Chapter 11: The General Ledger and Financial Reporting Cycle

Transcription

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

2 Transaction Processing System Architectures A firm s transaction processing systems may either be manual or computerized

3 Manual Transaction Processing Systems From Prior Processing Steps Sales Invoices Cash Remittance Advices Miscellaneous Source Documents Paychecks Suppliers Invoices Checks Sales Journal Cash Receipts Journal Journal Vouchers Payroll Journal Purchases Journal Cash Disbursements Journal Accounts Receivable Subsidiary Ledger General Ledger Accounts Payable Subsidiary Ledger Trial Balance Figure 11-1 Balance Sheet Income Statement Cash-flow Statement Managerial Reports

4 Computerized Transaction Processing System T1 T2 T3 T4 T5 T6 T7 D1 D2 D3 D4 D5 D6 D1 M1 A1 P1 D9 D8 P2 D7 D2 D3 Display Figure 11-2 T8 T9 (see text book for details)

5 Benefits & Differences of a Computer- Based General Ledger System - I Transaction Data may be captured by electronic devices and stored on magnetic media, rather than on hard-copy documents Transaction Data can be verified by programmed edit checks, in order to detect and prevent errors, rather than by human clerks Added data may easily be captured, in order to identify transactions with individual employees or organizational units Transactions can be quickly posted directly to ledgers, rather than being laboriously entered into journals and then posted Figure 11-3

6 Benefits & Differences of a Computer- Based General Ledger System - II Transaction Processing, including summarizing of journals and ledgers and computing trial balance totals, can be done faster with fewer errors Financial 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 times Detailed listings of journals and ledgers, reflecting all individual transactions rather than summaries, can be printed for thorough review Figure 11-3 Continued

7 Benefits & Differences of a Computer- Based General Ledger System - III Required Stewardship Reports can be prepared quickly and easily from stored transaction data, using stored computer programs A 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

8 The Central Role of the General Ledger & Financial Reporting Cycle The 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.

9 Objectives of the General Ledger System To record all accounting transactions promptly and accurately To post these transactions to the proper accounts To maintain an equality of debit and credit balances among the accounts To accommodate needed adjusting journal entries To generate reliable and timely financial reports pertaining to each accounting period

10 Brief Chart of Accounts Account Code Account Code Current Assets Non-current Assets Liabilities Owners Equity Revenues Cost of Sales Operating Expenses Non-operating Expenses Figure 11-5

11 Expense Accounts 850 Administrative Expense Control 852 Officers Salaries 855 Office Salaries 859 Overtime Premium 861 Unemployment Insurance Expense 863 FICA Expense 870 Office Supplies 871 Office Repairs 872 Telephone & Telegraph 873 Postage 881 Dues & Subscriptions 883 Donations 884 Travel 888 Depreciation 891 Insurance 892 Taxes 899 Miscellaneous Administrative Expense Figure 11-6

12 Potential Sources of Data Input Routine external transactions Routine internal transactions Non-routine transactions Adjusting entries Accruals Deferrals Re-evaluations Corrections Reversing entries Closing entries

13 Forms of Data Input Journal Vouchers A non-routine, adjusting, reversing, or correcting transaction A summarization of a batch of routine transactions Computer-oriented inputs The Batch-entry journal voucher A pre-formatted data-entry screen Individual non-routine journal entries

14 Data Processing Daily Processing High volume transactions sales cash receipts purchases cash disbursements payroll End of Period Processing Standard entries Nonrecurring adjusting entries

15 Information Output General Ledger Analysis General journal listing General ledger change report Financial Statements Balance sheet Income statement Statement of cash flows Managerial Reports Account-oriented analyses Responsibility-oriented reports

16 System Flowchart Showing Period-End Preparation of Outputs Relating to the General Ledger Budget Master File Current Journal Entries & Adjusting Journal Entries Journal Voucher File Financial Reports Format File General Ledger Master File Responsibility Center Master File Prepare various listings and financial statements & managerial reports Journal Voucher History File General Ledger History File Journal entry Journal entry proof listing Figure General ledger change report General ledger trial balance Comparative analyses of general ledger accounts Statement of cash flows Comparative balance sheets Income statements Budgetary Control Reports Responsibility Center Reports

17 Responsibility Reporting President VP Finance & Accounting VP Engineering VP Production VP Marketing VP Industrial Relations Purchasing Production Planning and Control Production Superintendent Receiving Shipping and Stores Quality Control and Maintnance Production Unit 1 Production Unit 2 Supervisor Production Unit 3 Finishing Assembly Figure 11-15

18 File-Oriented Approach to Data Management General Ledger Master File Current Journal Voucher File General Ledger History File Responsibility Center Master File Budget Master File Financial Reports Format File

19 Record Layout of a General Ledger Master File Account Account Account Account Total Total Total Total Current Debits Number Description 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

20 Linked Tables within a General Ledger Relational Data Base Account Responsibility Budgeted Total Debits Total Credits Number Code amount for month Month-to-date Month-to-date Account Account Account Dr or Cr Number Description Classification Account Journal Amount of Dr or Cr Number Voucher Number line item Journal Date of Preparer s Reference Description of Amount of Voucher Transaction initials Number Transactions Transaction Number Figure 11-18

21 The General Ledger s Risk Exposures 1) Incorrect journal entries 2) Incorrect posting of journal entries 3) Transactions not recorded or not posted 4) Inadequate authorization for journal entries 5) Control accounts out-of-balance with subsidiary ledgers 6) Imbalances between debit and credit balance accounts 7) Defects or breaks in the audit trail 8) Interception of data transmitted via the web 9) Unauthorized access to and viewing of confidential data via the Web 10) Unauthorized alterations to the company s financial data via the Web 11) Breakdown of the Web server

22 General Controls Pertaining to the General Ledger Organizational Controls Documentation Controls Asset Accountability Controls Management Practice Controls Data Center Operations Controls Authorization Controls Access Controls Passwords Special terminals Access logs Transaction logs Frequent backups

23 Application Controls Pertaining to the General Ledger: Input Pre-numbered and well-designed journal vouchers Validating data on journal vouchers Correcting detected errors before the data are posted to the general ledger Compiling standardized adjusted journal entries Pre-computing batch control totals

24 Programmed Checks for Editing & Validating Journal Entry Data Validity check Field check Limit check Zero-balance check Completeness check Echo check

25 Programmed Checks for Editing & Validating Journal Entry Data Internal label check Sequence check redundancy matching check Relationship check Posting check Batch control/total checks

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

27 Application Controls Pertaining to the General Ledger: Output Preparing frequent trial balances, with any differences between total debits and credits being investigated Maintaining a log or file of journal vouchers by number and periodically checking to make certain that the sequence of numbers is complete Printing period-end listings and change reports for review by accountants before the financial statements are prepared Reviewing financial reports and other outputs for correctness and reasonableness Auditing general ledger procedures

28 Web-Security Procedures Authentication Authorization Accountability Data Transmission Disaster Contingency & Recovery Plan

29 Accounting Information Systems: Essential Concepts and Applications Fourth Edition by Wilkinson, Cerullo, Raval, and Wong-On-Wing Copyright 2000 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.