In this video, we walk through 5 ISC practice questions on ERP and accounting information systems. These questions are from ISC content area 1 on the AICPA CPA exam blueprints: Information Systems and Data Management.
The best way to use this video is to pause each time we get to a new question in the video, and then make your own attempt at the question before watching us go through it.
ERP and Accounting Information Systems
What is ERP (Enterprise Resource Planning) System?
An ERP is one software system that runs the whole business on a single shared database. Sales, purchasing, inventory, manufacturing, payroll, and accounting are modules within that same system, so a transaction entered anywhere in it is immediately part of the records everyone else works from. When the warehouse records a shipment, the inventory balance drops and the sale appears in the financial records at the same moment, with nothing transferred between departments.
ERPs are commercial products a company licenses and configures rather than builds. SAP and Oracle serve large corporations; NetSuite, Microsoft Dynamics 365, Infor, and Acumatica serve mid-sized companies. The exam probably won’t test brand names, but knowing examples helps you see how it applies in the real world.
What Happens Without an ERP
Most companies don’t have one. They run separate systems for different functions, and data moves between those systems on a schedule.
Picture a distributor with one system for the warehouse and a separate accounting package, with shipment activity transferring over monthly. Two problems follow. Between transfers, the accounting records are out of date, so someone checking stock there can quote product that shipped two weeks ago. And because each system maintains its own count, the balances drift apart, leaving the controller to reconcile the difference at close.
Those problems are what an ERP eliminates. There’s no transfer because there’s only one set of records.
What is an Accounting Information System?
An accounting information system is whatever a company uses to capture its financial transactions, process them, store the data, and produce the financial statements and reports.
The important part is that it names a function rather than a product. Every company performs that function, and how they cover it varies. A small company might do all of it in QuickBooks. Another might use QuickBooks for the ledger, ADP for payroll, and Bill.com for payables, in which case the accounting information system is all three products plus the transfers between them. A company on NetSuite has it inside the ERP. There’s no single product category that is the AIS.
What an AIS Encompasses
It runs from transaction entry through to the reports. Entry is where the invoice, bill, payment, or journal entry gets recorded. The subsidiary ledgers hold the detail: receivables by customer, payables by vendor, individual fixed assets, individual inventory items. Those subledgers post their totals to control accounts in the general ledger, and the general ledger balances produce the trial balance and financial statements.
Operational functions sit outside it. A purchase order, a production schedule, and a sales rep’s call log are all things the business does, but none of them records a financial transaction. They lead to transactions later, when goods are received, items are produced, and sales are made.
How the Two Interact
In a company running an ERP, the accounting information system is the finance modules of that ERP. The two aren’t separate systems exchanging data. Accounting is one part of the larger system.
What follows from that is the interaction itself: operational transactions create the accounting entries directly. A warehouse employee scans in a delivery against an open purchase order, and that single action records the inventory and the liability for goods received but not yet invoiced. A shipment goes out, and that action relieves inventory, records cost of goods sold, recognizes the sale, and creates the receivable. Nobody in accounting keys anything.
The operational event and the accounting entry are the same act, because both are writing to the same records.
