General Ledger and Reporting System

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