1. Coding, General Ledger, and Financial Reporting
Chapter 8
Post entries to the ledger
Coding, General Ledger, and Financial Reporting
COPYRIGHT © 2007 Thomson South-Western, a part of The Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks used herein under license 1

2. Objectives for Chapter 8
Features, advantages, and disadvantages of various coding schemes
Operational features of the GLS, and FRS
Principle operational controls governing the GLS and FRS
Note that we do not cover the MRS section of Chapter 8. 31

3. Coding: Common Uses in AIS
Concisely represent large amounts of complex information
otherwise unmanageable
Provide means of accountability over completeness of transactions
Uniquely identify transactions and accounts within file
Supports audit function
provides effective audit trail 4

4. Match the types of coding
Block codes
Sequential codes
Group codes
Alphanumeric codes
Mnemonic codes
1001
1002
1003
1004 TX
Category-Item-Color

5. Sequential Codes Represent items in sequential order Common uses:
Pre-number source documents
Sales orders, purchase orders, checks, receiving reports
Allows AIS to track each transaction processed and to identify any out-of-sequence documents
Disadvantages:
Difficult to insert more codes
Provides arbitrary (subjective) information
Disadvantages
carry no information content beyond their order in the sequence
inserting a new item at some midpoint requires complete renumbering 5

6. Block Codes
Represents whole classes of items by restricting each class to specific range within coding scheme
Used for chart of accounts,
Chart of accounts is the basis for general ledger
Advantage:
Allows for insertion of new codes within a block without having to reorganize entire coding structure
Disadvantage:
Provides arbitrary (subjective) information
Disadvantage
the information content is not readily apparent. 6

7. Example of Chart of A/Cs (block codes)
Assets to
Revenue to
Liabilities to
COGS to
Expenses to
Equity to

8. Group Codes
Used to represent complex items or events involving two or more pieces of related data using zones or fields that possess specific meaning
Disadvantages:
Overused
Arbitrary information
Advantages
facilitates the representation of large amounts of diverse data
allows complex data structures to be represented in a hierarchical form that is logical and more easily remembered by humans
permits detailed analysis and reporting both within an item class and across different classes of items
Disadvantage
tend to be overused which can lead to unnecessarily complex group codes that cannot be easily interpreted
Example: Coding scheme used to track sales of inventory in G.P.
Company Division 7

9. Alphabetic Codes May be
used for many of same purposes as numeric codes
assigned sequentially or used along with block and group coding techniques
used to represent large numbers of items;
When used with blocks, number can increase substantially
Disadvantage:
Arbitrary information
Disadvantages
difficulty of rationalizing the meaning of codes sequentially assigned
sorting records that are coded alphabetically tend to be more difficult for users 9

10. Block with alpha example:
= 999 numbers
A1000-Z1999 = 999 (times 26) numbers
= 25,974 numbers

11. Mnemonic Codes Disadvantage:
Alphabetic characters in form of acronyms and other combinations that convey meaning
Does not require user to memorize meaning; code itself conveys high degree of information
NY New York
TX Texas
Disadvantage:
Limited usability and availability
Disadvantage
they are limited in their ability to represent items within a class 10

12. IS Functions of General Ledger System
All general ledgers must:
Collect transaction data promptly and accurately
Classify/code data and accounts
Validate collected transactions/ Maintain accounting controls (e.g., equal debits and credits)
Process transaction data
Post transactions to proper accounts
Update general ledger accounts and transaction files
Record adjustments to accounts
Store transaction data
Generate timely financial reports
Input
Process
Output

13. Blue bubbles are modules we use in G.P. General Ledger System (GLS)
Financial
Reporting
System
Billing/
Invoicing
Management
Reporting
System
Sales
Order
Inventory
Control
General
Ledger
System
(GLS)
Cash
Receipts
Payroll
Cost
Accounting
Cash
Disbursements
Accounts
Payable
Orange bubbles are
commonly used modules,
but we don’t use in G.P. PO
(Inventory) 3

14. GLS Database general ledger master file
primary FRS file based on chart of accounts
general ledger history (archive) file
used for comparative financial statements
journal voucher (transaction) file
all journal vouchers of current period
journal voucher history (archive) file
journal vouchers of past periods for audit trail
budget master file
budget data by responsibility centers for MRS 12

15. The Financial Accounting Process
Trial balance
Post entries to the ledger
Transaction entries in the Trans. File
Source documents
NOTICE THE IP-OP MODEL WITH FEEDBACK
Generic Model
Adjusting and closing
Financial statements

16. The Financial Accounting Process
Great Plains
The Financial Accounting Process
Post entries to each module
Post entries to General Ledger
Capture transaction entries in various Trans. Files
List of transactions
NOTICE THE IP-OP MODEL WITH FEEDBACK
Trial balance
Trial balance
Financial statements
Adjusting/ Correcting

17. GLS Reports Chart of Accounts: coded listing of accounts
General Ledger Analysis
Listing of transactions
Allocation of expenses to cost centers (if any)
Comparison of account balances from prior periods
Trial balance
Financial Statements
Managerial Reports
Analysis of Sales
Analysis of Cash
Analysis of Receivables

18. Potential Exposures (Risks) in GL/FRS
Improperly prepared journal entries
Unposted journal entries
Debits not equal to credits
Subsidiary ledger(s) not equal to general ledger control accounts
Inappropriate access to general ledger
Poor audit trail
Lost or damaged data
Incorrect account balances because of unauthorized or incorrect journal vouchers

19. GL/FRS Control Issues
Transaction Authorization - journal vouchers must be properly authorized by responsible manager at source dept.
Segregation of Duties - general ledger clerks should NOT:
have recordkeeping responsibility for special journals/subsidiary ledgers
prepare journal vouchers
have custody of physical assets
Manual
System 18

20. GL/FRS Control Issues (cont)
Access Controls:
Direct - journal vouchers should only be posted by authorized individuals
Indirect - source documents should be prenumbered and a log kept
Accounting Records - should be able to trace a source document from inception to impact on fin. statements and vice-versa
Manual
System 19

21. Audit Trail Journal General Ledger Financial Statements Source
Document
Journal
General
Ledger
Financial
Statements
Source
Document 16

22. GL/FRS Control Issues (cont)
Independent Verification - Journal vouchers and summaries are reconciled by G/L Dept. Two important operational reports are used:
journal voucher listing
general ledger change report
Manual
System 20

23. GL/FRS Using Database Technology
Advantages:
immediate update and reconciliation
timely information
even more timely if real-time processing
Removes separation of transaction authorization and processing
Compensating control: detailed journal voucher listing and account activity reports
Centralized access to accounting records
Controls: Passwords and authorization tables 22

24. The End