What are the four basic activities performed in the general ledger and reporting system?
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. The general ledger and reporting system plays a central role in a company’s accounting information system. Its primary function is to collect and organize data from the following sources: Show
Figure 16.3 on page 485 shows the typical design of an online general ledger and reporting system. The centralized database must be organized in a manner that facilitates meeting the varied information needs of both internal and external users. Managers need timely detailed information about the results of operations in their particular area of responsibility. Investors and creditors want periodic financial statements and timely updates to help them assess the organization’s performance. The most important threats for a general ledger are:
See table 16.1 on page 486 for the threats and controls in the general ledger and reporting system. The first activity in the general ledger system is updating the general ledger. Updating consists of posting journal entries that originate from two sources.
The individual journal entries used to update the general ledger are stored in the journal voucher file. The journal voucher file contains the information that would be found in the general journal in a manual accounting system: the date of the journal entry, the accounts debited and credited, and the amounts. Journal entries made by the treasurer are original data entry. The following types of input edit and processing controls are needed to ensure that they are accurate and complete:
Reconciliations and control reports can detect whether any errors were made during the process of updating the general ledger. One form of reconciliation is the preparation of a trial balance. A trail balance is a report that lists the balances for all general ledger accounts. The audit trail is a traceable path that shows how a transaction flows through the information system to affect general ledger account balances. It is an important detective control that provides evidence about the causes of changes in general ledger account balances. The second activity in the general ledger system is posting various adjusting entries. Adjusting entries originate from the controller’s office, after the initial trial balance has been prepared. Adjusting entries fall into five basic categories.
The third activity in the general ledger and reporting system is preparing financial statements. Most organizations close the books to produce financial statements both monthly and annually. A closing journal entry zeroes out all revenue and expense accounts in the adjusted trail balance and transfers the net income to retained earnings. In 2010, the SEC reaffirmed its commitment to decide in 2011 whether it will require American companies to switch from US based Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards (IFRS) as the basis for preparing financial statements. The XBRL file containing the tagged data that is delivered to users is called an instance document. The instance document contains facts about specific financial statement line items, including their values and contextual information. Each specific item in an XBRL document is called an element. An element’s specific value is displayed in an instance document between tags. An instance document is created by applying a taxonomy to set of data. A taxonomy is a set of files that defines the various elements and the relationships between them. One part of the taxonomy is called the schema, which is a file that contains the definitions of every element that could appear in an instance document. The following are some of the basic attributes used to define each element.
The taxonomy also includes a set of files called linkbases, which define the relationships among elements. Important linkbases include the following.
The final activity in the general ledger and reporting system is to produce various managerial reports, including budgets. ERP systems can produce a number of budgets to help managers plan and evaluate performance. An operating budget depicts planned revenues and expenditures for each organizational unit. A capital expenditure budget shows planned cash inflows and outflows for each capital project. Cash flow budgets compare estimated cash inflows from operations with planned expenditures and are used to determine borrowing needs. To properly evaluate performance, reports should be highlight the results that can be directly controlled by the person or unit being evaluated. Responsibility accounting does this by producing a set of correlated reports that break down the organization’s overall performance by the specific subunits which can most directly control those activities. A flexible budget, in which the budgeted amounts vary in relation to some measure of organizational activity, mitigates problems. Flexible budgeting would entail dividing the budget for each line item in the general superintendent’s department into its fixed and variable cost components. A balance scorecard is a report that provides a multidimensional perspective of organizational performance. A balanced scorecard contains measures reflecting four perspectives of the organization: financial, customer, internal operations, and innovation and learning. What are the four basic activities in the general ledger and reporting system?Cards In This Set. What is the basic activity performed in the general ledger and reporting system?The general ledger and reporting system plays a central role in a company's accounting information system. Its primary function is to collect and organize data from the following sources: Each of the accounting cycle subsystems provides information about regular transactions.
What activities are performed by general ledger?Performing Standard General Ledger Activities. Opening Periods. ... . Entering and Posting Journals. ... . Reversing Journals. ... . Approving Journals. ... . Document Numbers. ... . Entering Budgets. ... . Encumbrances and Budgetary Control. ... . Revaluation.. What are the four typical general ledger accounts that are impacted?The general ledger is a permanent summary of accounts that details all the financial information for your company in journals, including sales, cash receipts and cash disbursements. General ledgers contain four parts: the chart of accounts, financial transactions, account balances and accounting periods.
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