Date: 11th APR 2022

LIVE COACHING CLASSES

BOARD OF STUDIES(A), ICAI

CA INTERMEDIATE

CHAPTER 2: FINANCIAL & ACCOUNTING SYSTEMS

TOPICS: BUSINESS PROCESS MODULES AND THEIR INTEGRATION

WITH FINANCIAL AND ACCOUNTING SYSTEMS

PAPER 7A : ENTERPRISE INFORMATION SYSTEMS

Faculty Name: CA Udaya Kumar Yelchuri ACA, CISA, PMP, CSPO & ITIL
Financial & Accounting Systems
CHAPTER 2
Business Process Modules & Their Integration
with Financial & Accounting Systems

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Business Process
A Business Process Consists of a Set of Activities that are performed in coordination in an Organizational and
Technical Environment. These activities Jointly realize a Business Goal.

To manage a Process –

• Define the Process. This involves defining the tasks/steps in the process and mapping the tasks to
the roles involved in the process
• Establish Performance Measures creates a basis to improve the process
• Organizational Setup that enables the standardization and adherence to the process throughout the
Organization

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Business Process Flow
A Business Process is initiated by a kind of event, has a well-defined beginning and end, and is usually
completed in a relatively short period.

Organizations have many different business processes such as Purchase of Raw Materials, Sale of goods, etc.
Each Business Process has either a direct or indirect effect on the financial status of the Organization.

The Accounting Process Flow:

Source Journal Ledger Trial Balance Adjustments O2C

Document

P2P
Financial Adjusted Trial
Closing Entries Balance
Statement
R2R

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ERP-Business Process Modules

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Business Categories of BPM
There are three different nature and types of business,

❖ Trading Business
o Buying and Selling of goods without any modifications
o Purchase, Sales & Inventory Accounting are major aspects in Accounting
o This industry requires accounting & inventory modules.

❖ Manufacturing Business
o Purchase of Raw Material + Conversion=Sale of ‘Finished Goods’
o All Aspects of Trading Business+ Manufacturing
o This type of Industry requires Accounting, Complete Inventory & Manufacturing Modules.

❖ Service Business
o Selling of Skills/Knowledge/efforts/time (Ex: CA’s, Lawyers, Engineers & Doctors, etc.)
o Does not hold Inventory
o This Industry doesn’t need Inventory Module

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Functional Modules of ERP
Material Management
Financial Accounting

Quality Management
Controlling

Plant Maintenance
Sales & Distribution ERP

Project Systems
Human Resource

Supply Chain

Production Planning
CRM

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Financial Accounting Module
This module is the most important module of the overall ERP System and it connects all the modules to each
other.

Key Features:

• Tracks Flow of Financial Data Across the Organization and Integrates all information for Strategic
decision making
• Creation of Organization Structure (Defining Company, Company Codes, etc.)
• Financial Accounting Global Settings
• General Ledger Accounting
• Tax Configuration
• Creation & Maintenance of House Banks
• Accounts Payable
• Accounts Receivable
• Asset Accounting
• Integration with Other Sub Ledgers (Material Management, Sales and Distribution)

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Controlling Module
This module helps in analyzing the actual figures with the planned data and in planning business strategies.
Two kinds of elements are managed in Controlling Module – Cost Elements and Revenue Elements and
these elements are stored in Financial Accounting Module

Key Features of this module are as under,

• Cost Element accounting- Provides Overview of Costs and Revenues that Occur in an Organization
• Cost Center Accounting-Provides Information on the Costs Incurred by Business. Managers Can set
Budgets/Cost Center Targets, Distribute Costs, etc.
• Activity Based Costing –Allows Process Oriented or Cross-Functional View of Cost Centers.
• Internal Orders- Means of tracking/Collecting Costs of a Specific Job, Service, or Task
• Product Cost Controlling-To analyze their product costs and to make decisions on the Optional
Prices to market their products.
• Profitability Analysis-To review the company’s profit or contribution margin by individual market
segment
• Profit Center Accounting – Evaluates Profit or Loss of Individual, Independent areas of Organization Dec
2021

6 Marks

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 Sales and Distribution Module
‘Sales and Distribution’ is used by Organizations to support Sales and Distribution Activities of Products &
Services, starting from inquiry to Order and then ending with Delivery.

It has a high level of Integration Complexity

Key Features:
• Setting Up Organization Structure
• Assigning Organizational Units
• Defining Pricing Components
• Setting Up Sales Document Types, Billing Types, and Tax-Related Components and
• Setting Up Customer Master Data records and Configuration

Process:

Pre-Sale Activities Sales Order Processing Inventory Sourcing Delivery Billing Payment

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Assessment
Sales and Distribution module is one of an important modules of ERP Package. Which of the following
activity does not belong to Sales and Distribution Process?

a) Pre-Sales Activities
b) Payment
c) Delivery of Product to Customer
d) Production Planning

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Human Resource Module
This module enhances the work process and data management within the HR Department of Enterprises.
Right from hiring a person to evaluating ones’ performance, managing promotions, compensations,
handling payroll, and other related activities of an HR is processed using this module.

Process in Human Resource Department:

Recruit Maintain Personal/Family Data

Hire Recording Education
Record Time and Expenses Change of Pay
Personnel Actions
Pay Via Payroll Process Change of Position
Personnel Development Leave Management
Maintain Benefits Plan Termination

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Production Planning Module
This module consists of Master Data, System Configuration, and transactions to accomplish the plan
procedure for production.

• Master Data: Material Master, Work Centers, Routings and Bill of Materials
• Sales and Operations Planning (SOP) – Ability to forecast Sales based on Past, Current & Future Data
• Distribution Resource Planning (DRP)-Ability to plan the demand for distribution centers
• Production Planning- Material Forecasting, Demand Management, Long Term Planning
• Material Requirement Planning (MRP) – Based on demand and Supply, Calculate Net Requirements
from Planning Run
• Capacity Planning- Evaluates the Capacity Utilized based on the Work Centers Capacity
• Product Cost Planning-Evaluates the time Values and Value of Component Materials to determine
Product Cost

Conversion into Finished Stock Transfer to

Issue of Raw Material From Stores Conversion into WIP
Goods Godown

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Material Management Module
Material Management (MM) module manages the Materials Required, Processed & Produced in Enterprises.
Deals with the movement of Materials Via other modules Like Logistics, Supply Chain Management, Sales &
Delivery, etc.

Purchase Requisition Evaluation of Purchase

Asking for Quotation
from Production Request by Purchase
from Approved Vendors
Department Department

Placing an Order for Receipt of Material by

Evaluation of Quotations
Approved Quotation Stores

Issue of Material to Recording of Purchase Release of Payment to

Production Invoice by Accounts Vendor

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Quality Management Module
Quality Management (QM) module helps in the management of Quality in the production process in an
Organization.

Quality Planning Quality Control

• It is a structured process for developing

• Ensuring the maintenance of proper
products that ensure that customer
standards in manufactured goods,
needs are met by the final result
especially by periodic random inspection
of the product.
• The tools and methods of quality
planning are incorporated along with the
technological tools for the particular
product being developed and delivered

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 Quality Assurance Quality Improvement

• Quality assurance is a way of preventing • It is a Continuous Process. The Customer

mistakes and defects in manufactured needs and expectations are continuously
products and avoiding problems when changing depending on the changes in
delivering products or services to technology, economy, political
customers; situations, etc.

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Process in Quality Management Module

Plan Quality

Quality Management Plan Quality Management Plan

Quality Checklist
Quality Metrics Quality Metrics

Quality Control
Perform Quality Measurements Perform Quality
Assurance Control
Work Performance
Change Requests Information Deliverables

Perform
Direct & Manage
Integrated Change
Approved Change Project Execution
Control Requests

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Plant Maintenance Module
Plant Maintenance (PM) is a functional module that handles the maintenance of equipment and enables
efficient planning of production and generation schedules.

This application Supports Cost-Efficient maintenance methods such as Risk-based maintenance or

preventive maintenance and provides comprehensive outage planning and powerful work order
management.

Objectives:
• To achieve minimum breakdown and to keep the plant in good working condition at the lowest
possible cost
• To use the plant at Optimum Capacity without any hindrance or interruption
• To ensure the availability of machines, buildings, and services required by other sections of the
factory at Optimum return on investment.

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Process in Plant Maintenance

Information on Types
of Machinery from
Production Planning
Equipment Master & Control PM Reminder Report

PM Schedule Report
Plant Master

Monthly PM Report

Maintenance Data Reports

Equipment/Plant Maintenance History
History Database Report

Yearly PM Schedule Equipment/Plant

Master Report
Information on
Items/Parts from
Inventory

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Project Systems Module
• It is an Integrated Project Management tool used for Planning and Managing Projects and Portfolio
Management.
• Enables Cost & Budget Planning, Scheduling, requisition of Materials & Services, execution until Project
Completion
• Project Management is Closely Integrated with other ERP modules Like Logistics, Material Management,
Sales & Distribution, etc.
• Project Manager has to ensure that projects are completed within Budget & Time

Project Request

Create Budgeting & Project Project

Create Project Project Planning
Templates Release Implementation Completion

Project Progress & Reporting

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Supply Chain Module
A Supply Chain is a network of facilities that produce Raw materials, transform them into intermediate
goods and then finished products, and then finally deliver the products to customers through a distribution
system or chain.

• It allows you to Optimize Supply Chain

• Streamline Processes such as Supply Network, Demand, and material requirement planning
• Created Detailed Scheduling
• Refine Production Integration and Maximize Transportation Scheduling

Raw Materials Supplier Manufacturing Distribution Retailer Consumer

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Customer Relationship Management (CRM)
Customer Relationship Management is a system that aims at improving,

• The relationship with existing Customers

• Finding New Prospective Customers
• Wining Back Former Customers
• Collecting, Organizing and Managing the Customer Information

Business Relationships

Customer Retention CRM Goal Customer Acquisition

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Key Benefits of CRM Module
❑ Improved Customer Relations:
o All dealings involving servicing, marketing, and selling our products to the Customers can be carried
out in an Organized and Systematic Way, which helps in obtaining better customer satisfaction
o Customers might recommend products when efficient and satisfactory services are provided.

❑ Increase Customer Revenues:

o Using the data collected, marketing campaigns can be popularized in a more effective way.
o Ensure that product promotions reach a different and brand new set of Customers.

❑ Maximize Up-Selling & Cross-Selling:

o Customer Wants, Needs, and Patterns of Purchase are Stored in Central Database and accessible to
Sales Executives.
o Up-Selling: Practice of giving Customers premium products that fall in the same category of their
purchase; Cross-selling: Practice of Offering Complementary Products to Customers, based on their
previous Purchase

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Key Benefits of CRM Module…Continued
❑ Better Internal Communication:
o Sharing of Customer data between different departments will enable them to work as a Team

❑ Optimize Marketing:
o CRM enables to understand the Customer needs and Behaviour in a better way, thereby allowing any
enterprise to identify the Correct time to market its product to the Customers.
o It will also give an idea about the Most Profitable Customer Groups.

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Assessment
JKM Pvt Ltd. Is an apparel manufacturing company well equipped with ERP. MM group approached JKM
Pvt Ltd. With a requisition of 1000 pieces of female black formal suits. Mr. Y, a senior manager of JKM Pvt
Ltd wants to evaluate the current stock position and Purchase Order pending position of his company.
Which of the following module of ERP will help Mr. Y in this.

a) Sales and Distribution Module

b) Materials Management Module
c) Production Planning Module
d) Supply Chain Management Module

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Integration with Other Modules

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Integration Points
• Sharing of Master Data
• Sharing of Transaction Data
• Separate Voucher Types for each module
• Transaction & Balances flows across the department (Closing Stock →Purchase Department, Inventory
Department, Finance Department)

Human Resource Finance & Controlling Salary Processed & Calculated

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Integration Points
Finance & Controlling

Production Planning
• Material Valuation
• Material Costing
Material • Inventory Posting
Sales & Distribution
Management • Stock Transfers

Quality Management

Plant Maintenance

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Integration Points
Finance & Controlling

Production Planning • Material Requirement Planning

• Stock Issue/Receipt against
Production Orders
Material • Check for Stock Availability
Sales & Distribution
Management • Material Requirement Planning
(MRP) based on Stock, Expected
Receipts & Issues
Quality Management • Receipt of FG

Plant Maintenance

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Integration Points
Finance & Controlling

Production Planning
• Delivery
• Availability Check
Material
Sales & Distribution • Stock Transfers
Management

Quality Management

Plant Maintenance

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Integration Points
Finance & Controlling

Production Planning
• Quality Inspection at Goods Receipt,
In-Process, FG, etc.
Material • Vendor Evaluation based on Quality
Sales & Distribution
Management Parameters
• Items Subject to Quality Inspection
are identified & corresponding
Quality Management activity is initiated in QM System

Plant Maintenance

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Integration Points
Finance & Controlling

Production Planning
• Maintenance Order → Purchase
Requisition
Material • Material Issue against the PO
Sales & Distribution
Management

Quality Management

Plant Maintenance

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Assessment
Identify the false statement from the following statements on various modules of ERP

a) Controlling Module Evaluates the Profit or Loss Of Individual Market Segments

b) Sales and Distribution Module Includes Product Enquiries, Placing Order and Scheduling
Activities
c) Plant Maintenance Module involves the process of planning Production Activities
d) Human Resource Module deals with financial entries like Advances or Loans to Employees

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