QuickBooks vs ERP: what ERP does better

QuickBooks is popular around the world.  It is inexpensive. Support is available in all major cities. Many businesses manage their accounting quite well with this simple tool. However, QuickBooks is not an ERP tool and you might need more power to help run your business.

Here are four areas in which ERP provides a bit more functionality than QuickBooks, and how this can impact your business.

1. Average cost inventory

QuickBooks, by default, values inventory at average cost. There is nothing wrong with this method but tax laws and the nature of your business could suggest another method is better. Standard cost, where items have a static value throughout the year makes sense for many. Many businesses manage their physical stock using first in, last out (FIFO) so that inventory items do not get old. ERP allows FIFO valuation for your accounting books too. Last in, first out (LIFO) of next in first out (NIFO) might fit your many business better and ERP gives you choices. ERP systems provide choices not available in QuickBooks.

Switch from QuickBooks to ERP with this comprehensive, step-by-step guide

2. Negative inventory

How is it possible to have less than zero of anything on hand in your inventory? QuickBooks allows you to post a sale of items not in your inventory. If you sold it, it must have been physically on hand so some transaction error is behind the problem. ERP systems give you choices to prevent a transaction leading to negative inventory forcing you to correct the transaction error first. ERP can also be set to allow the negative inventory but provide a warning. Reconciling inventory must be done regularly so, no matter what accounting you use, the problem has to be solved.

3. General ledger and sub ledger

Your inventory value in your accounting books is the general ledger balance. Your inventory records, each part on-hand quantity times the value of that part also provides a total value of your inventory. QuickBooks allows posting of a transaction to your general ledger balance without the same transaction to your detailed inventory records. Now your general ledger balance will not equal the sum of your inventory detail.

4. Cash or accrual

QuickBooks uses a cash basis for accounting. When you write a check, you post the amount of that check as an expense in that period. But often, you received value for that expense last month and are paying for it now because the vendor gave you credit terms.  Accrual accounting systems in ERP systems will post the expense in the period when you got the value and post an offsetting accounts payable on your balance sheet. Next period when you pay the bill, the only transactions are in the balance sheet between cash and accounts payable. Either method is legal but one will fit your needs better.

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Tom Miller

About the author…

Tom completed implementations of Epicor, SAP, QAD, and Micro MRP. He works as a logistics and supply chain manager and he always looks for processes to improve. He lives near San Francisco Bay in California and can be found on the water in his kayak or on the road riding his motorcycle. Contact Tom at customerteam@erpfocus.com.

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Tom Miller