Chapter 8

Coding, General
Ledger, and
Financial Reporting
Post entries to the
ledger

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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.
 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
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Match the types of coding

A1000
Block codes
1001 11000-00 Sequential codes
1002 Group codes
1003 TX
Alphanumeric codes
1004
Category-Item-Color Mnemonic codes
444000-0010-00355
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 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
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 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

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Example of Chart of A/Cs
(block codes)

Assets Revenue
10000-00 to 19999-00 40000-00 to 49999-00

Liabilities COGS
20000-00 to 29999-00 50000-00 to 59999-00

Equity Expenses
30000-00 to 39999-00 60000-00 to 69999-00

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 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

Example: Coding scheme used to track sales of inventory in G.P.

Company Division
13000-10 13000 10
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 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
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Block with alpha example:

1000-1999 = 999 numbers

A1000-Z1999 = 999 (times 26) numbers

= 25,97
4 nu m b
ers

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Mnemonic Codes

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
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 IS Functions of General
Ledger System
All general ledgers must:
Collect transaction data promptly and
accurately
Input Classify/code data and accounts
Validate collected transactions/ Maintain
accounting controls (e.g., equal debits and
credits)
Process Process transaction data
Post transactions to proper accounts
Update general ledger accounts and transaction
Output files
Record adjustments to accounts 12
Blue bubbles are Financial
modules we use in G.P. Reporting
System
Billing/ Management
Invoicing Reporting
System

Sales Inventory
Order Control
General
Ledger
System
Cash Payroll
Receipts (GLS)

Cost Cash
Accounting Disbursements

Accounts
Payable
Orange bubbles are
PO commonly used modules,
(Inventory)
but we dont use in G.P.
 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

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 The Financial Accounting Process

Source Transaction Trial balance

entries in the Post entries to
documents
Trans. File the ledger

Generic Model

Adjusting and
Financial closing
statements
 The Financial Accounting Process
Great Plains

Capture Post entries

List of
transactions
transaction Post entries to to General
entries in Ledger
each module
various Trans.
Files

Adjusting/
Financial Trial Correcting Trial
statements balance balance
 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

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 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
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 GL/FRS Control Issues
Transaction Authorization -
journal vouchers must be properly
authorized by responsible manager
at source dept.
Segregation of Duties - general
Manual
ledger clerks should NOT: System
have recordkeeping responsibility for
special journals/subsidiary ledgers
prepare journal vouchers
have custody of physical assets19
GL/FRS Control Issues (cont)

Access Controls:
Direct - journal vouchers should only be
posted by authorized individuals
Indirect - source documents should be
Manual
prenumbered and a log kept System
Accounting Records - should be
able to trace a source document
from inception to impact on fin.
statements and vice-versa
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 Audit Trail

Source General Financial

Journal
Document Ledger Statements

Source General Financial

Journal
Document Ledger Statements

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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

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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
The End

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