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General Ledger and Reporting System

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  1. General Ledger and Reporting System UAA – ACCT 316 Accounting Information Systems Dr. Fred Barbee 15 Chapter

  2. General Ledger and Reporting Activities

  3. Objectives • To record all accounting transactions promptly and accurately. • To post these transactions to the proper accounts. • To maintain an equality of debit/credit balances among the accounts.

  4. Objectives • To accommodate needed adjusting entries. • To generate reliable and timely financial reports pertaining to each accounting period.

  5. Basic Activities (Processes) • Update the general ledger • Post adjusting entries • Prepare financial statements • Produce managerial reports

  6. The Accounting Cycle 1. Analyze Transactions 10. Reverse (Optional) 9. Prepare Post-Closing Trial balance 2. Journalize 8. Close 3. Post 7. Prepare Statements 4. Prepare Unadjusted Trial Balance 5. Adjust 6. Prepare Adjusted Trial Balance

  7. Update The General Ledger • Updating consists of posting journal entries that originated from two sources: • Accounting subsystems • The treasurer

  8. Update The General Ledger Update the GL Journal entry Accounting subsystems Journal entry Treasurer General ledger Journal voucher

  9. Post Adjusting Entries • The second activity in the general ledger system involves posting various adjusting entries. • Adjusting entries originate from the controller’s office, after the initial trial balance has been prepared.

  10. Post Adjusting Entries • Accruals (wages payable) • Deferrals (rent, interest, insurance) • Estimates (depreciation) • Revaluation (change in inventory method) • Corrections

  11. Post Adjusting Entries Post adjusting entries Journal voucher Adjusting entries Adjusted trial balance Prepare financial statements Financial statements Controller

  12. Prepare Financial Statements • The third activity in the general ledger and reporting system involves the preparation of financial statements. • The income statement is prepared first. • The balance sheet is prepared next. • The cash flows statement is prepared last.

  13. Produce Managerial Reports • The final activity in the general ledger and reporting system involves the production of various managerial reports. • What are the two main categories of managerial reports? • General ledger control reports • Budgets

  14. Produce Managerial Reports • Control Report Examples • lists of journal vouchers by numerical sequence, account number, or date • listing of general ledger account balances • Budget Examples • operating budget • capital expenditures budget

  15. Produce Managerial Reports • Budgets and performance reports should be developed on the basis of responsibility accounting. • Responsibility Accounting involves reporting financial results on the basis of managerial responsibilities within an organization.

  16. Responsibility Accounting A concept that implies that every economic event that affects the organization is the responsibility of and can be traced to an individual.

  17. Responsibility Accounting

  18. Installing Responsibility Accounting • Create a set of financial performance goals (budgets) • Measure and report actual performance. • Evaluate based on comparison of actual with budget.

  19. Responsibility Accounting • Measures the results of each responsibility center and

  20. Responsibility Accounting • compares those results with some standard or benchmark. Heh man, that isn‘t funny! Please don’t erase that line, I’m benchmarking!

  21. Responsibility Centers

  22. Responsibility Center • A segment of an organization with authority . . . • To incur and control costs • To earn revenues, and • To invest funds in assets.

  23. Responsibility Center . . . • A responsibility center can be: • A cost center • A revenue center • A profit center • An investment center

  24. Responsibility Centers A Systems Perspective

  25. Data Information (Outputs) (Inputs) A firm can be examined in the context of Input  Process  Output Processing Steps Within Information Systems Resources used . . . Capital . . . Output . . . Working Capital Equipment Etc. DM DL MOH Goods, Services, Ideas

  26. Data Information (Outputs) (Inputs) A firm can be examined in the context of Input  Process  Output Resources are converted through the use of working capital, equipment, etc. Processing Steps Within Information Systems Resources used . . . Capital . . . Output . . . Working Capital Equipment Etc. DM DL MOH Goods, Services, Ideas

  27. Process Input Output Responsibility Centers: A Systems Perspective Control only this Cost Center

  28. Process Input Output Responsibility Centers: A Systems Perspective Control only this Revenue Center

  29. Process Input Output Responsibility Centers: A Systems Perspective Control these Profit Center

  30. Process Input Output Responsibility Centers: A Systems Perspective Control these Investment Center

  31. Control Objectives, Threats & Procedures

  32. Control Objectives • Updates to the general ledger are properly authorized. • Recorded general ledger transactions are valid. • Valid, authorized general ledger transactions are recorded.

  33. Control Objectives • General ledger transactions are accurately recorded. • General ledger data are safeguarded from loss or theft. • General ledger system activities are performed efficiently and effectively.

  34. Threats and Controls in the General Ledger and Reporting System

  35. Threat 1: Errors in Updating the GL

  36. Errors in Updating GL • Can lead to poor decision making based on erroneous information in financial performance reports. • Control procedures fall into three categories: • Input edit and processing controls • Reconciliations and control reports • Maintenance of an adequate audit trail

  37. Input Edit and Processing Controls • There are two sources of journal entries for updating the general ledger: • Summary journal entries from other AIS cycles • Direct entries made by the treasurer or controller

  38. Input Edit and Processing Controls • Journal entries made by the treasurer and controller are original data entry. • Several types of input edit and processing controls are needed to ensure that they are accurate and complete.

  39. Input Edit and Processing Controls • Validity Check • Field checks • Zero-balance checks • Completeness Test • Closed-loop verification • Sign Check

  40. Input Edit and Processing Controls • Calculation run-to-run totals to verify accuracy of journal voucher batch processing • Standard adjusting entry file for recurring adjusting entries made each period

  41. Reconciliation and Control Report • Reconciliations and control reports can detect if any errors were made during the process of updating the general ledger. • Trial Balance • Comparing the general ledger control account balances to the total balance in the corresponding ledger

  42. Reconciliation and Control Report • The audit trail is the path of a transaction through the accounting system. • The audit trail should allow you to do three things . . .

  43. Reconciliation and Control Report • Trace any transaction from its original source document to the general ledger and to any report or other document using that data.

  44. Reconciliation and Control Report • Trace any item appearing in a report back through the general ledger to its original source document • Trace all changes in general ledger accounts from their beginning balance to their ending balance

  45. Threat 2: Unauthorized Access to the GL

  46. Unauthorized Access to the GL • Unauthorized access to the general ledger can result in confidential data leaks to competitors or corruption of the general ledger. • It can also provide a means for concealing the theft of assets.

  47. Unauthorized Access to the GL • User IDs and passwords • Read-only access to the general ledger • System checks of authorization codes for each journal voucher record before posting

  48. Threat 3: Loss or Destruction of the GL

  49. Loss or Destruction of the GL • Adequate backup and disaster recover y procedures must be in place to protect the general ledger. • Use of internal and external file labels • Performance of regular backup of the general ledger

  50. Integrated Data Model