General Ledger and

Reporting System

©2003 Prentice Hall Business Publishing,

Accounting Information Systems, 9/e,
by Marshall B. Romney and Paul John
Steinbart
Reported by Nicole Angela S. Ablis and

Romney/Steinbart
Roanne Mae R. Moraña

15-1
Learning Objectives
1. Describe the information processing
operations required to update the
general ledger and to produce other
reports for internal and external
users.

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Identify the major threats in general

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2.
ledger and reporting activities, and
evaluate the adequacy of various
internal control procedures for

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dealing with them.
3. Read and explain an integrated
enterprise-wide REA data model.
15-2
Learning Objectives
4. Discuss and design a balanced
scorecard for an organization.
5. Explain the relationship between
online transaction processing

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systems and data warehouses used to

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support business intelligence.
6. Understand the implications of new

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IT developments, such as XBRL, for
internal and external reporting.

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Introduction
• This chapter discusses the information
processing operations involved in
updating the general ledger and
preparing reports that summarize the
results of an organization’s activities.

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Accounting Information Systems, 9/e,
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Learning Objective 1
Describe the information
processing operations
required to update the

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general ledger and to

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produce other reports for
internal and external users.

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General Ledger and
Reporting Activities
What are the four basic activities
performed in the general ledger and
reporting system?
1. Update the general ledger

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2. Post adjusting entries

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3. Prepare financial statements
4. Produce managerial reports

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Update The General Ledger
(Activity 1)
• The first activity in the general
ledger system is to update the
general ledger.
Updating consists of posting

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•

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journal entries that originated
from two sources:
1. Accounting subsystems

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2. The treasurer

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Update The General Ledger
(Activity 1)

Accounting Journal entry Update the

subsystems general ledger

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Journal

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entry

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Treasurer Journal General
voucher ledger

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Post Adjusting Entries
(Activity 2)
• The second activity in the general
ledger system involves posting various
adjusting entries.
 Adjusting entries originate from the

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Accounting Information Systems, 9/e,
controller’s office, after the initial trial
balance has been prepared.

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Post Adjusting Entries
(Activity 2)
What are the five basic categories of
adjusting entries?
1. Accruals (wages payable)
2. Deferrals (rent, interest, insurance)

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3. Estimates (depreciation)

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4. Revaluation (change in inventory
method)
5. Corrections

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 Post Adjusting Entries
(Activity 2)
Journal Post adjusting
voucher entries

Adjusting

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Adjusted trial

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entries balance
Prepare

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Controller Financial statements financial
statements
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Prepare Financial Statements
(Activity 3)
The third activity in the general
ledger and reporting system involves
the preparation of financial
statements.

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 The income statement is prepared first.

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 The balance sheet is prepared next.
 The cash flows statement is prepared
last.

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Produce Managerial Reports
(Activity 4)
• The final activity in the general
ledger and reporting system
involves the production of various
managerial reports.

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Accounting Information Systems, 9/e,
• What are the two main categories
of managerial reports?
1. General ledger control reports

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2. Budgets

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Produce Managerial Reports
(Activity 4)
• What are examples of control
reports?
–lists of journal vouchers by numerical
sequence, account number, or date

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–listing of general ledger account balances

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• What are examples of budgets?
–operating budget

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–capital expenditures budget

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Produce Managerial Reports
(Activity 4)
• Budgets and performance reports
should be developed on the basis of
responsibility accounting.
• What is responsibility accounting?

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Accounting Information Systems, 9/e,
 It involves reporting financial results on
the basis of managerial responsibilities
within an organization.

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Learning Objective 2
Identify the major threats in
general ledger and reporting
activities, and evaluate the

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adequacy of various internal

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control procedures for
dealing with them.

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Control: Objectives,
Threats, and Procedures
What are the control objectives in the
general ledger and reporting system?
1. Updates to the general ledger are
properly authorized.

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2. Recorded general ledger transactions

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are valid.
3. Valid, authorized general ledger
transactions are recorded.

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Control: Objectives,
Threats, and Procedures
4. General ledger transactions are
accurately recorded.
5. General ledger data are safeguarded
from loss or theft.

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6. General ledger system activities are

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performed efficiently and effectively.

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 Threats and Controls in the
General Ledger and Reporting System
Process/Activity Threat Applicable Control

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Procedures
Updating the Errors Input and processing
general ledger controls; reconciliations

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and control reports;
audit trail
Access to general Loss of confidential Access controls; audit
ledger data and/or trail
concealment of theft
Loss or Loss of data and Backup and disaster
destruction of the assets recovery procedures
general ledger
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Threat 1: Errors in Updating
the General Ledger
Errors made in updating the general
ledger can lead to poor decision making
based on erroneous information in
financial performance reports. Control

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procedures fall into three categories:

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1. Input edit and processing controls
2. Reconciliations and control
reports

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3. Maintenance of an adequate audit
trail

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Input Edit and
Processing Controls
There are two sources of journal
entries for updating the general
ledger:
1. Summary journal entries from other

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AIS cycles

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2. Direct entries made by the treasurer
or controller

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Input Edit and
Processing Controls
Journal entries made by the treasurer and controller
are original data entry. Several types of input edit

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and processing controls are needed to ensure that
they are accurate and complete. These are:

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• Validity Check • Field Checks
• Zero-balance checks • Completeness test
• Closed-loop • Standard adjusting entry file
verification for recurring adjusting entries
• Calculation run-to-run made each period
totals to verify • Sign check
accuracy of journal
voucher batch
processing 15-
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Reconciliation and
Control Report
Reconciliations and control reports
can detect if any errors were made
during the process of updating the
general ledger. Examples include:

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 Preparation of the trial balance

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 Comparing the general ledger control
account balances to the total balance in
the corresponding ledger

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Reconciliation and
Control Report
The audit trail is the path of a transaction
through the accounting system. The
audit trail facilitates these three tasks:
1. Trace any transaction from its original

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source document to the general ledger

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and to any report or other document
using that data.

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Reconciliation and
Control Report
The audit trail, continued
2. Trace any item appearing in a report
back through the general ledger to its
original source document

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Accounting Information Systems, 9/e,
3. Trace all changes in general ledger
accounts from their beginning balance
to their ending balance

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Threat 2: Unauthorized Access
to the General Ledger
Unauthorized access to the general ledger
can result in confidential data leaks to
competitors or corruption of the general
ledger. It can also provide a means for
concealing the theft of assets.

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Accounting Information Systems, 9/e,
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Threat 2: Unauthorized Access
to the General Ledger
Some controls against this threat are:
 User IDs and passwords
 Read-only access to the general ledger
 System checks of authorization codes for

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each journal voucher record before

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posting

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Threat 3: Loss or Destruction of
the General Ledger
Adequate backup and disaster recovery
procedures must be in place to protect
the general ledger. Backup controls
include:

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1. Use of internal and external file labels

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2. Performance of regular backup of the
general ledger

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 REA data model.
Read and explain an
Learning Objective 3

integrated enterprise-wide

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Accounting Information Systems, 9/e,
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Integrated Data Model
• An integrated enterprise-wide data model
represents a merging of separate data
models.
• This merging primarily involves linking

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each resource with the events that

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increase and decrease that resource.

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 (1, 1)
Cash
receipts

(1, N)
Cash
Integrated Data Model

(1, N)
Cash

(1, 1)
disbursements

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 Integrated Data Model
(0, N)
Cash (1, 1)
(1, N) Issue
(0, N) (0, N)
(0, N) debt
(0, N)

(1, 1) (1, 1) (1, 1) (1, 1)

(1, N)

Pay Issue Dividend Debt

employees stock payment payment
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Benefits of an
Integrated Data Model
• What are some benefits of an
Integrated data model?
–Improved support for decision making

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–Integration of financial and

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nonfinancial information
–Improved internal reporting

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Benefits of an
Integrated Data Model
• Development of a virtual value
chain occurs in three stages.
• What are these stages?
1. Visibility

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Accounting Information Systems, 9/e,
2. Mirroring
3. Building new customer relationships

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 Learning Objective 4

for an organization.
Balanced Scorecard
Discuss and Design a

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Balanced Scorecard
• What is a balanced scorecard?
•A report that provides a
multidimensional perspective of
organizational performance
•It contains measures reflecting four

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perspectives of the organization:

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 Financial
 Customer

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 Internal operations
 Innovation and learning

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Learning Objective 5
Explain the relationship
between online transaction
processing systems and data

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warehouses used to support

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business intelligence.

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Data Warehouses
• Data warehouses, which contain both
current and historical data, can provide
additional support for strategic
decision making.

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Accounting Information Systems, 9/e,
• Whereas transaction-processing
databases are designed to minimize
redundancy, data warehouses

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purposely build in redundancies in
order to maximize query efficiency.

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Data Warehouses
• The process of accessing data contained in
the data warehouse and using it for
strategic decision making is referred to as
Business Intelligence.

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• The two main techniques of business

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intelligence are:
 Online Analytical Processing (OLAP)
 Data mining

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Learning Objective 6

Understand the implications

of new IT developments, such
as XBRL, for internal and

©2003 Prentice Hall Business Publishing,

Accounting Information Systems, 9/e,
external reporting.

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Opportunities for Using
Information Technology
• The Extensible Business Reporting
Language (XBRL) has addressed
two problems:
 Different requirements for the manner

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in which information is delivered.

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 The need for manual reentry of
information into standalone decision
analysis tools.

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Opportunities for Using
Information Technology
• XBRL provides two benefits:
 It enables organizations to publish
information only once using standard XBRL
tags.

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 XBRL tags are interpretable.

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 End of Chapter 15

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 QUIZ 😁💪👍💯🔥

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