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Accounting Information Systems: Essential Concepts and Applications Fourth Edition by Wilkinson, Cerullo, Raval, and Wong-On-Wing Chapter 11: The General.

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Presentation on theme: "Accounting Information Systems: Essential Concepts and Applications Fourth Edition by Wilkinson, Cerullo, Raval, and Wong-On-Wing Chapter 11: The General."— Presentation transcript:

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 zA firms 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 Managerial Reports Balance Sheet Income Statement Cash-flow Statement Figure 11-1

4 Computerized Transaction Processing System T1T2T3T4T5T6T7 D1D2 D3D4D5 D6 D7 D8 D9P1 A1 D1 D2D3 P2 M1 T8T9 Display Figure 11-2 (see text book for details)

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

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

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

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

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

10 Brief Chart of Accounts zAccount Code z z z z z z z z Figure 11-5 zAccount Code zCurrent Assets zNon-current Assets zLiabilities zOwners Equity zRevenues zCost of Sales zOperating Expenses zNon-operating Expenses

11 Expense Accounts z850Administrative Expense Control z852Officers Salaries z855Office Salaries z859Overtime Premium z861Unemployment Insurance Expense z863FICA Expense z870Office Supplies z871Office Repairs z872Telephone & Telegraph z873Postage z881Dues & Subscriptions z883Donations z884Travel z888Depreciation z891Insurance z892Taxes z899Miscellaneous Administrative Expense Figure 11-6

12 Potential Sources of Data Input zRoutine external transactions zRoutine internal transactions zNon-routine transactions zAdjusting entries yAccruals yDeferrals yRe-evaluations yCorrections zReversing entries zClosing entries

13 Forms of Data Input zJournal Vouchers yA non-routine, adjusting, reversing, or correcting transaction yA summarization of a batch of routine transactions zComputer-oriented inputs yThe Batch-entry journal voucher yA pre-formatted data-entry screen xIndividual non-routine journal entries

14 Data Processing zDaily Processing yHigh volume transactions xsales xcash receipts xpurchases xcash disbursements xpayroll zEnd of Period Processing yStandard entries yNonrecurring adjusting entries

15 Information Output zGeneral Ledger Analysis yGeneral journal listing yGeneral ledger change report zFinancial Statements yBalance sheet yIncome statement yStatement of cash flows zManagerial Reports yAccount-oriented analyses yResponsibility-oriented reports

16 System Flowchart Showing Period-End Preparation of Outputs Relating to the General Ledger Responsibility Center Master File General Ledger Master File Budget Master File Current Journal Entries & Adjusting Journal Entries Journal Voucher File Financial Reports Format File General Ledger History File Journal Voucher History File Prepare various listings and financial statements & managerial reports Journal entry Journal entry proof listing General ledger change report General ledger trial balance Comparative analyses of general ledger accounts Comparative balance sheets Income statements Statement of cash flows Responsibility Center Reports Budgetary Control Reports Figure 11-11

17 Responsibility Reporting Figure 11-15

18 File-Oriented Approach to Data Management zGeneral Ledger Master File zCurrent Journal Voucher File zGeneral Ledger History File zResponsibility Center Master File zBudget Master File zFinancial Reports Format File

19 Record Layout of a General Ledger Master File Account Account Account Account Total Total Total Total Current Debits NumberDescription 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 AccountAccount Account Dr or Cr NumberDescription Classification Account Journal Amount of Dr or Cr Number Voucher Number line item Journal Date of Preparers Reference Description of Amount of Voucher Transaction initials Number Transactions Transaction Number AccountResponsibilityBudgetedTotal DebitsTotal Credits Number Code amount for month Month-to-date Month-to-date Figure 11-18

21 The General Ledgers Risk Exposures z1) Incorrect journal entries z2) Incorrect posting of journal entries z3) Transactions not recorded or not posted z4) Inadequate authorization for journal entries z5) Control accounts out-of-balance with subsidiary ledgers z6) Imbalances between debit and credit balance accounts z7) Defects or breaks in the audit trail z8) Interception of data transmitted via the web z9) Unauthorized access to and viewing of confidential data via the Web z10) Unauthorized alterations to the companys financial data via the Web z11) Breakdown of the Web server

22 General Controls Pertaining to the General Ledger zOrganizational Controls zDocumentation Controls zAsset Accountability Controls zManagement Practice Controls zData Center Operations Controls zAuthorization Controls zAccess Controls yPasswords ySpecial terminals yAccess logs yTransaction logs yFrequent backups

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

24 Programmed Checks for Editing & Validating Journal Entry Data zValidity check zField check zLimit check zZero-balance check zCompleteness check zEcho check

25 zInternal label check zSequence check zredundancy matching check zRelationship check zPosting check zBatch control/total checks Programmed Checks for Editing & Validating Journal Entry Data

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

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

28 Web-Security Procedures zAuthentication zAuthorization zAccountability zData Transmission zDisaster Contingency & Recovery Plan

29 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. Accounting Information Systems: Essential Concepts and Applications Fourth Edition by Wilkinson, Cerullo, Raval, and Wong-On-Wing

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