An ERP system and standalone accounting software have many differences. Nevertheless, despite these distinctions, there is still a misunderstanding that leads many people to use the terms synonymously. The first step in deciding which management software is best for your business processes is to comprehend the differences between these two different types of management software.
While there is some overlap, the primary distinction is in the number of capabilities each solution offers. With the help of general ledger accounts with reporting, accounts payable, accounts receivables, payroll, and accounting software, your business can manage its finances. The aforementioned accounting features are just one of the many modules that ERP software offers. It also includes applications for supply chain management, inventory management, human resources, and eCommerce.
ERP software can be viewed as a subset of accounting software. To provide a true enterprise system, almost every ERP will need to provide accounting capabilities in addition to the other non-financial tools. While this is happening, an accounting system will only take care of the necessary financial management, planning, and budgeting for your organization.
In summary, an accounting system will only manage the financial aspects of your business, whereas an ERP is designed to manage every aspect of running your business. Many businesses begin with basic accounting software (like QuickBooks Online) when they are first established, but as they expand, they switch to an ERP solution for their supply chain, inventory, eCommerce, and other non-financial requirements.
This does not imply automatically that ERP software is for larger businesses while accounting software is for smaller businesses. Many businesses opt to use a specialized accounting program that can manage numerous entities or multi-currency accounting. They may decide to use different systems that offer these functionalities and integrate them into their accounting solution if they do have non-financial software requirements. Similarly, there is small business ERP software available that aims to provide a growing business with a little bit of everything. However, it might not delve deeply enough into a particular topic (like bank reconciliations), which might make you yearn for a program more focused on finances.
Your finance teams and accounting departments should use accounting systems. Their daily operations include tracking revenue, sales, and invoices. Accounting software will increase your organization’s visibility into its profitability. Certain data collection and processing of important financial information will be streamlined with the aid of accounting modules like fixed asset management and billing/invoicing. Additionally, it will produce important financial reports like income statements, balance sheets, and profit and loss statements.
Concept: Difference Between “Accounting Systems” and “ERP Systems”
What is accounting software?
A computer program designed to manage accounting tasks is referred to as accounting software. Accounting software meets the fundamental accounting requirements of an organization and is most frequently used within financial departments, typically by accountants or bookkeepers. The common features of accounting software include:
You can create fundamental financial reports, such as income statements and statements of profit and loss, using the features mentioned above. Accounting software can also streamline accounting processes, making it simpler for your team to complete the fundamental accounting tasks.
What is ERP software?
Enterprise resource planning, or ERP, is a class of management software that compiles and arranges an organization’s data. ERP is used by businesses to coordinate, automate, and manage daily operations across departments. Multiple applications for controlling particular functions may be available in an ERP suite, including:
Additionally, ERP offers a shared database that enables communication between various applications, facilitating smooth data transfer between departments. Businesses may also use ERP to maintain accurate and up-to-date data, which can help them run their operations more effectively.
Differences between ERP and accounting software
The difference between ERP and accounting software is their focus. Accounting software organizes and implements financial matters because it focuses on financial transactions as a separate system. The way that ERP differs from similar systems is by considering the financial aspect of an organization as a cause or an effect of other factors, such as work hours, customer relations, and the number of units produced.
ERP includes accounting software, but it might not be appropriate for all businesses. Accounting software’s relatively light weight and streamlined functionality may be preferred by small- to medium-sized businesses who don’t necessarily need the integration that ERP offers. However, large organizations may need the consolidation of processes on a single platform that ERP can offer because they are made up of numerous systems and activities that depend on one another for efficient operations.
Benefits of using ERP software
ERP can offer a variety of advantages to businesses that use it thanks to its data integration on a single platform. These benefits include:
Reduced IT costs
ERP only needs a single, dedicated IT team to manage the system and software license. Employee training time and requirements can be decreased in this single-system environment because they only need to learn how to use one system instead of several.
Real-time information and faster reactions
On an ERP system, data changes are immediately visible. Users are able to access the most accurate information possible thanks to this real-time updating. When writing reports, employees can use this current information, and management can act more quickly and with greater knowledge. For instance, a purchasing supervisor can keep an eye on the inventory without first tracking and verifying the information. With this knowledge, they can choose the best time to replenish inventory early on.
Improved collaboration
ERP can promote departmental cooperation by streamlining business procedures. Because the information is already available to the employees, it can reduce the time spent on information sharing and explanation. Managers and HR specialists can then monitor the development of each participant and involved department as work begins.
Greater productivity and efficiency
ERP’s automation features can assist in minimizing the time and effort required to complete specific tasks. For payroll, the ERP system, for instance, may automatically manage benefit deductions and wage calculations. ERP automation can significantly free up time for workers to concentrate on other tasks as these are repetitive tasks that frequently happen several times a month.
Better customer service
An employee can monitor orders using the ERP system to make sure customers receive them on time. For instance, if the system displays a warning about a potential shipping delay, a staff member can access the order information, find the cause of the delay, and inform the customer about it. Such conduct may contribute to the development of a trustworthy business relationship.
Benefits of using accounting software
Accounting software may be the better choice for some people, especially small- to medium-sized businesses, despite its potential limitations in terms of integration and functions. Some benefits of using accounting software include:
Lower cost
Accounting software can often be significantly less expensive than an ERP. It can cost over $100,000 to implement an ERP system across an entire organization. Comparatively, depending on the needs of the business, advanced accounting software can cost between $25 and $150 per month as a subscription service.
Better suitability
Despite the fact that ERP systems are comprehensive platforms with a wide range of practical features, small- to medium-sized businesses may not require all of them. Such organizations might discover that an accounting software’s leaner, more concentrated package of services is better suited to their requirements and objectives. Additionally, they might appreciate the flexibility of subscription-based accounting software, which would enable them to upgrade to a more sophisticated option for greater functionality.
More familiarity
Users may have some familiarity with the fundamental computer-based accounting functions due to the frequent inclusion of accounting functions in other widely used software applications. ERP, however, is more specialized and may require extensive training. Additionally, a lot of small and medium-sized businesses already use accounting software. It might be preferable for them to stick with a system they are accustomed to.
Faster implementation
A new accounting software system can be implemented in a matter of weeks to months, though for some people the implementation period may be longer. For an ERP system, however, implementation can take several years. Some businesses may prefer the faster implementation of accounting software.
Greater simplicity
Accounting software can be simple to use and learn for daily tasks. While data entry is frequently all that is needed for processes, there may be automation options for tasks like uploading statements and invoices. Accounting software may be simple to use, which means that many employees might be able to use it with little training. Comparatively, ERP software provides so many functionalities that users may find it more difficult to understand and master.
FAQ
What is the difference between ERP and accounting systems?
An ERP system offers a wide range of functionalities, whereas an accounting system provides all the tools a SME needs for accurate and effective financial reporting. Order Entry and Purchasing. Inventory Control and Warehouse Management.
Can an ERP be used as an accounting?
By using integrated data to streamline all of their accounting processes, accountants will gain from an ERP. ERPs will expedite all accounting and financial management procedures, allowing you to make business decisions more quickly and effectively while also saving you time (and money).
What’s ERP accounting?
In accounting, ERP is the acronym for enterprise resource planning. ERP is a database software program that supports all of a company’s processes and operations, including manufacturing, marketing, finance, and human resources, among others.
Is ERP a GL?
The General Ledger (GL) module is the core of an ERP system’s financial package.
