The General Ledger and Financial Reporting Cycle
Rujukan : Wilkinson Ch 11
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The objectives of the General Ledger and Financial reporting Cycle are to record all accounting transactions promptly and accurately, to post these transactions to the proper accounts, and to maintain an equality of debit and credit balances among the accounts.
There are manual and computerized of General ledger Systems. Computerized systems differ in their architectures, ranging from mainframe to client/server. As an alternative to traditional legacy systems, enterprise resource planning systems provide a better means of integrating a firm’s various applications.
The general ledger is supported by the general ledger and financial reporting cycle. It is the center of such transaction-oriented cycles as the revenue cycle, expenditure cycle, and resource management cycle.
Financial reports include financial statement and such managerial reports as budgetary control and responsibility reports. The data base includes files such as the general ledger master file, chart of accounts master file, general ledger history file, responsibility center master file, budget master file, financial reports master file, current journal master file, and journal voucher history file.
There also risk exposures pertaining to the General Ledger and Financial reporting Cycle, and it is needed a variety of general and application controls to offset them.
MANUAL TRANSACTION PROCESSING SYSTEMS
Transaction data flow into journals from source documents. Data from source documents involving high-volume transactions, such as sales and cash disbursements, may be entered into special journals; all other transactions are entered into the general journal. Columns in the journals are summed to generate batch totals. Data from the source document may also be posted to subsidiary ledgers. Total accumulated from the posting to subsidiary ledgers are posted to the general ledger, after being compared with the pre-computed batch totals. The financial statements are then manually prepared from the general ledger.
COMPUTERIZED TRANSACTION PROCESSING SYSTEMS
Each of computerized system architectures, however, differs in essentially the same ways from manual system architectures. Computerized system architectures also yield roughly the same benefits with respect to each of the transaction processing systems.
ENTERPRISE RESOURCE PLANNING SYSTEMS
The system consists of integrated applications for company’s various functions, including accounting, human resources, manufacturing, and logistics management. A major benefit is greater integration for improved information flow and better data quality.
WEB-BASED SYSTEMS
Firms use these web-based systems to facilitate a number of transaction processing activities. For example, a web-based accounting system can enable managers from anywhere in the world to obtain real-time financial reports and to directly access other financial data as needed.
THE CENTRAL ROLE OF THE GENERAL LEDGER AND FINANCIAL REPORTING CYCLE
Transactions from all cycles and systems are ultimately posted to the general ledger regardless of the extent to which the system is computerized. The general ledger provides the chart of accounts structure, which combines the financial and managerial sides of accounting. Furthermore, financial reporting includes the key financial statements, which present the current status and operating results of each organization.
Objectives of the general ledger system
A sound general ledger system has the following board objectives:
1. To record all accounting transactions promptly and accurately
2. To post these transactions to the proper accounts
3. To maintain an equality of debit and credit balances among the accounts
4. To accommodate needed adjusting journal entries
5. To generate reliable and timely financial reports pertaining to each accounting period
CHARTS OF ACCOUNTS
A chart of accounts is a coded listing of the accounts assets, equities, revenues, and expenses pertaining to a firm. In addition to the account code, each listing in a sound chart of accounts describes the contents of an account, including the specific transactions that affect its balance. The composition of the chart of accounts is determined mainly by the information needs of external and internal users. These needs are reflected through the financial statements and other financial reports that must be designed first.
Classification within the chart of accounts
A firm’s chart of accounts should provide sufficient classifications to allow analyses of transaction data as needed. A firm must also consider the information needs of external parties. fnally account classification should also reflect the activities and customs of the industries in which the firm reside.
Coding the chart of accounts
These identifying codes relate to the transactions processed by a firm as well as to such entities as customers and products. Both block codes and group codes are typically employed
Black account codes the coding system used to form the board framework within a chart of accounts. A block account code designates range of sequenced numbers representing significant account classifications. An advantage of block account codes is that new accounts or subdivisions of current accounts can be inserted.
Group account codes a group coding system can provide added meaning to individual account codes. Moreover, the meaning can be ordered hierarchically in a descending manner. General ledger account codes can be combined with other transaction.
DATA INPUT
These major types are subdivided as follows:
1. Routine external transactions, ex. Credit sale
2. Routine internal transactions, ex. The transfer of raw materials inventory to work-in-process inventory.
3. Nonroutine transactions, ex. The debit to fixed assets to reflect the exchange of a truck for capital stock
4. adjusting entries
5. Reversing entries
6. Closing entries
FORMS OF INPUT
Journal voucher is the primary source document to the general ledger system. This input form abstracts pertinent details to support postings to the general ledger. A single journal voucher generally concerns either:
1. A non-routine, adjusting, reversing, or correcting transaction, such as a transaction to amortize an annual portion of patent costs
2. A summarization of a bach of routine transactions
computer oriented inputs data can also be entered in computer based systems using the batch entry form and the online preformatted screen. The batch entry journal voucher replaces the special journal. In effect, it serves as a combined special journal and journal voucher. A preformatted data entry screen can be used in online computer systems to enter transaction data interactively.
DATA PROCESSING
Daily processing of transaction data
The individual routine transactions are captured on souce documents, which are then converted off-line and entered in batches by transaction type. These batch are processed to update the subsidiary ledger master files. As a part of this processing, the application programs perform edit checks to validate the data, summarize the transaction amount by type of transaction, and store the summary data onmagnetic disks. At the end of each day, the application programs post the summary accounts to the affected accounts in the general ledger.
End of period processing of adjusting journal entries
The standard adjusting journal entries, which are recurring and whose amounts have been predetermined by accountants, are stored in an online file on a continual basis. At the end of the period, a special computer program transfers them to the journal entry data file. Accountants enter the non-recurring adjusting journal entries at the end of period, using manually prepared journal coding forms.
INFORMATION OUTPUT
GENERAL LEDGER ANALYSES
Financial statements are the balance sheet, income statement, and statement of cash flows. These statements, which are based primarily on information in the general ledger, are provided to various stakeholders outside the firm, in addition to stockholder or other owners, they are made available to government agencies, creditors, prospective owners, and financial analysts.
Managerial reports data used to prepare financial statements are also used to generate managerial reports. However, these reports for managers tend to be uch more detailed and analytical than those for outside stakeholders. Account oriented analyses is analyses based on major but individual general ledger accounts often provide to managers. Responsibility oriented reports are needed to aid in evaluation performance.
DATA MANAGEMENT
file oriented approach under this approach, each application maintain its own set of files. The files are typically structured for specific needs a particular group of users. Data base approach this file contains the budgeted amounts of assets, liabilities, revenues, and expenses allocated to the various responsibility centers of the firm.
Chapter 11
The General Ledger and Financial Reporting Cycle
The main input to the general ledger and financial reporting cycle are the output of all the other cycles. General ledger is the linchpin that ties together all of the component transaction processing cycles and systems. The general ledger provides the chart of accounts structure, which combines the financial and managerial sides of accounting. The general ledger system performs data input, data processing, information output, data management, and control function. It receives routine recurring and nonrecurring transactions, non-routine transactions, adjusting entries, reversing entries, and closing entries. The entered data in journal entry form are then posted into general ledger to update the accounts during the accounting period. Financial reports include financial statements and such managerial report as budgetary control and responsibility reports.
General Ledger and Financial reporting Cycle are to record all accounting transactions promptly and accurately, to post these transactions to the proper accounts, and to maintain an equality of debit and credit balances among the accounts.
There are manual and computerized of General ledger Systems
A. MANUAL TRANSACTION PROCESSING SYSTEMS
Transaction data flow into journals from source documents. Data from source documents involving high-volume transactions, such as sales and cash disbursements, may be entered into special journals; all other transactions are entered into the general journal.
B.COMPUTERIZED TRANSACTION PROCESSING SYSTEMS
Computerized system architectures also yield roughly the same benefits with respect to each of the transaction processing systems.
A sound general ledger system has the following board objectives:
1. To record all accounting transactions promptly and accurately
2. To post these transactions to the proper accounts
3. To maintain an equality of debit and credit balances among the accounts
4. To accommodate needed adjusting journal entries
5. To generate reliable and timely financial reports pertaining to each accounting period
Charts of account
A chart of accounts is a coded listing of the accounts assets, equities, revenues, and expenses pertaining to a firm. In addition to the account code, each listing in a sound chart of accounts describes the contents of an account, including the specific transactions that affect its balance
Data Input
These major types are subdivided as follows:
1. Routine external transactions, ex. Credit sale
2. Routine internal transactions, ex. The transfer of raw materials inventory to work-in-process inventory.
3. Nonroutine transactions, ex. The debit to fixed assets to reflect the exchange of a truck for capital stock
4. adjusting entries
5. Reversing entries
6. Closing entries
DATA PROCESSING
1. Daily processing of transaction data
The individual routine transactions are captured on souce documents, which are then converted off-line and entered in batches by transaction type.
2. End of period processing of adjusting journal entries
The standard adjusting journal entries, which are recurring and whose amounts have been predetermined by accountants, are stored in an online file on a continual basis.
Information Output
General ledger analysis
Financial statements are the balance sheet, income statement, and statement of cash flows. These statements, which are based primarily on information in the general ledger, are provided to various stakeholders outside the firm, in addition to stockholder or other owners, they are made available to government agencies, creditors, prospective owners, and financial analysts.
Managerial reports data used to prepare financial statements are also used to generate managerial reports.
Data Management
file oriented approach under this approach, each application maintain its own set of files. The files are typically structured for specific needs a particular group of users.
THE GENERAL LEDGER AND FINANCIAL REPORTING CYCLE
A sound general ledger system has the following broad objectives:
1. To record all accounting transactions promptly and accurately.
2. To post these transactions to the proper accounts.
3. To maintain an equality of debit and credit balances among the accounts.
4. To accomodate needed adjusting journal entries.
5. To generate reliable and timely financial reports pertaining to each accounting period.
MANUAL TRANSACTION PROCESSING SYSTEMS
Transaction data flow into journals from source documents. Data from source documents involving high-volume transactions, such as sales and cash disbursements, may be entered into special journals; all other transactions are entered into the general journal. Columns in the journals are summed to generate batch totals. Data from the source document may also be posted to subsidiary ledgers. Total accumulated from the posting to subsidiary ledgers are posted to the general ledger, after being compared with the pre-computed batch totals. The financial statements are then manually prepared from the general ledger.
.
CHARTS OF ACCOUNTS
A chart of accounts is a coded listing of the accounts assets, equities, revenues, and expenses pertaining to a firm. In addition to the account code, each listing in a sound chart of accounts describes the contents of an account, including the specific transactions that affect its balance. The composition of the chart of accounts is determined mainly by the information needs of external and internal users. These needs are reflected through the financial statements and other financial reports that must be designed first.
CODING THE CHART OF ACCOUNTS
1. Black account codes the coding system used to form the board framework within a chart of accounts. A block account code designates range of sequenced numbers representing significant account classifications. An advantage of block account codes is that new accounts or subdivisions of current accounts can be inserted.
2. Group account codes a group coding system can provide added meaning to individual account codes. Moreover, the meaning can be ordered hierarchically in a descending manner. General ledger account codes can be combined with other transaction.
DATA INPUT
These major types are subdivided as follows:
1. Routine external transactions, for example credit sale.
2. Routine internal transactions, for example the transfer of raw materials inventory to work-in-process inventory.
3. Non-routine transactions, for example the debit to fixed assets to reflect the exchange of a truck for capital stock
4. adjusting entries
5. Reversing entries
6. Closing entries
FORMS OF INPUT
Journal voucher is the primary source document to the general ledger system. This input form abstracts pertinent details to support postings to the general ledger.
DATA PROCESSING
1. Daily processing of transaction data
2. End of period processing of adjusting journal entries
INFORMATION OUTPUT
1. General ledger analyses
Two analyses that are generated as control devices are the general journal listing and the general ledger change report.
2. Financial statement
The most important financial statements are the balance sheet, income statement, and statement of cash flows.
3. Managerial statement
Two catagories of managerial analyses and reports are those based on general ledger accounts and those focused on responsibility centers.
The internal controls include organizational segregation, adequate documentation, reconciliations involving general ledger account balance, prenumbered journal vouchers, access controls, programmed edit checks, and accounting oriented listings and change reports.