GENERAL LEDGER AND

REPORTING SYSTEM
 INTRODUCTION

 The general ledger and reporting system

(GLARS) includes the processes in place
to update general ledger accounts and
prepare reports that summarize results of
the organization’s activities.
 INTRODUCTION

• One of the primary functions of GLARS is to

collect and organize data from:
– Each of the accounting cycle subsystems, which
provide summary entries related to the routine
activities in those cycles.
– The treasurer, who provides entries with respect to
non-routine activities such as transactions with
creditors and investors.
– The budget department, which provides budget
numbers.
– The controller, who provides adjusting entries.
Context Diagram of the General Ledger and Reporting
System
DFD DIAGRAM
 INTRODUCTION

• The information must be organized to

meet the needs of internal and external
users.
• The system must be designed to produce
regular periodic reports and to support
real-time inquiries.
 GENERAL LEDGER AND REPORTING
SYSTEM
• The basic activities in the GLARS are:
– Update the general ledger
– Post adjusting entries
– Prepare financial statements
– Produce managerial reports
• The first three represent the basic steps in
the accounting cycle.
 UPDATE THE GENERAL LEDGER
• Updating the general ledger consists of posting journal entries from
two sources:
– Summary journal entries of routine transactions from the
accounting subsystems.
– Individual journal entries for non-routine transactions from the
treasurer. Examples:
• Issuances or payment of debt and the associated interest.
• Issuances or repurchases of company stock and paying
dividends on that stock.
• Journal entries are often documented on a form called a journal
voucher.
• After updating the general ledger (GL), journal entries are stored in
a journal voucher file.
 POST ADJUSTING ENTRIES
• Adjusting entries originate in the controller’s office at the
end of each accounting period (month, quarter, year, etc.)
and after the initial trial balance has been prepared.
• The trial balance lists the balances for all of the GL
accounts.
• If properly recorded, the total of all debit balances equal
the total of all credit balances.
• There are five types of adjusting entries:
– Accruals
– Deferrals
– Estimates
– Re-evaluations
– Error corrections
 POST ADJUSTING ENTRIES
• Journal vouchers for adjusting entries should be stored
in the journal voucher file.

• Once adjusting entries have been recorded, an adjusted

trial balance is prepared from the new balances in the
general ledger.

• The adjusted trial balance serves as the input for the

next step—preparation of the financial statements.
 PREPARE FINANCIAL STATEMENTS

• Activities in the preparation of financial

statements are as follows:
– Prepare an income statement
– Prepare closing entries
– Prepare a statement of stockholders’ equity
– Prepare a statement of financial position
– Prepare a statement of cash flows
PRODUCE MANAGERIAL REPORTS

• The final step is prepare of reports for

internal purposes, including:
– Reports to verify the accuracy of the posting
process.
– Budgets for planning and evaluating
performance:
• Operating budget
• Capital expenditure budget
• Cash flow budget
PRODUCE MANAGERIAL REPORTS

• The final step is prepare of reports for

internal purposes, including:
– Reports to verify the accuracy of the posting
process.
– Budgets for planning and evaluating
performance:
• Operating budget
• Capital expenditure budget
• Cash flow budget
 PREPARE MANAGERIAL REPORTS
• Contents of the budgetary performance reports should be
tailored to the nature of the unit being evaluated.
• Cost centers
 Examples: Production, service, and administrative departments.
 Present actual vs. budgeted costs, focusing only on controllable costs.

• Revenue centers
 Example: Sales department.
 Present actual vs. forecasted sales by product, geographical category, etc.

• Profit centers
 Examples: IT and utilities that charge other units for their services.
 Compare actual vs. budgeted revenues, expenses, and profits.
 XBRL: REVOLUTIONIZING THE
REPORTING PROCESS
• Although financial statements appear
electronically in a variety of formats, until
recently disseminating this information was
cumbersome and inefficient.
– Recipients (SEC, IRS, etc.) required the information in
a variety of formats which was time-consuming.
– Also conducive to errors, because re-entry of the
information was often necessary.
• Underlying problem: Lack of standards for
identifying the content of data.
 XBRL: REVOLUTIONIZING THE
REPORTING PROCESS
• Solution: Extensible Business Reporting
Language (XBRL)
– A variant of XML designed specifically to communicate
the contents of financial data.
– Creates tags for each data item much like HTML tags.
• Tag names specify line items in financial statements.
• Other fields in the tag provide information such as the year,
units of measure, etc.
• Major software vendors are developing tools to
automatically generate XBRL codes so
accountants won’t need to write code.
 XBRL: REVOLUTIONIZING THE
REPORTING PROCESS
• XBRL provides two major benefits:
– Organizations can publish their financial
statements on time in a format that anyone
can use.
– Recipients will no longer need to manually re-
enter data they acquired electronically so that
decision support tools can analyze them.
• Means search for data on the Internet will be more
efficient and accurate.
CONTROL: OBJECTIVES, THREATS,
AND PROCEDURES
• In the general ledger and reporting system (or any
cycle), a well-designed AIS should provide adequate
controls to ensure that the following objectives are met:
– All transactions are properly authorized.
– All recorded transactions are valid.
– All valid and authorized transactions are recorded.
– All transactions are recorded accurately.
– Assets are safeguarded from loss or theft.
– Business activities are performed efficiently and effectively.
– The company is in compliance with all applicable laws and
regulations.
– All disclosures are full and fair.
 THREATS IN THE GENERAL
LEDGER AND REPORTING SYSTEM
• The primary threats in the general ledger
and reporting system are:
– THREAT 1: Errors in updating the general led
ger and generating reports
– THREAT 2: Financial statement fraud
– THREAT 3: Loss, alteration, or unauthorized d
isclosure of financial data
– THREAT 4: Poor performance
 SUPPORTING MANAGEMENT’S
INFORMATION NEEDS
• Tools or abilities can be particularly useful
to management in decision making:

–Data warehouses

–Proper design of graphs of financial data

 USING DATA WAREHOUSES FOR
BUSINESS INTELLIGENCE
• Management must constantly monitor and
reevaluate the organization’s financial and
operating performance in light of strategic goals
and must be able to alter plans quickly when the
environment changes.
• They may adopt ERP systems and integrated
AIS systems to facilitate these activities.
• However, these systems are designed primarily
to support transaction processing needs, and
typically contain data only for the current fiscal
year and maybe an extra month.
 USING DATA WAREHOUSES FOR
BUSINESS INTELLIGENCE
• But strategic decision making requires access to
large amounts of historical data.
– To fill this need, organizations are building separate
databases called data warehouses.
– These are typically huge databases that contain both
detailed and summarized data for a number of years.
– They are separate from the AIS.
– Organizations may also build separate, smaller
warehouses, called data marts, for individual
functions such as finance or human resources.
 USING DATA WAREHOUSES FOR
BUSINESS INTELLIGENCE
– Data warehouses and data marts are updated
periodically to reflect the results of transactions that
have occurred since the last update.
– They are structured differently than transaction
processing databases:
• Transaction processing databases are designed to
minimize redundancy and maximize efficiency of
updates.
• Data warehouses are purposely designed to be
redundant in order to maximize query efficiency.
– They are usually dimensional in nature.
– Most use a star schema.
 USING DATA WAREHOUSES FOR
BUSINESS INTELLIGENCE
• Business intelligence is the process of accessing data
in a warehouse and using it for strategic decision
making. Two basic techniques:
– Online analytical processing (OLAP)
• The user employs queries to investigate hypothesized relationships
in the data.
• Can drill down to deeper levels with each query.
– Data mining
 Uses sophisticated statistical analysis and artificial intelligence
techniques such as neural networks to discover unhypothesized
relationships in the data.
 “Let’s just dig and see what we find!”
 USING DATA WAREHOUSES FOR
BUSINESS INTELLIGENCE
• Proper controls are needed for data
warehouses:
– Data validation controls are essential to ensuring data
accuracy.
• The process of verifying the accuracy of the data, aka
scrubbing, is often one of the most time-consuming and
expensive steps.
– Information should be protected from competitors or
from destruction by using:
• Access controls
• Encryption
• Backup provisions
 PRINCIPLES OF GRAPH DESIGN

• Accountants and IS professionals can help

management deal with information
overload by preparing graphs that highlight
and summarize important facts.
• Well-designed graphs make it easy to
identify and understand trends and
relationships.
• Poorly-designed graphs can impair
decision making.
 SUMMARY

• General ledger and financial reporting system

integrates and summarizes the results of the
various accounting subsystems for the revenue,
expenditure, production, and human resources
cycles.
• The general ledger is the central master file in
the accounting system.
• It is important to implement control procedures
to ensure its accuracy and security.
 CONCLUSION

This chapter and the previous four explained how an

accounting system should be designed:

(1) to process transactions for accountability purposes.

(2) to maintain adequate controls to ensure the integrity of

the organization’s data and the safeguarding of its assets.

(3) to provide information to support decision making.