Use of Accounting Information by a Business and the External Parties

Use of Accounting Information by a Business and the External Parties

The high level of competition in the modern business world requires organizations to carry out their operations efficiently.  It is important for an organization to define its primary activities and the factors that are likely to affect the smooth its smooth operations.  Businesses have found business processes with the SAP ERP systems to be active in running businesses efficiently.  The software incorporates the primary business functions in an organization so as to ensure efficiency in all areas. When one functional area of a company in inefficient, it affects the whole business regardless of the effectiveness of the other activities. The primary business processes that the SAP ERP system is involved with include operations, financials and human capital management (Gargeya & Brady 2005, p.513). Operations entail all the business processes involving activities such as distribution, material management, and execution of logistics. Financials is concerned with activities such as management and financial accounting.  Human capital management entails all the activities involving recruitment and selection of suitable talents in the organization. The software makes business operations efficient by combining data from different modules to enhance enterprise resource planning.

Among the modules used in the system includes the financial accounting that is useful in carrying out activities related to accounting data such as the balance sheets and income statements. The information is helpful in making vital company decisions (Kothari, Li & Short 2009, p. 1650). The other module is management accounting that involves all activities which facilitate operations by coordinating, monitoring and optimizing business processes in an organization. Materials management is the other module supported by the SAP-ERP system, and it is concerned with activities related to procurement and inventory (O’Leary 2000).  The sales and distribution module also contributes to the success of business processes.  It is closely related to the materials management, but it is mainly concerned with customer relations and preparation of customer orders. All these modules play significant roles in business such that inefficiency of a single module affects the performance of the whole organization. There are different types of data that apply to every module depending on the activities involved.  The accuracy and suitability of the data entered into the system determine the quality of results and consequently affecting the efficiency of the decisions made by the business as well as the external parties such as creditors and investors (Gattiker & Goodhue 2002, p. 4800). This paper discusses the persons responsible for entering data into the system across all the modules and the relevance of the resulting information both to the organization and externally.

Data entry into the modules

Financial Accounting (FI)

The ability to control and integrate business information within an institution is important for any business to succeed.  The financial accounting module helps in tracking the accounting data relevant in decision making centrally (Chen 2001, p. 379). It deals with all the transactions related to financial management of the enterprise.  The data is used in making critical decisions in the company such as the possibility of expanding markets thus it is important for businesses to ensure accurate and relevant data is entered into the system.  The financial accounting module is significant to the efficiency of the system because it combines data from other modules such as the sales and distribution and materials management. The data collected is incorporated in the general ledger after which it reflects in the financial statements used externally such as the income statements (Rajagopal 2002, p. 110).  The module applies to any size of the organization, and it helps in providing data necessary for sound decision making. By using the module, it is possible to know the real-time financial position of an enterprise (Bushman et al. 2004, p. 198).  There are different employees in an organization whose actions affect the effectiveness of the financial accounting module. The data that they enter into the system is related to the company’s financial position as indicated by the type of information that the data helps generate such as the balance sheet and income statement.

One of the persons that are involved in entering data into the financial accounting module is the financial planning and analysis officer. The financial planning and analysis department is responsible for all the transactions that relate to the income statement.  The type of data that the financial planning officer enters includes the net sales, which is the amount of revenue generated from selling an item excluding the taxations and other levies that the company may incur in making the process.  The general ledger is one of the areas where the data in the module is entered (Sloan 2001,p. 346).  Once the customer has ordered an item, the order is recorded in the general ledger, reflecting the nature of the product ordered. The order is sourced from the finished goods inventory as it reduces the available stock. The cost of selling the product is also recorded at this point as the delivery is created. In the customer’s sub—ledger, the expected revenue is recorded, followed by the generation of invoice.  A financial accountant is other personnel who make data entries into the financial accounting module. The accountant is mostly concerned with the accuracy of journal entries entered into the general ledger to prevent the occurrence of preventable errors that may affect the results. The primary areas of interest that the accountant deals with including the fixed assets, raw material inventory and finished goods inventory sub-ledgers. The financial accountant enters any data that may have been omitted and corrects any information that may be inaccurate.

Controlling (CO)

The controlling module handles all the activities related to internal accounting, which includes profitability analysis using the sales and expected revenue data (Yusuf, Gunasekaran & Abthorpe 2004, p. 264).  The module also deals with other internal accounting functions including the budgeting, cost center, and activity-based accounting.  Controlling or management accounting module mainly aims at supporting all processes concerned with planning, performing and reporting costs (Elbashir, Collier & Sutton 2011, p. 170).  The module arranges costs that are required for financial reporting to make the financial reports more valuable to the users.  It entails configuring master data and managing it so that it brings out accurate meanings.  The module enhances business management by allowing for collection and analysis of costs incurred in business operations.  Using the SAP-ERP modules is efficient because it saves time (Van der Veeken, & Wouters 2002, p. 368). For instance, the management accounting module helps in saving a lot of time that would be used in manual entry and generation of reports.

One of the personnel that is involved in entering data in the management accountant module is the cost accountant who is responsible for activities related to entry and analysis of data concerned with the expenses incurred by the company. Some of the costs that the officer deals with include shipping, labor and material expenses that are incurred in acquiring and transporting raw materials from the source to the factory. The other costs that the cost accountant deals with include budgets and standard costs. Some of the entries that the cost accountant makes include ensuring that the bill of materials is up to date by monitoring the standard costs (Bradshaw 2004, p. 30). The accountant is also concerned with the cost of goods sold in the organization as he monitors the entries to make sure they are free of errors. The other employee who is involved in entering data into the management accounting module is the tax accountant.              Businesses in the modern world have to comply with tax requirements in their operations or else they incur litigation charges and other legal consequences (Anandarajan, Anandarajan & Srinivasan 2012). The SAP-ERP system helps the businesses to monitor their profits and losses by tacking taxation data incurred by the company. A tax accountant is involved in entering data relating to taxes levied by the government on the goods and services provided. The accountant ensures that the net profit in the income statement reflects the earnings that the company made excluding income tax.  Internal auditors are the other employees involved in entering data into the controlling module (Jarrar, Al-Mudimigh & Zairi 2000, p. 125). They mostly perform risk assessment tasks to avoid a situation where the company operates at a loss continuously. The type of data that the auditor may input into the system includes correction on amounts of COGS and net income after they ascertain that the data entered is incorrect.

Materials Management (MM)

Materials management is the other module that is mainly concerned with the acquisition of goods from the suppliers and the handling of existing inventory. The module plays a primary role in alerting the management about the level of stock available (Grabski, Leech & Schmidt 2011, p. 45). This, in turn, determines whether the company should order more stock and the amount of inventory required to avoid incidences of overstocking. Material management also entails all transactions that are involved in the purchase of raw materials including the purchase order. The module helps in maintaining a stable level of inventory by alerting the company on any discrepancies or shortages in the stock (Hall 2010, p. 310).  For the module to be successful, there must be cooperation among persons working in different sections that are concerned with inventory such as those working in the warehouses and sales representative.

An inventory control specialist is among the primary personnel who enter data into the materials management module. The officer is responsible for ensuring that the level of inventory is ample at all times, as this is one of the strategies that businesses use to retain customers. The input of inventory control specialist is, therefore, crucial to commercial success.  One of the entries that the specialist makes in the system is the vendor invoice that contains information on various elements such as the quantity of goods purchased and the amount paid by the company (Bushman & Smith 2001, p. 329).  The entries on weight and shipping charges involved in the process of acquiring goods and the inventory control specialist makes services. The specialist also inputs any data regarding debtors and creditors in cases where the company deals in credit sales and purchases. The primary goal of the specialist is to ensure that the level of inventory available in the business is adequate at all times.  The reconciliation of vendor’s invoices is the other duty that the inventory control specialist has, and they are responsible for correcting any errors in that may have been made in the system regarding the invoice.  The other employee that may be involved in entering data into materials management module is the automated logistical specialist. The officer is responsible for maintaining records in the warehouse concerning the level of stock in the company.  One of the primary duties that the automated logistics specialist has involves ensuring that the supplier records are accurately recorded in the system. In most cases, the specialist maybe the one entering the data related to purchases such as vendor’s invoice.  They also enter details of the shipping documents such as order number so that it is easier to track an order.

 

Sale and Distribution (SD)

Every business aspires to make the most out of sales through exceptional customer services and high-quality products. The sales department in an organization is among the primary sections that influence its success because it deals with the core intention of business to sell its products to its customers. The functions in the sale and distribution module are related to preparation of the customer’s orders and the transportation of finished goods for the companies that deal in manufacturing activities (Van Everdingen, Van Hillegersberg & Waarts 2000, p. 29).  The module has three primary activities that are inter-related with the financial accounting, management accounting and materials management. The activities are ordering, shipping and billing. The module is related to the financial accounting module in the sense that it is involved in making entries on a number of sales made (Marriott & Marriott 2000, p.482). The materials module is related to the sales and distribution because they both deal with the availability of goods as well as recoding the amount of goods sold. It is related to the management accounting module in the sense that the module is concerned with the analysis of the company’s level of profitability concerning the revenue and expenses involved in sales and distribution.

The process in the sales and distribution module begins with the customer’s inquiry for an order and preparation of sales quotation. Recording the sales quotation is a responsibility done by the sales representatives in the company (Demski 2013). If the customer is willing and able to purchase the product, he or she makes an order, which is recorded, in the general ledger as the client’s order. The salesperson enters customer’s data if they are not in the database and records the sales order including features such as the price, quantity and the type of product.  The process then proceeds to shipping that entails taking the ordered products to the destination (Chand et al. 2005, p. 569). The person who is mainly involved in the shipping process is the sales and distribution manager who records the shipping to into the system (Avison & Fitzgerald 2003).  Once the shipping has been recorded, the officer has to consider that the existing inventory reduces as well, and an entry in the finished goods is made to reflect the transaction. After the shipping is made and recorded, the sales and distribution process proceeds to the billing stage.  The billing clerk is responsible for creating sales invoice that shows the amount of sales revenue generated.

External users of information generated by SAP-ERP system

There are different parties within an organization that are concerned with its progress because of the interest they have in the company. These parties include shareholders, potential investors, customers and creditors. These parties to make decisions about the firm’s progress use the financial information generated from the data entered into the system. Every group of the stakeholders is concerned with the financial affairs of the business because it indicates the trend of performance. The efficiency of managers in controlling the organization is indicated by the financial success of the company.  Therefore, it is important for companies to ensure that they have a sound financial performance because it reflects its efficiency to the external parties.  Every entry that the company officials make to the system helps in generating useful information at the end of the financial year. The accuracy of the data entered into the system determines the reliability and validity of the data (Davenport, Harris & Cantrell 2004, p.21). The data entered is used in generating financial statements such as the balance sheet and the income statement that are used in indicating the financial position of the company.  This section discusses the ways in which financial information generated from the SAP-ERP system is used by the shareholders, suppliers and the potential investors in forming perceptions about a company.

One of the primary responsibilities of company managers is making sure that the amount of money invested by the shareholders is used efficiently to maximize their returns. The capability of mangers is measured by their ability to invest the resources invested by shareholders wisely to yield high returns on investments. The shareholders are therefore among the primary parties have an interest in the company’s financial position.  Some of the data entered into the system such as prepayments, cash and inventories is used in calculation of the company’s current assets in the balance sheet. The investments and other fixed assets whose information is generated by the system indicate the expected returns by the investors. The system also processes data on the short-term and long-term liabilities that indicates its liquidity. The shareholders are particularly interested in the shareholder’s equity section of the balance sheet that indicates the amount of earnings that a company is able to retain. The shareholders also use the income statement to decide on whether they should increase their shares in the company or withdraw to other companies. The income statement indicates elements such as the revenue generated expenses and the net income or loss that a company makes within a given period.  Companies that continuously make losses discourage the investors from buying more shares but instead they are likely to withdraw from the company.

The other party that is concerned with the financial performance of a business is the suppliers who may also be termed as creditors in case they allow for deferred payment. The party is interested I knowing whether the company will be able to meet its financial obligations in a timely manner (Wieder et al 2006, p. 27). For instance, lending to accompany that has very little current assets is not advisable because in case of default it may not be in a position to meet the full debt on time due to its low liquidity.  The number of other creditors in the company’s liability section indicates the financial burden that the enterprise has and it may indicate the company’s creditworthiness.   Creditors are also concerned with the corporation’s level of profitability as indicated by the net income. The amount of sales revenue generated is also important to the suppliers as it indicates whether the demand is stable and sustainable.  It is therefore important for companies to ensure that data entry function is accurate.

Potential investors are the other parties that are interested in the information generated by the SAP-ERP systems. The investors have money that they may want to invest in the company but they need to be sure that the amount of money invested will not go to waste. Both the company and the investors benefit from the money that may injected into the enterprise (Al-Mashari, Al-Mudimigh & Zairi 2003, p. 358).  While the company benefits in terms of additional capital for expansion, the investors benefit from increased earnings. The potential investors need a company whose financial performance indicates potential growth. The information generated by the system relating to financial position of the company helps the potential investors make sound decisions. They are mostly interested in the amount of retained earnings on the balance sheet as it indicates the potential of the company to grow.

Conclusion

In the light of high competition in the business world today, it is important for companies to ensure efficient use of techniques that enhance efficiency. The use of SAP-ERP system has proved to improve accuracy of financial information used in making major decisions in the company. However, one has to make sure that the data entry is accurate for high quality results. The information generated helps in making important decisions in the company such as the amount of stock to purchase. The outside parties such as the potential investors, shareholders, suppliers and other stakeholders also use the information. The perceptions that the parties create about the company are shaped by the information they gain from the financial statements. The company must therefore ensure that the persons in charge of the data entry carry out their work efficiently to enhance the accuracy of financial information generated.

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