THE GENERAL LEDGER, FINANCIAL REPORTING,
AND MANAGEMENT REPORTING SYSTEMS
This chapter is concerned with the part of the AIS that ties all of the transaction processing systems
together and handles financial reporting–the general ledger.
The first topic discussed is the role of
coding schemes
. This is probably new to you. Then the
general ledger system
is presented, followed by the
financial reporting system
.
Historically, the accounting system was the first, and for a very long time the only, information
system in most organizations. The last part of this chapter discusses a much broader information
system–the
management reporting system
(MRS) which provides both financial and non-financial
information to aid managers to plan and control business activity. Of particular note is the fact that
an MRS is discretionary–at least in the sense of not being mandated by any authoritative body. It
would be hard to argue, however, that an organization is free to choose not to collect and report
information that helps the organization meet its goals and objectives.
The objectives of this chapter are:
!
to understand the purpose of data coding and to be able to identify the respective features,
advantages, and disadvantages of the various numeric and alphabetic coding schemes;
!
to understand the operational features of the general ledger system, the financial reporting
system, and the management reporting system;
!
to be able to identify the principal operational controls governing the general ledger,
financial reporting, and management reporting systems;
!
to understand the management decision-making process;
!
to recognize the role of management principles in the design of information systems;
!
to understand the effect of decision type and management level on information needs;
!
to know the difference between structures and unstructured decisions;
!
to know the different report types and the attributes common to all reports;
!
to understand the elements of a responsibility accounting system; and
!
to be aware of the behavioral issues in management reporting.
I.
Data Coding Schemes
The first part of the chapter discusses a topic which has relevance for all of the transaction cycles but has been delayed until now so as not to distract attention from the objectives of the other cycles. In presenting the general ledger system as the hub of the overall information system, the role of coding schem es is easie r to present. Fig. 8-1, on page 409, illustrates the relationship of the G LS to the othe r elem ents of the over all information system.
A. A System without Codes
This section is designed to highlight the extra reco rdke eping requ ired a nd the pote ntial for er rors in a system without cod es.
B. A System with Codes
Th e sam e system , with a simp le cod ing sche me in place, is illustrated. Note the discussion of the benefits of coding.
C. Numeric and Alphabetic Coding Schemes
Various types of codes exist. Many of them are familiar to you. None is perfect. What is chosen for a given system m ust wor k in its enviro nme nt. Th is includes compatibility with procedures and as much inform ation c onten t in the co ding sc hem e as is prac tical.
Th ere ar e seve ral differe nt types o f cod es disc ussed . Be sure that you understand the advantages and disad vantag es of:
! seque ntial code s,
! block co des,
! grou p cod es,
! alpha betic cod es, and
! mn emo nic cod es.
II.
The General Ledger System
As you study this material on the general ledger, keep in mind what you know already about a manual GL system.
A. The Journal Voucher
A journal voucher system has replaced the general journal in ma ny organizations. Fig. 8-3, on page 415, show s a sam ple vo uche r. No te the info rmatio n it contains. There is more control over a JV system than a tra ditiona l gener al journal.
B. The GLS Datab ase
When you consider the information that must be collected in a general ledger system, you should not be surprised by the number of files that make up the database:
! the general ledger master file,
! the general ledger history file,
! the journal voucher file,
! the journal voucher history file,
! the res pon sibility cen ter file, and
! the b udg et ma ster file.
Each of these is well described in the text. Be sure you are clear on the distinction between master and history files.
C. GLS Procedures
Fig. 8-5, on page 417, is a flowchart of the GLS upd ate pr oce ss. It is very simp le and should conta in no surprises.
III.
The Financial Reporting System
You are well aware that GAAP [generally accepted accounting principles] and legal requirements are the driving force behind our financial reporting system. This is the focus of the current chapter–the mandated financial reporting.
A. The Financial Acc ounting Pro cess
This section discusses the accounting process in terms of eleven steps. This should confirm what you already know about the accounting process. The text also discusses three phases to describe the frequency at which different events occur. See Fig. 8-6 on page 419.
IV.
Controlling the GL/FRS
Although the control concerns in the general ledger/financial reporting system are more limited because they involve only the acc ounting reco rds, the poss ible prob lems are very seriou s. If errors are permitted in the account balances, thereby leading to inco rrect financial state men ts, great risks exist.
A. GL/FRS Control Issues
The discussion of control techniques again follows the approach of SAS 7 8. Although there is no summary table, you should be able to construct your own.
V.
Computer-Based GL/FRS
Two approaches to automating the GL/FRS are presented: batch processing with sequential files and batch with direct acce ss files. Finan cial rep orts are norm ally perio dic; therefore, there is little need for real-time systems.
A. Legacy GL/FRS Using Batch Processing and Flat Files
Fig. 8-9, on page 424, shows a batch GL/GLS system that uses sequential files. P ay par ticular atte ntion to the strengths and weaknesses, this can help when you need to contribute to the design of a new system for yourse lf or a clien t.
B. Reengineered GL /FRS Using Database T echnology
Fig. 8-10, on page 426, shows a batch GL/GLS system that uses databases. Again, pay particular attention to the strengths and we aknesses.
VI.
Factors That Influence the MRS
One of the greatest benefits of information technology has bee n the au toma ting of the routine boo kkee ping tasks that in the past overwhelmed accountants and their staff. Now, as inform ation p rofessio nals, they have the time an d reso urces to play a much greater role in helping management make good business decisions. This section presents the management reporting system as the significant supp ort system that it is.
this mate rial for gra nted. R ead carefu lly all that is involved in eac h of the four steps:
1. identification of the problem–this is often more difficult than expected;
2. evaluation of the alternative so lutions; 3. implementation of the best solution; and 4. a post-implementation review.
The example developed in the text is very good. Follow the reasoning. Of particular value in future chap ters will be an und erstand ing of a p ost-implementation review.
B. Management Principles
Depend ing on your experience with management courses, this section may be a review or it may be eye-opening. Of particular value are the little sections “implic ations fo r the M RS.”
! The impo rtance of the formalization of tasks cannot be ignored. Control and evaluation are d ifficult if tasks have not be en we ll defined.
! The link between responsibility and autho rity should be cle ar, but is not alwa ys so.
! Span of control has a great deal of affect on a manager’s need for information and the types of information that the m anager nee ds. Be aware of the factors involved. See Fig. 8-12, on page 433.
! M anagem ent by excep tion focuses a managers attention on areas requiring attention.
C. Management Function, Level, and Decision Type
Chapter 1 introduced the idea that a manager’s need for information–quantity, frequency, level of aggre gation –is affec ted b y the ma nage r’s pos ition in the organization and the type of decisions he or she makes. This part of the chapter discusses four categories o f planning and c ontrol dec isions:
! tactical p lanning decisio ns ma de b y midd le manage rs to impleme nt strategic plans;
! manage ment con trol decisions that raise some concerns about distinguishing between the manage r and the unit he or she manage s; and
! ope rationa l contro l decisio ns which aim to assure that the o rganiz ation o pera tes in acco rd with p reestab lished c riteria. Table 8-2, on page 436, contrasts decision
characteristics and d ecision types.
D. Problem Structure
It should not be surprising that there are different types o f prob lems. T he text d iscusses three elements or aspects of problems that determine whether a problem can be regarded as structured or unstructured. These elements are:
! the data related to the situation;
! the pro ced ures o r dec ision rule s used in solving the problem; and
! the objectives that the decision maker has for solving the problem.
i. W hen all e lements are k now n with ce rtainty, the prob lem is structured. The exa mple is quite clear. W hen all elements are known, the solution to the problem is clear and can be “p rogra mmed” within trad itional d ata proce ssing systems.
ii. Unstructured problem s involv e unce rtainty on o ne or mor e of tho se elem ents. W hen this is the case, the solution is not obvio us. Jud gem ent is imp ortan t.
E. Typ es of M anag eme nt Rep orts
This section discusses the characteristics of man agem ent rep orts– inform ation c omm unicate d to managers regardless of the form it takes. The obj ectives of rep orts are discussed first followed by a description of programmed (scheduled and
on-assistanc e of an inform ation p rofessio nal–th e ability to get the information now.
The discussion of report attributes expands on ideas introd uced in chap ter 1. R ecall the referen ce to
State m ent o f Fin anc ial Ac cou nting Co nce pts Num ber 2.
F. Responsibility Accounting
Responsibility accounting is based on the concept that managers are accountable only for items that they can control. This section may revisit material from your cost accounting or managerial accounting course. It emphasizes the importance of setting financial goals (that nasty word budget, again) and measuring and reporting performance.
Part of the responsibility question leads to the identification of three types of respo nsibility centers:
cost center, pro fit centers, and investme nt centers. Even if you have met these concepts before, be sure you understand them. They have definite implications for information systems.
G. Behavioral Considerations
This chapter has discussed the management reporting system and how it can help managers and
organizations make better decisions. But, decisions are made by people and people are not as rational as programmed information systems. This last section raises se veral q uestion s of a behav ioral na ture.
Goal congruence refers to the nee d to m atch the goals of individuals (and the related measures of
perform ance) to o verall organizationa l goals.
As information systems have become more complex and soph isticated , the po ssibility arises that too much
information is generated and provided to decision makers–a situation called information overload. [Th is may occur in some of your accounting courses!!!] In add ition, if inappropriate performance measures are selecte d, inap pro priate decisio ns are m ade . Rea d all of this ma terial car efully.
