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Exercise 5.1 Accounting in ERP Systems
1. Create a document that describes Fitter’s current credit management
procedure. Write this document so it could be used to train a new employee
in the credit management process.
2. Create a revised version of your document to reflect the process
improvements that would result if Fitter were performing credit checks using
an integrated information system. 127

PRODUCT PROFITABILITY ANALYSIS

Business managers use accounting data to perform profitability analyses of a company and
its products. When data are inaccurate or incomplete, the analyses are flawed. There are
three main reasons for inaccurate or incomplete data: inconsistent record keeping,
inaccurate inventory costing systems, and problems consolidating data from subsidiaries.
The following sections will look at each of these causes, using Fitter as an example.

Inconsistent Record Keeping
Each of Fitter’s sales divisions maintains its own records and tracks sales data differently.
The Direct Sales Division’s sales order form includes a code for the appropriate sales
region (Northeast, Southeast, and so on). The Wholesale Division’s sales order form
includes a code for the state. Suppose that a Fitter executive asks for a report that
summarizes monthly sales dollars for all Mid-Atlantic states (i.e., some states from Fitter’s
Northeast sales region and some states from its Southeast region) for each month of the
previous year. Neither division’s records are set up to easily answer that question. Rather,
a Fitter accountant would need to go to the source sales documents for the Direct Sales
Division and, by looking at the shipping address, determine whether the sale was to a
company in a Mid-Atlantic state. If so, the accountant would need to manually add the
relevant information for this sale to an electronic spreadsheet. For the Wholesale Division,
the accountant could run sales summary reports for each state in the Mid-Atlantic region
by month and add this data manually to the spreadsheet report. Once all the data was
gathered, it could be formatted to create the desired reports.
Now, suppose Fitter’s management wants to evaluate the efficiency of Production’s
operations. Production uses paper records, so, again, data must be taken from the paper
records and entered into a spreadsheet. As often happens, those paper records might be
inaccurate or missing, making the validity of the final report questionable and the creation
of the report time consuming.
There are many variations on this theme. Conceivably, a company’s divisions could
maintain the same data about a function, but if each division’s system was created at a
different time, each might a different file system. Often, to answer a question about overall
company performance, at least one set of data must be rekeyed into a spreadsheet
(or some other middleware program) for the merged analysis. While it is possible to get an
answer, doing so takes much more time with unintegrated systems.
With an ERP system, this sort of effort is minimized or eliminated because both
divisions record and store their data in the same way, in the same database. Ideally, the
company’s processes would be changed to fit the best practices of the software when it is
installed. As part of the system configuration process, the managers of each division would

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