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.
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart
15-3
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.
©2003 Prentice Hall Business Publishing,
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15-4
Introduction


Linda Spurgeon, AOE’s president & CEO,
is not satisfied with the financial reporting
capabilities of AOE’s 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
company’s financial performance.
To lower costs associated with providing
financial information to interested external
parties on a timely basis.
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart
15-5
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.
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart
15-6
Learning Objective 1
Describe the information
processing operations
required to update the
general ledger and to
produce other reports for
internal and external users.
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart
15-7
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
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart
15-8
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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15-9
Update The General Ledger
(Activity 1)
Accounting
subsystems
Journal entry
Update the
general ledger
Journal
entry
Treasurer
Journal
voucher
©2003 Prentice Hall Business Publishing,
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General
ledger
15-10
Post Adjusting Entries
(Activity 2)
The second activity in the general
ledger system involves posting
various adjusting entries.
 Adjusting entries originate from the
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.
2.
3.
4.
5.
Accruals (wages payable)
Deferrals (rent, interest, insurance)
Estimates (depreciation)
Revaluation (change in inventory
method)
Corrections
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart
15-12
Post Adjusting Entries
(Activity 2)
Post adjusting
entries
Journal
voucher
Adjusting
entries
Financial
statements
Controller
Adjusted trial
balance
Prepare
financial
statements
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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15-16
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.
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart
15-17
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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15-18
Control Objectives,
Threats, and Procedures

What are the control objectives in the
general ledger and reporting system?
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
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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15-20
Control Objectives,
Threats, and Procedures

What are some threats?
– errors in updating the general ledger
– inaccurate/incomplete journal entries
– inaccurate/incomplete posting of journal
entries
– unauthorized access to the general
ledger
– loss or destruction of general ledger
data
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Control Objectives,
Threats, and Procedures

What are some exposures?
–
–
–
–
–
–
inaccurate records and reports,
resulting in bad decisions based on
erroneous information
leak of confidential data
corruption of general ledger
cover-up of theft
loss of data
loss of assets
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Control Objectives,
Threats, and Procedures

What are some control procedures?
–
–
–
–
–
–
input, edit, and processing controls
reconciliations and control reports
access controls
adequate audit trail
proper backup procedures
disaster recovery plan
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Accounting Information Systems, 9/e, Romney/Steinbart
15-23
Learning Objective 3
Read and explain an integrated
enterprise-wide REA data
model.
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart
15-24
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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15-25
Integrated Data Model
Cash
receipts
Cash
disbursements
(1, 1)
(1, 1)
(1, N)
Cash
(1, N)
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15-26
Integrated Data Model
(0, N)
Cash
(1, 1)
(1, N)
(0, N)
(0, N)
(0, N)
Issue
debt
(0, N)
(1, 1)
Pay
employees
(1, 1)
(1, 1)
Issue
stock
(1, 1)
Dividend
payment
(1, N)
Debt
payment
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
enables exploitation of the virtual
value chain
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart
15-28
Benefits of an
Integrated Data Model

What are the three basic activities of
the virtual value chain?
1.
2.
3.
Gathering information
Synthesizing, organizing
Distributing the information to
customers
©2003 Prentice Hall Business Publishing,
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15-29
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
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart
15-30
Learning Objective 4
Discuss and design a
Balanced Scorecard for
an organization.
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart
15-31
Balanced Scorecard

What is a balanced scorecard?
–

a report that measures four dimensions of
performance
What are those measures?
–
–
–
–
financial
internal operations
innovation and learning
customer perspectives of the organization
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart
15-32
Learning Objective 5
Explain the relationship
between online transaction
processing systems and data
warehouses used to support
business intelligence.
©2003 Prentice Hall Business Publishing,
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15-33
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.
©2003 Prentice Hall Business Publishing,
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15-34
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

©2003 Prentice Hall Business Publishing,
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15-35
Learning Objective 6
Understand the implications of
new IT developments, such as
XBRL, for internal and external
reporting.
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart
15-36
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.

©2003 Prentice Hall Business Publishing,
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15-37
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.

©2003 Prentice Hall Business Publishing,
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15-38
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.

©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart
15-39
End of Chapter 15
©2003 Prentice Hall Business Publishing,
Accounting Information Systems, 9/e, Romney/Steinbart
15-40