Understanding the ERP module's integration

The core objective of running a business is making a profit, which requires making revenue that covers the costs and adding a margin to secure a profit. The core role of management is to achieve this profit; the ERP application gives the management the necessary business insights to monitor business performance.

Microsoft Dynamics 365 for Finance and Operations manages and controls day-to-day transactions that occur in the company; these transactions are transformed into financial information that represents the key component of financial statements (balance sheet and income statement), which are expenditure and income; in other words, cash out and cash in. All these are shown in the following diagram:

 

The cash to cash cycle entails two core cycles, which are commonly known as procure-to-pay and order-to-cash. The first cycle covers the expenditure part (cash out), that is, every aspect related to vendor management, procurement management, purchasing management, product reception, and vendor invoices, payment, and settlement. The second cycle covers the revenue part (cash in), that is, every aspect related to customer management, sales management, product delivery, customer invoices, collection, and settlement. These activities could be distinguished by financial activities, that is, every aspect related to finance and accounting activities, and operations activities, that is, every aspect related to the company's daily operations of the supply chain.

Microsoft Dynamics 365 for Finance and Operations enables the module's integration when relating transactions to each other and can automatically inherit information from one and pass it to another after adding additional information, along with generating automatic financial entries in the general ledger and control points to monitor transactions. There is integration between the Microsoft Dynamics 365 Finance and Operations modules, where production modules are integrated with the inventory module, the warehouse management module and the sales and marketing module, in addition to the procurement and sourcing module.

The project module is integrated with the inventory module, the sales and marketing module, the accounts receivable modules, the procurement and sourcing modules, and the accounts payable module. This book focuses on core financial module and its integrations with operational activities.

Procure-to-pay

The procure-to-pay cycle links the following business functions that are accountable for company expenditure:

• Procurement
• Purchasing
• Warehousing Product Reception
• Financial
  • Accounts payable
  • Bank management

The procure-to-pay cycle manages and controls the business processes of procuring the needed materials, receiving them, and paying to the vendor. There are specific documents to handle these business processes.

Financial transactions related to this cycle are product receipts, vendor invoices, payments, and settlements. The other documents relate to operations activities.

Product receipts

A product receipt represents the physical reception of products in the company warehouse. This increases the physical quantities in the inventory and reduces the quantity of the remainder in the Purchase Order, in addition to changes in the inventory value according to the inventory valuation method.

Invoice

The vendor sends a Purchase Order invoice either along with product reception, or after product reception. Recoding the vendor invoice to reflect the company's liabilities to the vendor results in an increase in the open vendor balance. Microsoft Dynamics 365 for Finance and Operations supports the company's internal control of vendor invoices by matching the invoice with the Purchase Order and the invoice amount.

It can be either three-way matching or two-way matching. A three-way match is for a product purchases when comparing the Purchase Order quantity against the quantities in the vendor invoice. And comparing the purchase prince in the purchase order against the invoice amount. A two-way match is for services when comparing the Purchase Order amount against the invoice amount, vendor service invoices that are not related to a Purchase Order, and recoding the vendor service invoice to reflect the company's liabilities to the vendor.

Payment

Vendor payment processing reduces the company liability to vendors. The payment can be an advanced one, attached to a specific Purchase Order, or independent of other Purchase Orders; it is usually the responsibility of the accounts payable section in the Finance department.

Settlement

The settlement processing involves settling open invoices against payments. This process affects vendor statements by decreasing open vendor invoices, increasing closed vendor invoices, and aging as well.

Order-to-cash

The order-to-cash cycle joined the following business functions that are accountable for a company's revenues:

• Sales
• Warehousing Product Issuance
• Finance
  • Accounts receivable
  • Bank management

This cycle manages and controls the business processes of sales activities, customer orders, delivering goods, and collection from the customer. There are specific documents to handle these business processes: sales orders, the issuing process by packing slip, and finally the invoice document.

The related financial transactions to this cycle are packing slips, invoices, collection, and settlement. The other documents relate to operations activities. 

Packing slips

A packing slip represents the physical issuance of products from the company warehouse. This decreases the physical quantities in the inventory and reduces the quantities remaining in the sales order.

Invoice

After the delivery of goods or services to the customer, the sales team issues a customer invoice, increasing the customer open invoices. This affects the customer statement and customer aging, in addition to revenue recognition and the cost of goods sold.

Payment

The customer payment process represents a transaction of the required amount of money from the customer, whether it is against an open invoice or advanced payment collection.

Settlement

The settlement process settles the open invoices against collection. This process affects the customer statement, reducing the number of open customer invoices and increasing the number of closed customer invoices and aging.