Human Resources Cycle

ACC 444 Enterprise Process Analysis

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General Ledger and Reporting System

Human Resources Cycle
ACC 444 Enterprise Process Analysis
General Ledger and Reporting
Copyright 2012 Pearson Education, Inc. publishing as
Prentice Hall
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GENERAL LEDGER AND REPORTING SYSTEM
The basic activities in the GLARS are:
Update the general ledger
Post adjusting entries
Prepare financial statements
Produce managerial reports
The first three represent the basic steps in the
accounting cycle
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GENERAL LEDGER AND REPORTING SYSTEM
The basic activities in the GLARS are:
Update the general ledger
Post adjusting entries
Prepare financial statements
Produce managerial reports
The first three represent the basic steps in the
accounting cycle.
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UPDATE THE GENERAL LEDGER
Updating the general ledger consists of posting journal entries
from two sources:
Summary journal entries of routine transactions from the
accounting subsystems
Individual journal entries for non-routine transactions from the
treasurer. Examples:
a) Issuances of or payment of debt and the associated
interest.
b) Issuances of or repurchases of company stock and paying
dividends on that stock.
Journal entries are often documented on a form called a journal
voucher.
After updating the general ledger (GL), journal entries are stored
in a journal voucher file.

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GENERAL LEDGER AND REPORTING SYSTEM
The basic activities in the GLARS are:
Update the general ledger
Post adjusting entries
Prepare financial statements
Produce managerial reports
The first three represent the basic steps in the
accounting cycle
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POST ADJUSTING ENTRIES
Adjusting entries originate in the controllers office at
the end of each accounting period (month, quarter,
year, etc.) and after the initial trial balance has been
prepared.
There are five types of adjusting entries:
Accruals:
a) An accrual involves an event that has occurred for which
the related cash flow has not yet taken place.
Accrued revenueThe company has delivered a
product or service to a customer but has not yet
been paid.
Accrued expenseThe company has used up a
good or service but not yet paid for it.

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POST ADJUSTING ENTRIES
There are five types of adjusting entries:
Accruals
Deferrals
A deferral involves a situation where the cash flow takes place
before the related revenue is earned or the expense is incurred.
Deferred revenueThe company received payment for a product
or service that was not yet been completely delivered to the
customer (aka, unearned revenue).
Deferred expenseThe company paid for a good or service
which they had not yet completely used up (aka, prepaid
expense).
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POST ADJUSTING ENTRIES
There are five types of adjusting entries:
Accruals
Deferrals
Estimates
Estimates are used to recognize expenses that
cannot be directly attributed to a related revenue
and must be allocated in a more subjective or
systematic manner.
Examples:
Depreciation expense
Bad debt expense.
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POST ADJUSTING ENTRIES
There are five types of adjusting entries:
Accruals
Deferrals
Estimates
Re-evaluations
Re-evaluations result from:
Reconciling actual and recorded values of assets
a) EXAMPLE: Making a lower-of-cost-or-market adjustment
to inventory
b) Recording an asset impairment
Recording changes in accounting principles.
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POST ADJUSTING ENTRIES
There are five types of adjusting entries:
Accruals
Deferrals
Estimates
Re-evaluations
Error corrections
Error corrections involve correction of errors previously made in the general
ledger.
Once adjusting entries have been recorded, an adjusted trial
balance is prepared from the new balances in the general ledger.

The adjusted trial balance serves as the input for the next step
preparation of the financial statements.


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GENERAL LEDGER AND REPORTING SYSTEM
The basic activities in the GLARS are:
Update the general ledger
Post adjusting entries
Prepare financial statements
Produce managerial reports
The first three represent the basic steps in the
accounting cycle
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PREPARE FINANCIAL STATEMENTS
Activities in the preparation of financial statements are
as follows:
Prepare an income statement
The Income Statement is prepared using the
balances in the revenue, expense, gain, and loss
accounts listed on the adjusted trial balance.
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PREPARE FINANCIAL STATEMENTS
Activities in the preparation of financial statements are
as follows:
Prepare an income statement
Prepare closing entries
After preparation of the income statement, the revenue, expense, gain,
and loss accounts are closed.
Their balances are transferred to retained earnings, so that this account
will have the correct ending balance.
If a separate account is kept for dividends, that account is also closed to
retained earnings.
Most companies perform monthly and annual closes.
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PREPARE FINANCIAL STATEMENTS
Activities in the preparation of financial statements are
as follows:
Prepare an income statement
Prepare closing entries
Prepare a statement of stockholders equity
Reconciles the changes in the stockholders equity accounts (paid-in
capital and retained earnings) for the year.
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PREPARE FINANCIAL STATEMENTS
Activities in the preparation of financial statements are
as follows:
Prepare an income statement
Prepare closing entries
Prepare a statement of stockholders equity
Prepare a balance sheet
Presents the balances in the
permanent accounts:
Assets
Liabilities
Owners Equity
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PREPARE FINANCIAL STATEMENTS
Activities in the preparation of financial statements are
as follows:
Prepare an income statement
Prepare closing entries
Prepare a statement of stockholders equity
Prepare a balance sheet
Prepare a statement of cash flows
Presents changes in cash for the
period categorized by:
Operating activities
Investing activities
Financing activities
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GENERAL LEDGER AND REPORTING SYSTEM
The basic activities in the GLARS are:
Update the general ledger
Post adjusting entries
Prepare financial statements
Produce managerial reports
The first three represent the basic steps in the
accounting cycle
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PRODUCE MANAGERIAL REPORTS
The final step is preparation of reports for internal purposes, such
as budgets for planning and evaluating performance:
a) Operating budget
b) Capital expenditure budget
c) Cash flow budget
Budgets and performance reports should be developed on the
basis of responsibility accounting, i.e., reporting results on the
basis of the manager responsible:
Breaks down financial results by subunit.
Shows actual costs and variances for current month and year-
to-date for items the subunit controls.

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PREPARE MANAGERIAL REPORTS
Contents of the budgetary performance reports should
be tailored to the nature of the unit being evaluated.
- Cost centers
- Revenue centers
- Profit centers
- Investment centers
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CONTROL: OBJECTIVES, THREATS,
AND PROCEDURES
In the general ledger and reporting system (or any cycle), a well-
designed AIS should provide adequate controls to ensure that the
following objectives are met:
All transactions are properly authorized.
All recorded transactions are valid.
All valid and authorized transactions are recorded.
All transactions are recorded accurately.
Assets are safeguarded from loss or theft.
Business activities are performed efficiently and effectively.
The company is in compliance with all applicable laws and
regulations.
All disclosures are full and fair.
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CONTROL: OBJECTIVES, THREATS,
AND PROCEDURES
There are several actions a company can take with respect to any
cycle to reduce threats of errors or irregularities. These include:
Using simple, easy-to-complete documents with clear
instructions (enhances accuracy and reliability).
Using appropriate application controls, such as validity
checks and field checks (enhances accuracy and reliability).
Providing space on forms to record who completed and
who reviewed the form (encourages proper authorizations
and accountability).
Pre-numbering documents (encourages recording of valid
and only valid transactions).
Restricting access to blank documents (reduces risk of
unauthorized transaction).

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THREATS IN THE GENERAL LEDGER
AND REPORTING SYSTEM
The primary threats in the general ledger and reporting
system are:
THREAT 1: Errors in updating the general ledger
and generating reports
THREAT 2: Financial statement fraud
THREAT 3: Loss, alteration, or unauthorized
disclosure of financial data
THREAT 4: Poor performance
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CHAPTER 14
General Ledger and Reporting System

To be continued

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Transaction
data
Multiple departmental
Excel spreadsheets
Senior
Management
Consolidated
spreadsheets for
management
2000 elements = 6500 spreadsheets (this is not a typo)
SQL
SQL
Current Management Reporting
XBRL GL
XBRL GL
XBRL GL
Recent studies show that 88% of spreadsheets contain errors
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Issues with Todays
Information Model
Information goes in one direction
Information has no shared context
Analysis of the information is conducted via macros that are embedded
within the applications and are not reusable by others .
Information labels are inconsistent from one application to another
Information is not independently validated
Information is not connected to other related resources across applications
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XBRL: REVOLUTIONIZING THE REPORTING
PROCESS
Although financial statements appear electronically in a variety of
formats, until recently disseminating this information was
cumbersome and inefficient.
Recipients (SEC, IRS, etc.) required the information in a
variety of formats which was time-consuming.
Also conducive to errors, because re-entry of the information
was often necessary.
Underlying problem: Lack of standards for identifying the content
of data.
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XBRL: REVOLUTIONIZING THE REPORTING
PROCESS
Solution: Extensible Business Reporting Language (XBRL)
A variant of XML designed specifically to communicate the
contents of financial data.
Creates tags for each data item much like HTML tags.
a) Tag names specify line items in financial statements.
b) Other fields in the tag provide information such as the
year, units of measure, etc.
Major software vendors are developing tools to automatically
generate XBRL codes so accountants wont need to write code.
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But XBRL Isnt Just About SEC Filing or Technology
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An XBRL Goal
A piece of business information, once entered into any
system, anywhere, never has to get retyped as it flows along
the information supply chain.
Managers vision: drill down from end reporting to underlying
detail
Auditors vision: easy access to the original source document,
tracking full authorization of entries (accountability)
XBRL US is responsible for maintaining the US GAAP
Taxonomies under contract with the SEC. The taxonomies can
be viewed and downloaded at http://xbrl.us/Pages/US-
GAAP.aspx
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US GAAP Taxonomy (03-31-2008)
Each XBRL
element contains
one or more
human readable
labels
Each XBRL
element contains
a unique XML
name
Structured the
way accountants
think of reporting
facts
The labels for
each XBRL
element can be
established in one
or more
languages
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An Internet-Based Electronic Standard
Format for Bridging the Globe
MANDATES
Include:
a) China, Israel, Japan, Korea, Singapore, United Kingdom,
United States
VOLUNTARY
Include:
a) Australia, Netherlands, New Zealand
Erasing lines between
a) Types of reporting
b) Geographic and political borders
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SEC Rule to Mandate XBRL Submission
Format
Interactive data would be required with a company's
annual and quarterly reports, transition reports, and
Securities Act registration statements
Interactive data would also be required to be posted on the
companys corporate web site, if it maintains one
What the SEC is doing
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PRINCIPLES OF GRAPH DESIGN
Accountants and IS professionals can help
management deal with information overload by
preparing graphs that highlight and summarize
important facts.
Well-designed graphs make it easy to identify and
understand trends and relationships.
Poorly-designed graphs can impair decision making.
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Insurance Type as % of Total
Business
Life, 62%
Health, 22%
Auto, 16%
Life
Health
Auto
Pie charts show the relative size of sub-components.
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Bar charts are the most common type and are used to display
trends.
601
603
610
605
612
540
553
566
589
519
460
480
500
520
540
560
580
600
620
2000 2001 2002 2003 2004
Oklahoma
Texas
Auto Insurance Sales (In Thousands) By State
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PRINCIPLES OF GRAPH DESIGN
Principles that make bar charts easy to read:
Use titles that summarize the basic message.
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Millions of Dollars of Sales by Line of Insurance
Business
681
520
418
0
100
200
300
400
500
600
700
800
Life Health Auto
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PRINCIPLES OF GRAPH DESIGN
Principles that make bar charts easy to read:
Use titles that summarize the basic message.
Include data values with each element
instead of labeling the vertical axis. This
practice facilitates mental calculations and
analyses.
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Millions of Dollars of Sales by Line of Insurance
Business
681
520
418
0
100
200
300
400
500
600
700
800
Life Health Auto
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PRINCIPLES OF GRAPH DESIGN
Principles that make bar charts easy to read:
Use titles that summarize the basic message.
Include data values with each element instead of
labeling the vertical axisfacilitates mental
calculations and analyses.
Use two-dimensional, instead of three-
dimensional, bars. This practice makes it
easier to accurately assess magnitude of
changes and trends.
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Life
Health
Auto
681
520
418
0
100
200
300
400
500
600
700
Millions of Dollars of Sales by Line of Insurance
Business
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PRINCIPLES OF GRAPH DESIGN
Principles that make bar charts easy to read:
Use titles that summarize the basic message.
Include data values with each element instead of labeling
the vertical axisfacilitates mental calculations and
analyses
Use two-dimensional, instead of three-dimensional, bars
makes it easier to accurately assess magnitude of changes
and trends.
Use different shades of gray or colors instead of
patterns, dots, or stripes. They are easier to
distinguish
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Millions of Dollars of Sales by Line of Insurance
Business
681
520
418
0
100
200
300
400
500
600
700
800
Life Health Auto
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PRINCIPLES OF GRAPH DESIGN
Although readability is important, the ultimate value of
graphs is to support decision making. Two principles
are essential to accurate interpretation:
Begin vertical axis at zero; exception: when
there is a need to monitor minor fluctuations
in data
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Millions of Dollars of Sales by Line of Insurance
Business
681
520
418
0
100
200
300
400
500
600
700
800
Life Health Auto
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PRINCIPLES OF GRAPH DESIGN
Although readability is important, the ultimate value of
graphs is to support decision making. Two principles
are essential to accurate interpretation:
Begin vertical axis at zero; exception: when there is
a need to monitor minor fluctuations in data
For graphs that depict time-series data, order
the x-axis chronologically from left to right.
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Life Insurance Sales By Year (In Millions of $)
320
345
406
385
410
0
100
200
300
400
500
1985 1986 1987 1988 1989
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PRINCIPLES OF GRAPH DESIGN
Many annual reports contain graphs that violate these
principles:
Some done automatically by software.
Some done intentionally.
There are no authoritative guidelines in GAAP or
auditing standards that prohibit these behaviors, even
though the results can be deceptive.