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
Transaction Processing
System Architectures

A firm’s transaction processing systems

may either be manual or computerized
 Manual Transaction
Processing Systems
From Prior Processing Steps

Miscellaneous Paychecks Suppliers’

Sales Cash Remittance Source Checks
Invoices Advices Documents Invoices

Sales Cash
Cash Receipts Journal Payroll Purchases Disbursements
Journal Journal Vouchers Journal Journal Journal

Accounts Receivable General Accounts Payable Trial

Subsidiary Ledger Ledger Subsidiary Ledger Balance

Managerial
Reports
Balance Income Cash-flow
Figure 11-1 Sheet Statement Statement
 Computerized Transaction
Processing System
T1 T2 T3 T4 T5 T6 T7

D1
D1 D2 D3 D4 D5 D6

M1
A1
P1 D9
D8 P2

D2 D3
D7

Display
T8 T9
Figure 11-2 (see text book for details)
Benefits & Differences of a Computer-
Based 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 Computer-
Based 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 Computer-
Based 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 Account Code
100-199 Current Assets
200-299 Non-current Assets
300-399 Liabilities
400-499 Owners’ Equity
500-599 Revenues
600-699 Cost of Sales
700-899 Operating Expenses
900-999 Non-operating
Expenses Figure 11-5
Expense Accounts
 850 Administrative Expense Control
 852 Officers’ Salaries
 855 Office Salaries
 859 Overtime Premium
 861 Unemployment Insurance Expense
 863 FICA Expense
 870 Office Supplies
 871 Office Repairs
 872 Telephone & Telegraph
 873 Postage
 881 Dues & Subscriptions
 883 Donations
 884 Travel
 888 Depreciation
 891 Insurance
 892 Taxes
 899 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 Financial
Budget Entries & Journal Reports
Master Adjusting Voucher Format File
File Journal File
Entries

General General
Ledger Ledger
Prepare History File
Master various Journal
File listings and
Responsibility financial Voucher
Center statements & History
managerial File
Master File reports

General ledger
Statement of Budgetary Control
Journal entry change report Comparative
cash flows Reports
Journal entry balance sheets
General ledger
proof listing trial balance Comparative Income
analyses of statements
general ledger Responsibility
Figure 11-11 accounts Center Reports
 Responsibility Reporting

President

VP VP VP VP VP
Finance & Engineering Production Marketing Industrial
Accounting Relations

Purchasing Production Production Receiving Quality

Planning Superintendent Shipping and Control and
and Stores Maintnance
Control

Production Production Supervisor Finishing Assembly

Unit 1 Unit 2 Production
Unit 3

Figure 11-15
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 -year month month

Figure 11-17
Linked Tables within a General
Ledger Relational Data Base
Account Responsibility Budgeted Total Debits Total Credits
Number Code amount for month Month-to-date Month-to-date

Account Account Account Dr or Cr

Number Description Classification

Account Journal Amount of Dr or Cr

Number Voucher Number line item

Journal Date of Preparer’s Reference Description of Amount of

Voucher Transaction initials Number Transactions Transaction
Number

Figure 11-18
The General Ledger’s 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 company’s 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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