Ahsanullah University of science & technology

Assignment

Course code: Course Title: Year: Semester: Date:

Submitted By: Submitted To:Projit kumar pal Mr. Mashiur RahmanID : 14-01-51-041 Asstt. Prof. SoB. AUST

704Accounting Information System

2015 3rd 01 /10/2015

What Is ERP?

ERP stands for Enterprise Resource Planning. ERP is an enterprise-wide information system

that facilitates the flow of information and coordinates all resources and activities within the

business organization. Functions typically supported by the system include manufacturing,

inventory, shipping, logistics, distribution, invoicing, and accounting. Some solutions now

embed customer relationship management functionality. A wide variety of business activities

including sales, marketing, billing, production, inventory management, human resource

management, and quality control depend on these systems. The ERP system assists in

managing the connections to outside stakeholders as well as enhancing performance

management. It uses a centralized database and usually relies on a common computing

platform. It provides the user a unified, consistent, uniform environment.

ERP solutions evolved from applications focused on materials requirements and resource

planning and computer integrated manufacturing. The Enterprise Resource Planning term

came about when software developers were searching for a name that would more aptly

describe these broader systems. These new solutions provided functionality that

encompassed other applications in addition to manufacturing.

The Benefits of ERP:

Full-Function ERP solutions share certain characteristics that some of the lower products do

not:

• They have more than a dozen integrated modules that address the breadth of the

organization's needs.

• They can scale to grow with the organization.

• They contain a toolset that allows for use customization.

• They rely on a sophisticated, relational database with open

access.

• The vendor has a solid understanding of the market's wants and needs and is

committed to meeting them through its offerings.

One of the primary benefits of deploying a Full-Function ERP solution is the consolidation of

often-dispersed data. The consolidation of data resulting from ERP use creates many

organizational benefits:

• No need to synchronize changes between systems.

• Consolidates applications and brings more control to cross-functional

processes for manufacturing, finance, human resources, marketing, and sales.

• Provides a real-time, enterprise-wide view of the business for faster and more

effective decision-making.

• Shortens production lead times and delivery times.

• Helps build a common vision throughout the enterprise.

• Consolidates multiple permissions and security procedures into a single framework,

which reduces the risk of losing or exposing sensitive data.

The benefits of ERP have been proven by a number of studies. The Aberdeen Group found the

following quantifiable benefits from best-in-class ERP implementations:

22% reduction in operating costs,

20% reduction in administrative costs,

17% inventory reductions (for manufacturing and distributing),

19% improvements in complete and on-time delivery,

17% improvements in schedule compliance (for manufacturing and distributing).

The study also found that best-in-class implementations combined strategy, organizational

capabilities, and technology to:

• Standardize and accelerate both back-office and customer-facing functions,

• Offer real-time visibility throughout the quote to cash

cycle,

• Use exception reports to respond proactively to head-off potential problems.

Even the firms characterized as laggards realized significant benefits from their

ERP implementations. These less than stellar performers realized:

• 7% reduction in operating costs,

• 4% reduction in administrative costs,

• 9% reduction in inventory (for manufacturing and distributing),

• 11% improvement in internal schedule compliance (for manufacturing and

distributing),

• 6% improvement in complete and on-time delivery.

As the study points out, single percentage savings might not sound all that impressive, but

for every million dollars in operating costs, a 7% savings amounts to $70,000.

The "hard," quantifiable benefits realized in reduced operating and administrative

costs,

inventory reductions, improved production and delivery schedules, and increased

operating

margins make a compelling case for ERP in such an intensely competitive, global

marketplace.

The Fitrix "Full-Function" ERP Solution

Finally, there is an ERP solution that offers the functionality and flexibility of systems costing

thousands of dollars more per user. One that is aligned with both the needs - and the budgets

of the small to mid-size manufacturer. The Fitrix ERP solution combines robust functionality

with a flexible, scalable architecture to deliver "full-function" ERP value at a price point other

vendors can't approach. At last, leading small and mid-size manufacturers have a cost-

effective tool to help them gain and maintain a strategic advantage.

An accounting information system (AIS):

AIS Is a system of collection, storage and processing of financial and accounting data that is used by decision makers. An accounting information system is generally a computer-based method for tracking accounting activity in conjunction with information technology resources. The resulting statistical reports can be used internally by management or externally by other interested parties including investors, creditors and tax authorities. It includes education in the latest database management techniques and system modeling approaches, and provides the Internet implementation experience necessary to practice systems development in today's technological environment.

1. Revenue:

Revenue process includes a) Sales (account open/give loan)b) Sales Return(Return Money)c) Cash Collection

a) Sales process

Accounting Information System

Revenue Expenditure Conversion Administration

Sales

Sales Return

Cash Collection

Purchase

Purchase Return

Cash Disbursement

Payroll

Planning

Resource Management

Logistic

Capital

Investment

General Ledger

Purchase order

Purchase order

A purchase order (PO) is a commercial document issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services. Bangladeshi mans wear brand Cats eye company ltd submits a purchase order of 500 pcs of shirt to Micro Fiber Company Limited.

Price Verification:

Price Verification

Sales order

Inventory & sales preparation

Credit Limit

Prepare shipment documents

Update accounts receivables

Update General Ledger

Micro fiber company ltd (seller) submit a price quotation of Tk 650 per pcs to Cats eye (buyer). Buyer verifies the price and confirm the final price at Tk 600 per pcs.

Sales order

A sales order records the customer's originating purchase order which is an external document. The customer's PO is the originating documents which trigger the creation of the sales order. In a manufacturing environment, a sales order can be converted into a work order.

Credit Limit

As a regular customer, The Cats eye company ltd gets a credit facility of Tk 7,00,000 from Micro Fiber company ltd. After receive the PO, the company immediately verify the buyers credit limit for future operations.

Inventory & sales preparation

After checking the credit limit, the seller checks the availability of the product in warehouse. If the product is available and matches with the buyer’s sample, then the seller prepares the goods for shipment as per the buyer’s requirement.

Prepare shipment documents

Seller sends the goods to the buyer after preparing the invoice and packing list. After that seller update the sales record accordingly.

Update accounts receivables & General Ledger

Seller updates the accounts receivable as per the sales record and prepare monthly statement and general ledger accounts.

b) Sales return process

Receive goods from customer

Buyer (Cats eye company ltd) returns 50pcs of defective goods (shirt) to the seller (Micro Fiber Company Ltd). The billing departments of seller match the return goods with the original sales invoice while receive.

Warehouse & Inventory

Warehouse checks the condition of the returned goods. If it is in repairable condition then repair it and send to the buyer or update the inventory and COGS. If it is not in repairable condition, it consider as scrap.

Update sales record

Receive goods from customer

Warehouse & Inventory

Update sales record

Update account receivable

Update General Ledger

After receiving the sales return, seller update the sales return record and prepare a credit memo and send it to customer.

Update account receivable

After the sales return, seller updates the account receivable accounts, cash record and general ledger.

C) Cash collection process

Cash receive

Seller receives cash/cheque payment from buyer and prepare a cash receipt journal while it match with the original sales invoice.

Update account receivable

After receiving the cash payment, seller updates the accounts receivable accounts and general ledger.

Cash receive from customer

Update account receivable

2. Expenditure:

Expenditure process includesd) Purchasee) Purchase Returnf) Cash Disbursementg) Payroll

d) Purchase:

What is purchase?

Purchase defined as “the acquisition of needed goods and services at the optimum cost from competent, reliable sources in a timely manner.”. Though there are several organizations that attempt to set standards in the purchasing process and the process can vary between organizations to organization.

The Golden Rule of Purchasing:

Purchasing must acquire needed goods and services:

❖ Of the right quality

❖ In the right quantity

❖ At the right price

❖ At the right time

Purchase process

Where information technology is not heavily ingrained - Traditional Purchasing processes tend to be characterized by high levels of bureaucracy, encumbered with manual authorization (often requiring multiple signatures independent of the order value.), slow communications and a focus on unit price rather than long term commodity arrangements.

The diagram below provides an example of a traditional purchasing process.

Purchase requisition & Authorized purchase requisition

A purchase requisition provides authorization for the Procurement Department to initiate a purchasing transaction.  The requisition form is available from the Procurement Department, and contains a complete list of information that is required to complete a purchasing transaction.

Purchase requisition

Authorized purchase

requisition

Select vendor

Prepare purchase order and send to

vendor

Receive goods (if match) and

prepare receiving record

Update account payable

Update account payable

Update inventory record (after

return)

Update general ledger

Receive invoice from vendor and Update inventory

Purchase return (if need)

Vendor selection

The vendor selection process can be a very complicated

Purchase order

A completed purchase requisition will be reviewed and approved in the Procurement Department according to the organization’s policy for requisition approval.  Once the requisition has been approved, it will be used to create a Purchase Order (PO).

Receive goods

Vendor prepares to supply the goods and service to the buyer after receives the PO. Buyer prepare a receiving record after receive the goods.

Update inventory record

Buyer receive invoice from seller (supplier) and update the inventory records.

Update accounts payables

Buyer updates the accounts payable after the new purchase record.

Sales return & update accounts payables (if need)

Buyer updates the accounts payable if any purchase return occur.

Update General Ledger

Buyer updates the general ledger as per the purchase records.e) Purchase return process

A purchase return occurs when a buyer returns merchandise that it has purchased from a supplier.

Rejected goods return from customer

Goods can be return to vendor for various reasons with a authorization of return.

Return goods with a debit memo

Update inventory record

Receive credit/ cash from vendor & update account

payable

Prepare debit memo & send to

vendor

Document Match

Authorization to return goods

Rejected goods from customer

Update General Ledger

Return goods after match with the purchase invoice and send a debit memo to the vendor.

Update account payable, inventory record & general ledger

Update account payable and inventory record after receiving refund or credit memo from vendor against return.

f) Cash Disbursement process

Cash disbursement means the payment of money against purchase.

Identify the invoice of due payments

Prepare for payments

Payment to vendor

Cheque sign after document check

Update cash record

Update accounts payable record

Update General Ledger

Identify the due invoices

Identify the vendors invoices which payment is still due and prepare for payment.

Payment to vendor and update the cash record

Payment of the vendor against the due payments after cheque sign and update the cash records.

Update account payable and general ledger

Account payable and general ledger accounts will upgrade after payment to vendor.

g) Payroll process

The payroll is the amount of money that a company pays its employees at any given time. Sometimes every two weeks, or sometimes once every month

Working hour correction and

approve the time sheet

Prepare payroll register

Time sheet submit by the employee

Prepare payroll Voucher

Transfer fund to payroll bank

account

Update general ledger

Time sheet submission & checking

Employee submits there time sheet where there working time was recorded. Authority will approve that after checking/correction the working hours.

Prepare payroll register & voucher

The payroll register will prepare as per the corrected working hours.

Payroll voucher and transfer fund in payroll bank

Payroll voucher will create as per the payroll register. The fund will transfer to the payroll bank and update general ledger.

3. Conversion:

Conversion process includesh) Planningi) Resource Managementj) Logistics

h) Planning

Business planning is a process that involves the creation of a mission or goal for a company. The process of business planning can be very broad, encompassing each aspect of the operation.

i) Resource Management

The process of using a company's resources in the most efficient way possible is considered as resource management. These resources can tangible resources such as goods and equipment, financial resources, and labor resources such as employees. Resource management can include ideas such as making sure one has enough physical resources for one's business.

j) Logistics

Logistics is defined as a business planning framework for the management of material, service, information and capital flows.

4. Administration:

Administration process includesk) Capitall) Investmentm) General Ledger

K) Capital:

Capital is the money that is going to be invested in a business. Some of the money will come out of from personal investment. Some of the money may come from another source of financing, such as a bank or a small business center loan. That’s the capital for starting a business. Knowing how much capital needs to start a business will be a deciding factor on the type of business might be start.

Here we consider tk 50 lac as our capital, where tk 25 lac from personal investment and tk 25 lac from bank loan.

l) Investment:

Investment encompasses a wide variety of funding options. While funding for capital investment is generally in the form of common or preferred equity issuance, it may also be through straight or convertible debt. Funds invested in a firm or enterprise for the purposes of furthering its business objectives. Capital investment may also refer to a firm's acquisition of capital assets or fixed assets such as manufacturing plants and machinery that is expected to be productive over many years.

m) General Ledger:

The general ledger is a collection of the group of accounts that supports the value items shown in the major financial statements. It is built up by posting transactions recorded in the sales daybook, purchases daybook, cash book and general journals daybook. The general ledger can be supported by one or more subsidiary ledgers that provide details for accounts in the general ledger. For instance, an accounts receivable subsidiary ledger would contain a separate account for each credit customer, tracking that customer's balance separately. This subsidiary ledger would then be totaled and compared with its controlling account (in this case, Accounts Receivable) to ensure accuracy as part of the process of preparing a trial balance.