What is the difference between accounting software and ERP?
The relationship between accounting software and ERP software can be confusing. An ERP usually replaces the need for accounting software and is designed for higher-volume businesses. So naturally many people think of ERP as just a more powerful version of their accounting software.
Another assumption is that an ERP is superior to accounting software in every area. The reality is that accounting software has several advantages that may make it a better fit for many smaller businesses.
Accounting software and ERP software differ in fundamental ways – their purpose, how they’re constructed, who uses them and how. Understanding the difference between the two categories of software can make it easier to determine whether and when you should consider upgrading from accounting software to an ERP.
The difference in purpose between accounting software and ERP
Accounting software and ERP software solve two different problems. Accounting software is primarily designed as a tax compliance tool. Your accountant or bookkeeper uses it to track income and expenses and determine how much tax the company should pay every year.
The role of accounting software has expanded to include managing payroll for employees and producing financial reports for business owners. By connecting third-party applications through their expansive software ecosystems, accounting software can pull in data from many other sources.
But the central purpose of accounting software hasn’t changed. It remains primarily a tool for calculating your taxes.
While ERP falls in the category of financial software, its purpose is to track the use of all resources in a business. An ERP does this by providing a digital framework for the key business processes that turn activity into profit.
One of those processes includes finance and accounting, and it can produce the compliance reports for calculating taxes, just like accounting software. However, an ERP also drives processes in operations such as supply chain, production/manufacture, inventory, and sales and marketing processes.
In brief, accounting software looks after the tax compliance process, while ERP software is built to manage all business processes.
Accountants typically play a large role in setting up and running an ERP because the accounting aspects are the outcome of the production processes. The finance team has to ensure that the output of those business processes accurately reflects the company’s performance from an accounting point of view.
The difference in design between accounting software and ERP
Accounting software and ERP are built differently. Accounting software is primarily concerned with financial data. Bank transactions, invoices, quotes, bills and expense claims; the database of an accounting software is built to record financial data in great detail.
Accounting software also records other types of data, but with much less detail. For example, it usually includes basic contact details for customers, suppliers and employees – enough to send and receive invoices and bills and generate payslips.
Some accounting software also has the ability to store limited details about products in a light inventory module. This includes the product’s name, quantity on hand, sale price, average cost and total value.
An ERP contains detailed records for customers, products and transactions in a single database. For example, a product record can include the transfer ship price, warranty information, and the landed cost of the product calculated for a specific supplier.
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