General Ledger and

Reporting System

Anup Kumar Saha 15-1

 Learning Objectives
1. Describe the information processing
operations required to update the general
ledger and to produce other reports for
internal and external users.
2. Identify the major threats in general ledger
and reporting activities, and evaluate the
adequacy of various internal control
procedures for dealing with them.
3. Read and explain an integrated enterprise-
wide REA data model.

Anup Kumar Saha 15-2

 Learning Objectives

4. Discuss and design a balanced

scorecard for an organization.
5. Explain the relationship between online
transaction processing systems and
data warehouses used to support
business intelligence.
6. Understand the implications of new IT
developments, such as XBRL, for
internal and external reporting.

Anup Kumar Saha 15-3

 Introduction
 Linda Spurgeon, AOE’s president & CEO,
is not satisfied with the financial reporting
capabilities of AOE’s new ERP system.
 She has three primary goals:
1. To develop a Balanced Scorecard in a
timely manner.
2. To speed up trend analysis data on the
company’s financial performance.
3. To lower costs associated with providing
financial information to interested external
parties on a timely basis.

Anup Kumar Saha 15-4

 Introduction

 This chapter discusses the

information processing
operations involved in updating
the general ledger and preparing
reports that summarize the
results of an organization’s
activities.

Anup Kumar Saha 15-5

 Learning Objective 1

Describe the information

processing operations
required to update the
general ledger and to
produce other reports for
internal and external users.

Anup Kumar Saha 15-6

 General Ledger and
Reporting Activities
 What are the four basic activities
performed in the general ledger
and reporting system?
1. Update the general ledger
2. Post adjusting entries
3. Prepare financial statements
4. Produce managerial reports

Anup Kumar Saha 15-7

 Update The General Ledger
(Activity 1)
 The first activity in the general ledger
system is to update the general
ledger.
 Updating consists of posting journal
entries that originated from two
sources:
1. Accounting subsystems
2. The treasurer

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 Update The General Ledger
(Activity 1)

Accounting Journal entry Update the

subsystems general ledger
Journal
entry

Treasurer Journal General

voucher ledger

Anup Kumar Saha 15-9

 Post Adjusting Entries
(Activity 2)
 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.

Anup Kumar Saha 15-10

 Post Adjusting Entries
(Activity 2)
 What are the five basic categories of
adjusting entries?
1. Accruals (wages payable)
2. Deferrals (rent, interest, insurance)
3. Estimates (depreciation)
4. Revaluation (change in inventory
method)
5. Corrections
Anup Kumar Saha 15-11
 Post Adjusting Entries
(Activity 2)
Journal Post adjusting
voucher entries

Adjusting Adjusted trial

entries balance
Prepare
Controller Financial statements financial
statements
Anup Kumar Saha 15-12
 Prepare Financial
Statements (Activity 3)
 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.

Anup Kumar Saha 15-13

 Produce Managerial Reports
(Activity 4)
 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?
1. General ledger control reports
2. Budgets

Anup Kumar Saha 15-14

 Produce Managerial Reports
(Activity 4)
 What are examples of control reports?
– lists of journal vouchers by numerical
sequence, account number, or date
– listing of general ledger account
balances
 What are examples of budgets?
– operating budget
– capital expenditures budget
Anup Kumar Saha 15-15
 Produce Managerial Reports
(Activity 4)
 Budgets and performance reports
should be developed on the basis of
responsibility accounting.
 What is responsibility accounting?
 It involves reporting financial results
on the basis of managerial
responsibilities within an organization.

Anup Kumar Saha 15-16

 Learning Objective 2

Identify the major threats in

general ledger and reporting
activities, and evaluate the
adequacy of various internal
control procedures for dealing
with them.

Anup Kumar Saha 15-17

 Control: Objectives,
Threats, and Procedures
 What are the control objectives in
the general ledger and reporting
system?
1. Updates to the general ledger are
properly authorized.
2. Recorded general ledger
transactions are valid.
3. Valid, authorized general ledger
transactions are recorded.

Anup Kumar Saha 15-18

 Control: Objectives,
Threats, and Procedures

4. General ledger transactions are

accurately recorded.
5. General ledger data are
safeguarded from loss or theft.
6. General ledger system activities are
performed efficiently and effectively.

Anup Kumar Saha 15-19

 Threats and Controls in the
General Ledger and Reporting System

Process/Activity Threat Applicable Control

Procedures
Updating the Errors Input and processing
general ledger controls;
reconciliations and
control reports; audit
trail
Access to general Loss of confidential Access controls; audit
ledger data and/or trail
concealment of theft
Loss or Loss of data and Backup and disaster
destruction of the assets recovery procedures
general ledger
Anup Kumar Saha 15-20
 Threat 1: Errors in Updating
the General Ledger
 Errors made in updating the general
ledger can lead to poor decision making
based on erroneous information in
financial performance reports. Control
procedures fall into three categories:
1. Input edit and processing controls
2. Reconciliations and control reports
3. Maintenance of an adequate audit trail

Anup Kumar Saha 15-21

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

Anup Kumar Saha 15-22

 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. These are:
Validity Check Field Checks
Zero-balance checks Completeness test
Closed-loop verification Standard adjusting entry file for
Calculation run-to-run recurring adjusting entries made
totals to verify accuracy of each period
journal voucher batch Sign check
processing

Anup Kumar Saha 15-23

 Reconciliation and
Control Report
Reconciliations and control reports
can detect if any errors were made
during the process of updating the
general ledger. Examples include:
 Preparation of the trial balance
 Comparing the general ledger control
account balances to the total balance
in the corresponding ledger

Anup Kumar Saha 15-24

 Reconciliation and
Control Report
The audit trail is the path of a
transaction through the accounting
system. The audit trail facilitates
these three tasks:

1. Trace any transaction from its

original source document to the
general ledger and to any report or
other document using that data.
Anup Kumar Saha 15-25
 Reconciliation and
Control Report
The audit trail, continued
2. Trace any item appearing in a report
back through the general ledger to
its original source document
3. Trace all changes in general ledger
accounts from their beginning
balance to their ending balance

Anup Kumar Saha 15-26

 Threat 2: Unauthorized Access
to the General Ledger
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.

Anup Kumar Saha 15-27

 Threat 2: Unauthorized Access
to the General Ledger
Some controls against this threat are:
 User IDs and passwords
 Read-only access to the general
ledger
 System checks of authorization codes
for each journal voucher record before
posting

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 Threat 3: Loss or Destruction
of the General Ledger
Adequate backup and disaster recover y
procedures must be in place to
protect the general ledger. Backup
controls include:
1. Use of internal and external file
labels
2. Performance of regular backup of
the general ledger
Anup Kumar Saha 15-29
 Learning Objective 3

Read and explain an integrated

enterprise-wide REA data
model.

Anup Kumar Saha 15-30

 Integrated Data Model

 An integrated enterprise-wide data

model represents a merging of
separate data models.
 This merging primarily involves linking
each resource with the events that
increase and decrease that resource.

Anup Kumar Saha 15-31

 Integrated Data Model

Cash Cash
receipts disbursements

(1, 1) (1, 1)

(1, N) (1, N)
Cash

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 Integrated Data Model
(0, N)
Cash (1, 1)
(1, N) Issue
(0, N) (0, N)
(0, N) debt
(0, N)

(1, 1) (1, 1) (1, 1) (1, 1)

(1, N)

Pay Issue Dividend Debt

employees stock payment payment
Anup Kumar Saha 15-33
 Benefits of an
Integrated Data Model
 What are some benefits of an
Integrated data model?
– Improved support for decision making
– Integration of financial and
nonfinancial information
– Improved internal reporting

Anup Kumar Saha 15-34

 Benefits of an
Integrated Data Model
 Development of a virtual value chain
occurs in three stages.
 What are these stages?
1. Visibility
2. Mirroring
3. Building new customer relationships

Anup Kumar Saha 15-35

 Learning Objective 4

Discuss and Design a

Balanced Scorecard for
an organization.

Anup Kumar Saha 15-36

 Balanced Scorecard
 What is a balanced scorecard?
• A report that provides a multidimensional
perspective of organizational performance
• It contains measures reflecting four
perspectives of the organization:
• Financial
• Customer
• Internal operations
• Innovation and learning

Anup Kumar Saha 15-37

 Learning Objective 5

Explain the relationship

between online transaction
processing systems and data
warehouses used to support
business intelligence.

Anup Kumar Saha 15-38

 Data Warehouses
 Data warehouses, which contain both
current and historical data, can provide
additional support for strategic decision
making.
 Whereas transaction-processing
databases are designed to minimize
redundancy, data warehouses
purposely build in redundancies in order
to maximize query efficiency.

Anup Kumar Saha 15-39

 Data Warehouses

 The process of accessing data

contained in the data warehouse and
using it for strategic decision making
is referred to as Business Intelligence.
 The two main techniques of business
intelligence are:
 Online Analytical Processing (OLAP)
 Data mining

Anup Kumar Saha 15-40

 Learning Objective 6

Understand the implications of

new IT developments, such as
XBRL, for internal and external
reporting.

Anup Kumar Saha 15-41

 Opportunities for Using
Information Technology
 The Extensible Business Reporting
Language (XBRL) has addressed two
problems:
 Different requirements for the manner
in which information is delivered.
 The need for manual reentry of
information into standalone decision
analysis tools.

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 Opportunities for Using
Information Technology
 XBRL provides two benefits:
 It enables organizations to publish
information only once using standard
XBRL tags.
 XBRL tags are interpretable.

Anup Kumar Saha 15-43

 Case Conclusion

 What did Stephanie Cromwell and

Elizabeth Venko decide?
 They decided that AOE needs to
switch to an online general ledger
system.
 They agreed that AOE will first
acquire a general ledger package that
is built on a relational database.
Anup Kumar Saha 15-44
 End

Anup Kumar Saha 15-45