General Ledger and Reporting System

1. General Ledger and Reporting System Chapter 16

2. Alpha Omega Electronics Elizabeth Venko, AOE’s controller, has been asked by Stephanie Cromwell, chief financial officer, to redesign AOE’s general ledger and reporting system. She has two primary goals: To speed up the closing process To make financial performance data more accessible to divisional managers

3. General Ledger Cycle 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.

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

5. 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: Accounting subsystems The treasurer

6. Update The General Ledger(Activity 1)

7. 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. What are the five basic categories of adjusting entries?

8. Post Adjusting Entries (Activity 2) Accruals (wages payable) Deferrals (rent, interest, insurance) Estimates (depreciation) Revaluation (change in inventory method) Corrections

9. Post Adjusting Entries (Activity 2)

10. 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.

11. 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? General ledger control reports Budgets

12. 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

13. 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.

14. Opportunities for Using Information Technology How can information technology provide opportunities for improving the efficiency and effectiveness of the general ledger and reporting system? The timing of general ledger updates The monthly closing process The financial reporting

15. Timing of GeneralLedger Update Modern AIS systems often use on-line processing to update the subsidiary ledgers as each transaction occurs. This immediate updating keeps the subsidiary ledger balances current and can improve the quality of subsequent decisions.

16. Timing of GeneralLedger Update General ledger account balances, however, traditionally have not been updated immediately. Today, many organizations are adopting on-line general ledger systems. Each application program in these systems, such as sales order entry or cash receipts, posts summary journal entries to the general ledger at least daily.

17. Timing of GeneralLedger Update

18. Monthly Closing Process Many organizations are interested in finding ways to speed up the monthly closing process. One way to speed up the monthly closing process is to consolidate overlapping AIS subsystems. Client/server systems provide another way to improve the closing process.

19. Financial Reporting Communication technology can also be used to reduce both the time and costs of preparing and disseminating financial statements. Controllers can access public financial reporting data bases, such as NAARS and EDGAR. Tax forms and regulations can be accessed from the IRS on the Internet.

20. Financial Reporting Spreadsheets and graphics packages can improve the financial reporting process by facilitating the creation of graphs to highlight key trends. Data warehouses, which contain both current and historical data, can provide additional support for strategic decision making. On-line analytical processing tools provide one way to access the data warehouses.

21. Financial Reporting On-line analytical processing (OLAP) tools provide one way to access the information stored in a data warehouse. Data mining is another way to access the information stored in a data warehouse. It involves the use of sophisticated statistical analysis, including artificial intelligence techniques.

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

23. Control Objectives,Threats, and Procedures General ledger transactions are accurately recorded. General ledger data are safeguarded from loss or theft. General ledger system activities are performed efficiently and effectively.

24. Control Objectives,Threats, and Procedures What are some threats? errors in updating the general ledger inaccurate/incomplete journal entries inaccurate/incomplete posting of journal entries unauthorized access to the general ledger loss or destruction of general ledger data

25. Control Objectives,Threats, and Procedures What are some exposures? inaccurate records and reports, resulting in bad decisions based on erroneous information leak of confidential data corruption of general ledger cover-up of theft loss of data loss of assets

26. Control Objectives,Threats, and Procedures What are some control procedures? input, edit, and processing controls reconciliations and control reports access controls adequate audit trail proper backup procedures disaster recovery plan

27. 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.

28. Integrated Data Model

29. Integrated Data Model

30. 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 enables exploitation of the virtual value chain Parallel to physical value chain

31. Benefits of an Integrated Data Model What are the three basic activities of the virtual value chain? Gathering information Synthesizing, organizing Distributing the information to customers

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

33. Balanced Scorecard What is a balanced scorecard? a report that measures four dimensions of performance What are those measures? financial internal operations innovation and learning customer perspectives of the organization

34. Case Conclusion What did Stephanie Cromwell and Elizabeth Venko decide? They decided that AOE needs to switch to an on-line general ledger system. They agreed that AOE will first acquire a general ledger package that is built on a relational data base.