What Is The Difference Between ERP & Integrated Accounting Systems?
Although an enterprise resource planning, or ERP, system and an integrated accounting system share similar characteristics, distinctly different features, form and functionality make the two systems quite dissimilar. These differences often lead to most small businesses starting out using an integrated system and incorporating an ERP system as the business grows and evolves. Making a wise initial choice or knowing when it’s time to incorporate ERP requires a full understanding of how ERP and integrated accounting systems differ.
Both an integrated accounting system and an ERP system incorporate numerous business functions into a single business system. An integrated accounting system, however, incorporates functions specific to accounting, while an ERP system is a scalable system that can incorporate far more functions. Depending on the modules a business chooses to start with or incorporate, an ERP system can include business functions such as human resources, inventory management, sales and distribution, supplier and purchase order management and financial resource management.
An integrated accounting system seeks only to improve the efficiency and accuracy of financial and cost accounting as well as corresponding financial reports. An integrated accounting system accomplishes this objective by assimilating aspects of both financial and cost accounting -- such as general ledger, journal entries, accounts payable, accounts receivable and fixed asset accounting -- into a single accounting system. Because financial recording takes place in one set of accounts, an integrated accounting system makes accessing financial information faster and easier and can also reduce administrative labor costs.
Unlike an integrated accounting system, an ERP system incorporates data from a variety of different business processes into a comprehensive, enterprise-wide information system. The main objective is to facilitate the day-to-day management of business operations. Information stored in ERP data warehouses allows a business owner and management to access information and also allows access to certain employees. For example, customer service personnel can access a customer’s ordering information, including shipping details, through ERP. The representative can then alert the customer of any delay in his order and report when the order ships.
An integrated accounting system and the financial management module in an ERP system are similar at a superficial level. Both include financial accounting functionality, such as double-entry bookkeeping, a general ledger and journal and account reconciliation capabilities. In addition, both systems include tax analysis and reporting features and facilitate business planning and budgeting. What makes these two systems different, however, is the degree of integration an ERP system provides. For example, an ERP system can track financial information for more than business location. The ability to track and access financial information for multiple locations within a single application is a significant benefit.