1. General Ledger, Financial Reporting and Management Reporting Systems
Chapter 8
General Ledger, Financial Reporting and
Management Reporting
Systems 1

2. IS Functions of the General Ledger System
All general ledgers should (must):
collect transaction data promptly and accurately
classify/code data and accounts
validate collected transactions/ maintain accounting controls (e.g., equal debits and credits)
process transaction data
post transactions to proper accounts
update general ledger accounts and transaction files
record adjustments to accounts
store transaction data
generate timely financial reports
Input
Process
Output

3. General Ledger System (GLS) Financial Reporting System Management
Billings
Sales
Inventory
Control
General
Ledger
System
(GLS)
Cash
Receipts
Payroll
Cost
Accounting
Cash
Disbursements
Accounts
Payable 3

4. The Financial Accounting Process
Trial balance
Post entries to the ledger
Journal entries in the journal
Source documents
NOTICE THE IP-OP MODEL WITH FEEDBACK
Financial statements
Adjusting and closing

5. GLS Reports General Ledger Analysis Financial Statements
listing of transactions
allocation of expenses to cost centers
comparison of account balances from prior periods
trial balances
Financial Statements
balance sheet
income statement
statement of cash flows
Managerial Reports
analysis of sales
analysis of cash
analysis of receivables
Chart of Accounts: coded listing of accounts

6. Potential Exposures in the GL/FRS  Risks
Improperly prepared journal entries
Unposted journal entries
Debits not equal to credits
Subsidiary not equal to general ledger control accounts
Inappropriate access to the general ledger
Poor audit trail
Lost or damaged data
Account balances that are wrong because of unauthorized or incorrect journal vouchers

7. GL/FRS Control Issues
Transaction authorization - journal vouchers must be properly authorized by a responsible manager at the source department
Segregation of duties - general ledger clerks should not:
have recordkeeping responsibility for special journals or subsidiary ledgers
prepare journal vouchers
have custody of physical assets 18

8. GL/FRS Control Issues Access controls:
direct - journal vouchers should only be posted by authorized individuals
indirect - source documents should be prenumbered and a log kept
Accounting records - should be able to trace a source document from its inception to its impact of the financial statements and vice-versa 19

9. GL/FRS Control Issues Independent verification
journal vouchers and summaries are reconciled by the general ledger department.
Two important operational reports used:
journal voucher listing
general ledger change report 20

10. GLS: Tape Batch Processing
Sorted
Journal
Vouchers
Journal
Voucher
Batch
General
Ledger
Master
Edit input
and update
master file
Key in journal
voucher data
Unsorted
Journal
Vouchers
New
General
Ledger
Master
Old
General
Ledger
Master
Sorted
Journal
Vouchers
Error and
Exception
Report
Sort vouchers
in chart of
account order

11. Automated GL/FRS using Batch Processing and Sequential Files
Advantages
control - journal vouchers can be approved, validated, and balanced prior to processing
reporting - provides summary feedback on transaction activity
Disadvantages
inefficiency - production of manual documents which must be entered into the system and filed
infrequent reconciliation 21

12. GL/FRS Using Database Technology

13. Management Principles
Formalization of tasks:
Management structures the firm around the tasks it performs rather than around individuals with unique skills.
It allows specification of the information needed to support the tasks. 7

14. Management Principles
Responsibility and authority:
Responsibility is an individual’s obligation to achieve desired results.
Authority is an individual’s power to make decisions within the limits of that responsibility.
Managers delegate responsibility and authority downward to subordinates. 8

15. Management Principles
Span of control:
the number of subordinates directly under the manager’s control
detailed reports for managers with narrow spans of control
summarized information for managers with broad spans of control
Narrow Span of Control
Wide Span of Control 9

16. Problem Structure
The problem structure reflects how well the decision maker understands the problem.
Elements of problem structure:
data
procedures
objectives 18

17. Problem Structure Non-Traditional IS Traditional IS Information System
Management Level
Problem Structure
Unstructured
Strategic
Management
Non-Traditional IS
Tactical
Management
Partially
Structured
Operations Management
Traditional IS
Operations
Structured 19

18. Representational Faithfulness
Attributes of Useful Information According to FASB’s Conceptual Framework
Predictive Value
Feedback Value
Timely
Representational Faithfulness
Relevant Information
Reliable Information
Verifiable
Neutral

19. Types of Management Reports
Programmed reports:
Scheduled reports are produced at prespecified intervals, such as weekly.
On-demand reports are triggered by events, such as inventory levels dropping to a certain level.
Ad hoc reports - reports designed and created on an “as needed” basis as situations arise that require new information needs 22

20. Responsibility Centers
Cost center - an organizational unit with responsibility for cost management within budgetary limits
Profit center - an organizational unit with responsibility for both cost control and revenue generation
Investment center - an organizational unit with the general authority to make a wide range of decisions affecting costs, revenue, and investments in assets 25

21. Goal Congruence
A carefully structured management reporting system and compensation schemes help to appropriately assign authority and responsibility.
If compensation measures are not carefully designed, managers may be tempted to engage in actions not optimal for the organization in the long-run. 26

22. Information Overload…
occurs when a manager receives more information than he or she can assimilate
can cause managers to disregard their formal information and rely on informal--probably inferior--cues to help them make decisions 28