercial stock in the store for store accounting purpose and based on predefined finance ledgers, implicitly update for its commercial and financial accounting. (Stock and Consumption cost).
Job Work (From Third Party)
This is the case when organization takes services of any third party for any process or repairing task then this transaction comes in picture. More or less flow of this transaction is almost like Purchase transaction because here third party will be treated as a Supplier (Creditor).
Job Work (For Third Party)
This is the case when organization gives its services to any third party for doing any process or repairing task then this transaction comes in picture. More or less flow of this transaction is almost like Sales transaction because here third party will be treated as a Customer (Debtor).
In Finance, every employee is being treated as a Customer (Creditor) from which organization is purchasing his / her services and in turn will pay his dues. Calculations of dues can be calculated based on daily, weekly, fortnightly or monthly basis. It is up to the organization agreed and defined rules.
Now once calculation of payroll considering all its parameters has been done then it is being transferred into the finance where it implicitly updates employees’ ledgers and all other predefined financial heads and ledgers like Salary payable, Loan and Advances etc.
Import and Export
These are treated absolutely like Sales and Purchase but with many additional formalities and financial documents like LC etc
Pure Accounting Transactions
Bank / Cash Payment
Payment made to creditors either from Bank or Cash through Bank or Cash Payment Vouchers. Here Bank / Cash become credited and Supplier / Employee gets Debited in organization’s accounting books. Here organization’s current asset decreases (Money not stock).
Bank / Cash Receipt
Payment received from debtors either in Bank or Cash through Bank or Cash Receipt Vouchers. Here Bank / Cash become debited and Customer gets credited in organization’s accounting books. Here organization’s current asset increases (Money not stock).
This is being used for transferring money from either Cash to Bank or Bank to Bank or Bank to Cash. Here in this case there is physical impact on organization’s current asset
Investments and Current Assets
Current Assets like FDR, government approved Bonds, Shares, Mutual Funds, Loans, Bank deposits, Advances etc
Other functionalities which are important in any Financial an ERP applications
- Taxation and Statutory compliances handling
- Trial balance
- Profit and Loss analysis
- Country specific predefined formats based Balance Sheet presentation
- Accounts Receivable and Debtor ageing analyses
- Accounts Payable and Creditor ageing analyses
- Pending Sales Invoice Analysis
- Pending Purchase Bill Analysis
- Bill wise payment / receipt tracking
- Sales Expenses tracking
- Repair and Maintenance expenses tracking
- Product costing and Sales based profit / loss tracking
- Check printing and controlling
- Postdated check handling
- Fixed Asset Register