Major Differences Between ERP and Accounting Software

People that are actively involved in the business world keep on using some technical terms so frequently. Many times, they even forget that those industry jargons are not understandable to everyone. Same is the condition of ERP software; they are the essential tools for the experts, but maybe a complicated term for the beginners.

So, when you are interested to know how ERP differs from traditional accounting software, it is good to check in-depth details about both these topics. It is observed that many people use these terms interchangeably, but in actual ERP and Accounting software are two different things. Their functionality and applications vary by a considerable level.

Major Differences Between ERP and Accounting Software:

Today, with the help of modern cloud technology, you can make use of customized accounting software and ERP (Enterprise Resource Planning) software like SAP, Oracle to manage your financial transactions and ensure stress-free bookkeeping. This can be easily deployed in the cloud and used a subscription service instead of installing your own servers and purchasing software licensing.

But you need to understand that both are different from one another, before you can decide which will suit your needs better.

ERP Vs. Accounting Software:

The basic difference between both these terms is that the accounting software usually helps to covers areas like banking; accounts payable, receivable; financial reporting and some basic sales recordings. In simple terms, accounting software are designed to manage a few specific business areas. However, ERP software further includes the basic functionality of accounting along with few additional abilities to manage logistic requirements, supply chain, warehouse, inventory, eCommerce and contact management as well. ERP can be better defined as a fully integrated tool with an end-to-end solution for businesses.

Those who are new to these terms may require precise definitions of both to understand them better. Below we have highlighted the distinction between both these terms with clear definitions:

Accounting Software:

Accounting software, as the name indicates, is primarily used for managing accounts of a company. Practically, accounting software takes responsibility to manage financial aspects of the business while making a perfect track of all business transactions, journal entries, AR/AP and general ledger utilization. It also includes details about balance sheets and income statements. Accounting software is the most reliable tool to maintain the financial health of an organization.

ERP Software:

On the other side, ERP stands for Enterprise Resource Planning, and this module is capable enough to track the intangible and tangible assets of a company including inventory management, order fulfilment, production management, invoicing, reporting, and job costing as well. At the same time, it extends support to Customer Relationship Management and Human Capital Management. Basically, this tool is designed to pack the entire business into a single suite with efficient management options.

The accounting software are not designed to offer Manufacturing Management, but ERP software can handle these needs very well. This feature includes Production Planning, Bill of Materials and many more. While fulfilling the rising demands of the customers, businesses often face situations where it becomes difficult to manage the supply of shipments and production resources. It usually leads to missed deliveries, order changes and machine breaks as well. In such situations, businesses need production management software to manage a variety of aspects with ease. When accounting software fails to handle such complexities; the ERP can serve the needs very well.

In simple words, the ERP solution helps businesses to find more ways to grow with a satisfied customer base in the competitive market. Let’s find out the three major differences between accounting software and ERP:

1. While the best free accounting software manages company’s accounts or how your money moves,
ERP is a business software that helps you to track your inventory management, tangible and intangible assets, invoicing, order fulfillment, job costing, etc. In accounting, you deal with the general ledger, account receivable and payable, payroll, expenses, and more. But enterprise resource planner (ERP) helps in managing issues that are not addressed in accounting. In other words accounting functions are subset of ERP software. ERP is an account software plus much more.

2. Usually there is a big difference when it comes to cost of ownership of software between ERP & Accounting software. While Accounting softwares are usually low cost, a small business can easily afford an accounting software. Whereas cost of implementation and maintenance of ERP can be highly expensive even for medium to large sized businesses.

3. Another major difference is the amount of personnel required to manage the software. While accounting software can be managed entirely by the small business owner. Maintain an ERP system would require a team of professionals to keep it up and running. Learning curve is also usually steep for ERP software.

4. The accounting software has restricted or basic inventory tracking,
along with the web-based add-ons. On the other hand, the ERP system is flexible enough to set the users free from the shackles in accounting software. It also enables you to increase the accuracy and customer services of your business. Meanwhile, ERP helps you in reducing the stock carrying costs, inventory write-offs, and labor costs. In addition, the ERP’s inventory management module helps you in making faster and accurate decisions that are critical in today’s complex international inventory environments.

5. ERP can help in planning your resources required for your business like amount of raw materials required for production process, also help in managing highly complex production line, however an accounting software lacks such kind of functionality.

While both are important for your business in their own unique ways, the ERP is more flexible compared to the accounting software and lets you manage different tasks more conveniently. It all comes down to the needs of your business and the size of the business. Usually a small business can be quite happy with accounting software for quite long time, where as comparatively big business or business handling lot of manufacturing and inventory would need ERP software to manage their business effectively.