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The accounting system for all types of companies – service, merchandising, and manufacturing – is essentially the same. However, merchandising businesses have more accounts than service companies because of inventory. Manufacturing businesses, on the other hand, have more accounts than merchandising businesses because of raw materials. The manufacturing company purchases raw materials to be processed into products that can be used by the public. Not all of these raw materials are used at once; likewise, not all goods produced by the manufacturer are finished products. Hence, the inventory of manufacturing companies is further divided into Raw Materials, Work-in-Progress, and Finished Inventory. For example, the cost of bamboo can be classified as a Raw Material, the cut bamboo as Work-in-Progress, and the bamboo mat as Finished Inventory. Manufacturers also account for costs absent in merchandising and service companies, such as labor costs and overhead costs. The management of manufacturing companies also has to keep track of operations that aren’t directly related to manufacturing. These operations include customer relationship management, human resource management, and financial management. To paint the most complete and accurate picture of the manufacturing business’ condition, accounting for the manufacturing process can be integrated with accounting for the other business processes. The integration of all these business processes into one database is called enterprise resource planning (ERP). Laws like the International Financial Reporting Stnadards and Sarbanes-Oxley Act of 2002 have been put into place to encourage businesses to use ERP. These ERP systems manage the flow of information between different business functions and relationships with outside stakeholders. Businesses use ERP software to make this integration easier. Manufacturing ERP software allows businesses to keep track of raw materials, work-in-progress, and finished goods. Paperwork is reduced because all the data can be entered real-time. Any errors in the accounting data can be easily identified and corrected on time. This software is ideal for start-up businesses, rapidly growing businesses, and businesses with outdated software. Start-up businesses usually aren’t sure of their market niche yet. Manufacturing ERP software helps these businesses pinpoint strengths and weaknesses, and act on them swiftly and accordingly. The same logic goes for rapidly growing businesses that have reached their “maturity” and are probably experiencing slow decline. If the business is to keep up with the latest trends in the manufacturing industry, their software may have to be updated. An example of ERP software for manufacturing is the Sage ERP ACCPAC (accounting package). Such software can be customized to fit your business needs. To choose the right ERP software for your manufacturing business, you can read automationmag.com/erp-software/features/5-steps-to-selecting-the-right-erp-software.html.
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