Accounting

Information
Systems
9th Edition
Marshall B. Romney
Paul John Steinbart

2003 Prentice Hall Business Publishing,

Accounting Information Systems, 9/e, Romney/Steinbart

15-1

General Ledger and

Reporting System

Chapter 15

2003 Prentice Hall Business Publishing,

Accounting Information Systems, 9/e, Romney/Steinbart

15-2

Learning Objectives
1.

2.

3.

Describe the information processing

operations required to update the general
ledger and to produce other reports for
internal and external users.
Identify the major threats in general ledger
and reporting activities, and evaluate the
adequacy of various internal control
procedures for dealing with them.
Read and explain an integrated enterprisewide REA data model.
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Learning Objectives
4.

5.

6.

Discuss and design a balanced

scorecard for an organization.
Explain the relationship between online
transaction processing systems and
data warehouses used to support
business intelligence.
Understand the implications of new IT
developments, such as XBRL, for
internal and external reporting.
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Introduction

Linda Spurgeon, AOEs president & CEO,

is not satisfied with the financial reporting
capabilities of AOEs new ERP system.
She has three primary goals:
1.
2.
3.

To develop a Balanced Scorecard in a

timely manner.
To speed up trend analysis data on the
companys financial performance.
To lower costs associated with providing
financial information to interested external
parties on a timely basis.
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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 organizations
activities.

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Learning Objective 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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General Ledger and

Reporting Activities

What are the four basic activities

performed in the general ledger
and reporting system?
1.
2.
3.
4.

Update the general ledger

Post adjusting entries
Prepare financial statements
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 journal
entries that originated from two
sources:
1.
2.

Accounting subsystems
The treasurer
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Update The General Ledger

(Activity 1)
Accounting
subsystems

Journal entry

Update the
general ledger

Journal
entry
Treasurer

Journal
voucher
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General
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

controllers 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.
2.
3.
4.
5.

Accruals (wages payable)

Deferrals (rent, interest, insurance)
Estimates (depreciation)
Revaluation (change in inventory
method)
Corrections
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Post Adjusting Entries

(Activity 2)
Post adjusting
entries

Journal
voucher
Adjusting
entries

Adjusted trial
balance

Financial
statements
Controller
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Prepare
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.
The

income statement is prepared

first.
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.
What are the two main categories of
managerial reports?
1.
2.

General ledger control reports

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
listing of general ledger account
balances

What are examples of budgets?

operating budget
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?

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
adequacy of various internal
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.
2.
3.

Updates to the general ledger are

properly authorized.
Recorded general ledger
transactions are valid.
Valid, authorized general ledger
transactions are recorded.
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Control: Objectives,
Threats, and Procedures
4.
5.
6.

General ledger transactions are

accurately recorded.
General ledger data are
safeguarded from loss or theft.
General ledger system activities are
performed efficiently and effectively.

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Threats and Controls in the

General Ledger and Reporting System
Process/Activity
Updating the
general ledger

Threat
Errors

Applicable Control
Procedures
Input and processing
controls;
reconciliations and
control reports; audit
trail

Access to general Loss of confidential

ledger
data and/or
concealment of theft

Access controls; audit

trail

Loss or
destruction of the
general ledger

Backup and disaster

recovery procedures

Loss of data and

assets

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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
procedures fall into three categories:
1.
2.
3.

Input edit and processing controls

Reconciliations and control reports
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.
2.

Summary journal entries from other

AIS cycles
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 and
processing controls are needed to ensure that they are
accurate and complete. These are:
Validity Check

Field Checks

Zero-balance checks

Completeness test

Closed-loop verification
Calculation run-to-run

Standard adjusting entry file for

totals to verify accuracy of

journal voucher batch
processing

recurring adjusting entries made

each period
Sign check

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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:
Preparation

of the trial balance

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 source document to the
general ledger 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
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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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 each journal voucher record before
posting

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Threat 3: Loss or Destruction

of the General Ledger
Adequate backup and disaster recover y
procedures must be in place to
protect the general ledger. Backup
controls include:
1. Use of internal and external file
labels
2. Performance of regular backup of
the general ledger
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Learning Objective 3
Read and explain an integrated
enterprise-wide REA data
model.

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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
each resource with the events that
increase and decrease that resource.

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Integrated Data Model

Cash
receipts

Cash
disbursements

(1, 1)

(1, 1)
(1, N)

Cash

(1, N)

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Integrated Data Model

(0, N)

Cash
(1, N)

(0, N)

(1, 1)
(0, N)

(0, N)

Issue
debt
(0, N)

(1, 1)

Pay
employees

(1, 1)

(1, 1)

Issue
stock

(1, 1)

Dividend
payment

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(1, N)

Debt
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

Integration of financial and
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.
2.
3.

Visibility
Mirroring
Building new customer relationships

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Learning Objective 4

Discuss and Design a

Balanced Scorecard for
an organization.

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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
perspectives of the organization:
Financial
Customer
Internal operations
Innovation and learning
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Learning Objective 5
Explain the relationship
between online transaction
processing systems and data
warehouses used to support
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.
Whereas transaction-processing
databases are designed to minimize
redundancy, data warehouses 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.
The two main techniques of business
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 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

in which information is delivered.
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.
XBRL tags are interpretable.

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Case Conclusion
What did Stephanie Cromwell and
Elizabeth Venko decide?
They decided that AOE needs to
switch to an online general ledger
system.
They agreed that AOE will first acquire
a general ledger package that is built
on a relational database.

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End of Chapter 15

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