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50 CHAPTER 3 Introduction to Accounting

primarily for audiences outside the organization, such as the SEC. However,
they are also useful for internal management purposes.
In contrast, management accounting, or controlling (CO), is internally
focused, meaning that it provides the information the organization needs to
effectively manage the various processes. Management accounting processes,
like FI processes, use fi nancial data recorded during process execution to gen-
erate reports. Specifi cally, CO reports focus on costs and revenues which man-
agement uses to achieve basic business objectives such as increasing revenues,
minimizing costs, and achieving profi tability. In contrast to FI, however, the
content of these reports is not prescribed by any external entity. Rather, CO
reports are based entirely on management’s needs. Figure 3-1 highlights the
key differences between FI reports and CO reports.

Figure 3-1: Financial accounting vs. management accounting

From an ERP perspective, fi nancial accounting is the “heart” of the
system because it must accurately refl ect the fi nancial status of the fi rm
at any given point in time. As you learn about processes in later chapters,
it is essential that you understand the fi nancial impact of these processes.
For this reason, we have included this chapter on accounting early in the
textbook. At the same time, however, fi nancial accounting is closely inter-
twined with management accounting. Consequently, we introduce a few
basic management accounting concepts in this chapter.
The key processes in fi nancial accounting are:

• General ledger accounting
• Accounts receivable accounting
• Accounts payable accounting
• Asset accounting

• Bank ledger accounting

The general ledger (GL) is used to record the fi nancial impacts of busi-
ness process steps; it contains much of the data needed for fi nancial reporting.
Accounts receivables accounting is associated with the fulfi llment process
and is used to manage money owed by customers for goods and services sold to
them. Conversely, accounts payable accounting is associated with the pro-
curement process. Companies use accounts payable accounting to record and

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