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
Florida Atlantic University

Bhattacharya, Ph.D.

Transaction Processing
System Architectures
A firms transaction processing
systems may either be manual or
computerized

Manual Transaction
Processing Systems
From Prior Processing Steps

Sales
Invoices
Sales
Journal

Cash Remittance Miscellaneous

Source
Advices
Documents
Cash Receipts
Journal

Accounts Receivable
Subsidiary Ledger

Journal
Vouchers

General
Ledger

Paychecks

Payroll
Journal

Suppliers
Invoices

Purchases
Journal

Checks

Cash
Disbursements
Journal

Accounts Payable
Subsidiary Ledger

Trial
Balance
Managerial
Reports

Figure 11-1

Balance
Sheet

Income Cash-flow
Statement Statement

Computerized Transaction
Processing System
T1

D1

T2

T3

T4

T5

D2

D3

D4

D5

T6

T7

D1
D6

M1
A1

P1

D9
D8

D7

D2

P2

D3
Display

T8
Figure 11-2

T9

(see text book for details)

Benefits & Differences of a ComputerBased 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

Benefits & Differences of a ComputerBased 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

Benefits & Differences of a ComputerBased 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

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.

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

Brief Chart of Accounts

Account Code
100-199
200-299
300-399
400-499
500-599
600-699
700-899
900-999

Account Code
Current Assets
Non-current Assets
Liabilities
Owners Equity
Revenues
Cost of Sales
Operating Expenses
Non-operating Expenses

Figure 11-5

Expense Accounts

850
852
855
859
861
863
870
871
872
873
881
883
884
888
891
892
899

Administrative Expense Control

Officers Salaries
Office Salaries
Overtime Premium
Unemployment Insurance Expense
FICA Expense
Office Supplies
Office Repairs
Telephone & Telegraph
Postage
Dues & Subscriptions
Donations
Travel
Depreciation
Insurance
Taxes
Miscellaneous Administrative Expense

Figure 11-6

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

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

Data Processing
Daily Processing
High volume transactions

sales
cash receipts
purchases
cash disbursements
payroll

End of Period Processing

Standard entries
Nonrecurring adjusting entries

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

System Flowchart Showing Period-End

Preparation of Outputs Relating to the
General Ledger
Current
Journal
Entries &
Adjusting
Journal
Entries

Budget
Master
File
General
Ledger
Master
File

Responsibility
Center Master
File

Journal entry
Journal entry
proof listing
Figure 11-11

General ledger
change report
General ledger
trial balance

Journal
Voucher
File

Prepare
various
listings and
financial
statements &
managerial
reports

Financial
Reports
Format File
General
Ledger
History File
Journal
Voucher
History File

Statement of
Comparative
cash flows
balance sheets
Income
Comparative
analyses of
statements

general ledger
accounts

Budgetary Control
Reports

Responsibility
Center Reports

Responsibility Reporting
P r e s id e n t
VP
F in a n c e &
A c c o u n t in g

VP
E n g in e e r in g

VP
P r o d u c tio n

VP
M a r k e t in g

VP
I n d u s t r ia l
R e la t io n s

P u r c h a s in g

P r o d u c t io n
P la n n in g
and
C o n tro l

P r o d u c tio n
S u p e r in te n d e n t

R e c e iv in g
S h ip p in g a n d
S to re s

Q u a lit y
C o n tro l a n d
M a in t n a n c e

P r o d u c t io n
U n it 1

Figure 11-15

P r o d u c t io n
U n it 2

S u p e r v is o r
P r o d u c tio n
U n it 3

F in is h in g

A s s e m b ly

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

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

Figure 11-17

-year month

month

Linked Tables within a General

Ledger Relational Data Base
Account Responsibility
Number
Code

Account Account
Number Description

Budgeted
amount for month

Account
Classification

Figure 11-18

Total Credits
Month-to-date

Dr or Cr

Account
Number

Journal
Date of
Voucher Transaction
Number

Total Debits
Month-to-date

Journal
Amount of
Voucher Number line item

Preparers Reference Description of Amount of

initials
Number
Transactions Transaction

Dr or Cr

The General Ledgers 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 companys financial
data via the Web
11) Breakdown of the Web server

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

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

Programmed Checks for Editing

& Validating Journal Entry Data

Validity check
Field check
Limit check
Zero-balance check
Completeness check
Echo check

Programmed Checks for Editing

& Validating Journal Entry Data

Internal label check

Sequence check
redundancy matching check
Relationship check
Posting check
Batch control/total checks

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

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

Web-Security Procedures

Authentication
Authorization
Accountability
Data Transmission
Disaster Contingency & Recovery
Plan

Accounting Information Systems:

Essential Concepts and Applications
Fourth Edition by Wilkinson, Cerullo,
Raval, and Wong-On-Wing

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