Accounting Information Systems: Essential Concepts and Applications Fourth Edition by Wilkinson, Cerullo, Raval, and Wong-On-WingChapter 11: The General Ledger and Financial Reporting CycleSlides Authored by Somnath Bhattacharya, Ph.D.Florida Atlantic University

Transaction Processing System ArchitecturesA firms transaction processing systems may either be manual or computerized

Manual Transaction Processing SystemsFrom Prior Processing StepsSales InvoicesCash Remittance AdvicesMiscellaneousSourceDocumentsPaychecksSuppliers InvoicesChecksSales JournalCash Receipts JournalJournal VouchersPayroll JournalPurchases JournalCash Disbursements JournalAccounts Receivable Subsidiary LedgerGeneral LedgerAccounts Payable Subsidiary LedgerTrial BalanceManagerial ReportsBalance SheetIncome StatementCash-flow StatementFigure 11-1

Computerized Transaction Processing SystemT1T2T3T4T5T6T7D1D2D3D4D5D6D7D8D9P1A1D1D2D3P2M1T8T9DisplayFigure 11-2(see text book for details)

Benefits & Differences of a Computer-Based General Ledger System - ITransaction Data may be captured by electronic devices and stored on magnetic media, rather than on hard-copy documentsTransaction Data can be verified by programmed edit checks, in order to detect and prevent errors, rather than by human clerksAdded data may easily be captured, in order to identify transactions with individual employees or organizational unitsTransactions can be quickly posted directly to ledgers, rather than being laboriously entered into journals and then posted

Figure 11-3

Benefits & Differences of a Computer-Based General Ledger System - IITransaction Processing, including summarizing of journals and ledgers and computing trial balance totals, can be done faster with fewer errorsFinancial Statements and other financial summaries can be prepared at any time during the accounting period, rather than being delayed until the end of the period; furthermore, the ledgers can be kept in balance at all timesDetailed listings of journals and ledgers, reflecting all individual transactions rather than summaries, can be printed for thorough reviewFigure 11-3 Continued

Benefits & Differences of a Computer-Based General Ledger System - IIIRequired Stewardship Reports can be prepared quickly and easily from stored transaction data, using stored computer programsA wide variety of managerial reports and analyses can also be prepared from data stored in related files and tables, thereby providing managers and employees with useful information; in manual systems all reports must be laboriously prepared by clerks

Figure 11-3 Continued

The Central Role of the General Ledger & Financial Reporting CycleThe main inputs to the general ledger and financial reporting cycle are the outputs of all the other cycles.The general ledger provides the chart of accounts structure, which combines the financial and managerial sides of accounting.

Objectives of the General Ledger SystemTo record all accounting transactions promptly and accuratelyTo post these transactions to the proper accountsTo maintain an equality of debit and credit balances among the accountsTo accommodate needed adjusting journal entriesTo generate reliable and timely financial reports pertaining to each accounting period

Brief Chart of AccountsAccount Code100-199200-299300-399400-499500-599600-699700-899900-999

Figure 11-5Account CodeCurrent AssetsNon-current AssetsLiabilitiesOwners EquityRevenuesCost of SalesOperating ExpensesNon-operating Expenses

Expense Accounts850Administrative Expense Control852Officers Salaries855Office Salaries859Overtime Premium861Unemployment Insurance Expense863FICA Expense870Office Supplies871Office Repairs872Telephone & Telegraph873Postage881Dues & Subscriptions883Donations884Travel888Depreciation891Insurance892Taxes899Miscellaneous Administrative ExpenseFigure 11-6

Potential Sources of Data Input Routine external transactionsRoutine internal transactionsNon-routine transactionsAdjusting entriesAccrualsDeferralsRe-evaluationsCorrectionsReversing entriesClosing entries

Forms of Data InputJournal VouchersA non-routine, adjusting, reversing, or correcting transactionA summarization of a batch of routine transactionsComputer-oriented inputsThe Batch-entry journal voucherA pre-formatted data-entry screenIndividual non-routine journal entries

Data ProcessingDaily ProcessingHigh volume transactionssalescash receiptspurchasescash disbursementspayrollEnd of Period ProcessingStandard entriesNonrecurring adjusting entries

Information OutputGeneral Ledger AnalysisGeneral journal listingGeneral ledger change reportFinancial StatementsBalance sheetIncome statementStatement of cash flowsManagerial ReportsAccount-oriented analysesResponsibility-oriented reports

System Flowchart Showing Period-End Preparation of Outputs Relating to the General Ledger Responsibility Center Master FileGeneral Ledger Master FileBudget Master FileCurrent Journal Entries & Adjusting Journal EntriesJournal Voucher FileFinancial Reports Format FileGeneral Ledger History FileJournal Voucher History FilePrepare various listings and financial statements & managerial reportsJournal entryJournal entry proof listingGeneral ledger change reportGeneral ledger trial balanceComparative analyses of general ledger accountsComparative balance sheetsIncome statementsStatement of cash flowsResponsibility Center ReportsBudgetary Control ReportsFigure 11-11

Responsibility ReportingFigure 11-15

File-Oriented Approach to Data Management General Ledger Master FileCurrent Journal Voucher FileGeneral Ledger History FileResponsibility Center Master FileBudget Master FileFinancial Reports Format File

Record Layout of a General Ledger Master FileAccount Account Account Account Total Total Total Total Current DebitsNumberDescription Classification Balance Debits Credits Debits Credits Account or beginning year-to year-to current current Balance Credit of year - year -year month month Figure 11-17

Linked Tables within a General Ledger Relational Data BaseFigure 11-18

The General Ledgers Risk Exposures1) Incorrect journal entries2) Incorrect posting of journal entries3) Transactions not recorded or not posted4) Inadequate authorization for journal entries5) Control accounts out-of-balance with subsidiary ledgers6) Imbalances between debit and credit balance accounts7) Defects or breaks in the audit trail8) Interception of data transmitted via the web9) Unauthorized access to and viewing of confidential data via the Web10) Unauthorized alterations to the companys financial data via the Web11) Breakdown of the Web server

General Controls Pertaining to the General Ledger Organizational ControlsDocumentation ControlsAsset Accountability ControlsManagement Practice ControlsData Center Operations ControlsAuthorization ControlsAccess ControlsPasswordsSpecial terminalsAccess logsTransaction logsFrequent backups

Application Controls Pertaining to the General Ledger: InputPre-numbered and well-designed journal vouchersValidating data on journal vouchersCorrecting detected errors before the data are posted to the general ledgerCompiling standardized adjusted journal entriesPre-computing batch control totals

Programmed Checks for Editing & Validating Journal Entry Data Validity checkField checkLimit checkZero-balance checkCompleteness checkEcho check

Programmed Checks for Editing & Validating Journal Entry Data Internal label checkSequence checkredundancy matching checkRelationship checkPosting checkBatch control/total checks

Application Controls Pertaining to the General Ledger: ProcessingPosting journal entries to the general ledger accounts with a variety of program checks performed before and after postingSumming the amounts posted to the general ledger accounts and then comparing the posted totals to the pre-computed batch control totalsEstablishing and maintaining an adequate audit trail

Application Controls Pertaining to the General Ledger: OutputPreparing frequent trial balances, with any differences between total debits and credits being investigatedMaintaining a log or file of journal vouchers by number and periodically checking to make certain that the sequence of numbers is completePrinting period-end listings and change reports for review by accountants before the financial statements are preparedReviewing financial reports and other outputs for correctness and reasonablenessAuditing general ledger procedures

Web-Security ProceduresAuthenticationAuthorizationAccountabilityData TransmissionDisaster Contingency & Recovery Plan

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