Financial Reporting and Management Reporting Systems:The General Ledger System

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The General Ledger System

Figure 8-1 characterizes the general ledger system (GLS) as a hub connected to the other systems of the firm through spokes of information flows. Transaction cycles process individual events that are recorded in special journals and subsidiary accounts. Summaries of these transactions flow into the GLS and become sources of input for the management reporting system (MRS) and financial reporting system (FRS). The bulk of the flows into the GLS comes from the transaction processing subsystems. Note, how- ever, that information also flows from the FRS as feedback into the GLS. We shall explore this point more thoroughly later. In this section we review key elements of the GLS.

THE JOURNAL VOUCHER

The source of input to the general ledger is the journal voucher, which is illustrated in Figure 8-2. A journal voucher, which can be used to represent summaries of similar transactions or a single unique transaction, identifies the financial amounts and affected general ledger (GL) accounts. Routine transactions, adjusting entries, and closing entries are all entered into the GL via journal vouchers. Because a responsible manager must approve journal vouchers, they offer a degree of control against unauthorized GL entries.

THE GLS DATABASE

The GLS database includes a variety of files. Whereas these will vary from firm to firm, the following examples are representative.

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The general ledger master file is the principal file in the GLS database. This file is based on the organization’s published chart of accounts. Each record in the GL master is either a separate GL account (for example, sales) or the control account (such as AR—control) for a corresponding subsidiary ledger in the transaction processing system. Figure 8-3 illustrates the structure of a typical GL master file. The FRS draws upon the GL master to produce the firm’s financial statements. The MRS also uses this file to support internal information reporting.

The general ledger history file has the same format as the GL master. Its primary purpose is to pro- vide historical financial data for comparative financial reports.

The journal voucher file is the total collection of the journal vouchers processed in the current period. This file provides a record of all general ledger transactions and replaces the traditional general journal.

The journal voucher history file contains journal vouchers for past periods. This historical information supports management’s stewardship responsibility to account for resource utilization. Both the cur- rent and historical journal voucher files are important links in the firm’s audit trail.

The responsibility center file contains the revenues, expenditures, and other resource utilization data for each responsibility center in the organization. The MRS draws upon these data for input in the preparation of responsibility reports for management.

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Finally, the budget master file contains budgeted amounts for revenues, expenditures, and other resources for responsibility centers. These data, in conjunction with the responsibility center file, are the basis for responsibility accounting, which is discussed later in the chapter.

GLS PROCEDURES

As we have seen in previous chapters, certain aspects of GLS update procedures are performed as either a separate operation or integrated within transaction processing systems. Our focus in the next section is on the interrelationship between the GLS and financial reporting. This involves additional updates in the form of reversing, adjusting, and closing entries. Let’s now turn our attention to the financial reporting system.

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