ACS 2916 Business Application Systems
LECTURE OUTLINE 9
prepared by E. Kaluzniacky
THE GENERAL LEDGER SYSTEM Chapter 16
Firstly, understand the basics of double –entry bookkeeping and the Manual General Ledger
For those who need a review of a manual general ledger,please view the instructor’s recorded lecture on a Manual General Ledger for ACS 1803.
This system is considered the centre of an organization’s AIS. “GL is the repository where it all comes together”. GL is connected to Business Reporting.
It has fewer operational functions and more focus on information functions [processing and communicating of information].
Data is classified by GL accounts. Think of a tray of cards in the old, traditional GLs. Balance sheet accounts and Income Statement accounts. GL subsystem accumulates. Classifies, records and provides data. Business Reporting subsystem prepares the statements (Balance Sheet, Income Statement, Statement of Changes in Owner equity, Cash Flow Statement), generates Web-based financial reports, allows for many ad hoc reports to be defined.
Feeder system – any system that accumulates business event data that is then communicated to and processed within the GL
Which of the previous systems that we studied update the GL? How?
Note Table 16.1 p. 622:
In an integrated ERP system the GL data is embedded in the overall database.
Note there are operating activities, investing activities [depositing money], and financing activities [acquiring money].
Treasurer updates GL with investing and financing entries. Controller updates GL with adjusting entries (e.g., month-end accruals)
THE PROCESSES
Look at the context diagram on p. 626. Look at the arrows coming in vs those going out. Review, by filling-in 1 to 6 below, the nature of the updates to the General Ledger from the feeder systems.
List below all updates that come to the General Ledger from the system we studied :
What goes to the GL from:
- Order Entry:
- Accounts Receivable (B/AR/CR):
- Purchasing and Receiving:
- Accounts Payable (AP/CD):
- Payroll:
- Manufacturing (IPP):
Now, note here the flows from the Treasurer and Controller, as on the context diagram. Why are they necessary?
Finally, how are Budgeted Figures involved in the General Ledger.
Where do the main outputs from the GL go?
AT THIS POINT, RECALL THE CONCEPT OF AN INTEGRATED “Accounting Information System (AIS)” from ACS 1803 and note the title of our textbook
Next, read about updating the GL database in an enterprise system on. p. 625. Note that an enterprise system has one large database. THIS SECTION TALKS ABOUT SYSTEMS WE STUDIED EARLIER GETTING INFORMATION TO THE GEBERAL LEDGER in an ERP environment. Note “physical implementations will vary”
Look now at Diagram 0 on p. 628. The iscussion is on p. 627..
1.0 validate business event [transaction] updates
- do updates come from correct feeder systems and are they the correct versions of updates (e.g., correct month)?
- Ensure no transaction updates have been overlooked
- Balance of debits and credits
- [input validity, completeness, and accuracy]
2.0 Post event data [transactions]
- each part of the incoming entry is posted to the proper account
3.0 Record adjustments
- adjusting entry vouchers come from the Controller, to comply with accrual accounting, as mandated by GAAP
4.0 Prepare business reports [incl. financial statements]
-the input to this process is the adjusted trial balance
- recall that footnotes to financial statements must be prepared
- reports may be posted to the organization’s web site
5.0 Record Budget
- the budget figures, corresponding to the lines in the actual financial statements, are input here so they can be output later to compare actual with budget
6.0 Close Accounts
- this process is started at a particular point in time (e.g., end of year); there are no flows going into it except those from the main data store
- this involves zeroing-out the Income Statement Accounts (closing to Retained Earnings) in preparation for the new fiscal year.
THE DATA
The main and only data store is the GL master data file (conceptual) – this relates to the “tray of accounts” in a manual GL system These accounts are listed in the Chart of Accounts. This master file contains summarized information of all company transactions
Input sources are totals from files of the feeder systems and adjusting entries
How many accounts should we have in the GL? P. [600] {584} $609$
The more sophisticated the data classification and coding scheme used for the chart of accounts, the broader the range of financial reports that can be produced
e.g., 1XXX ASSETS
X1XX CURRENT ASSETS
XX1X CASH ACCOUNTS
XXX3 CASH IN BANK 3
Accounts may be aggregated for presentation. But the more disaggregated the stored data is, the more detailed and various reports will be made possible. This is why the GL system is called the GL and BUSINESS REPORTING system.
**Limitations of the General Ledger Approach
Cannot disaggregate as you go along, if a manager decides data have to be disaggregated in more detail to be useful for him / her.
Note: Be able to explain clearly, for the exam, the following issue:
Thus, traditional accounting software is dying out in favour of the ERP systems such as SAP (p. 631 mid)
If it exists at all the chart of accounts will use a combination of several individual fields in a database. Thus, information combined into a specific “account number” can be changed by adding fields to the database. Bot. p. 631
Then, reporting is based in selecting COMBINATIONS OF THE INDIVIDUAL FIELDS for various reports
Technology initiatives in business reporting
ERP Financial Module capability p. 632
See Figure 16.6
Make brief notes:
Note: FRx is a report writer to design new reports when standard reports will not fit your needs
Note ERP security needs and different privilege levels p. 633
XBRL – read for your own interest esp. p. 635 top
Sarbanes- Oxley Act (U.S. – 2002):
- re: disclosure obligations of publicly traded companies on U.S. markets
the CEO and CFO must certify that financial statements neither contain untrue facts not omit material facts.
They must also certify that they have established and evaluated internal controls for the accounting system that produced the reports. SOX makes top management responsible (with penalties of up to 20 years in prison)
- how does it affect financial reporting? SOX states that companies shall disclose to the public on a rapid and current basis additional information concerning material changes.
-
This takes a step towards continuous or real-time reporting.
The Canadian Bill 198 also known as C-SOX is quite equivalent to SOX. So, a company that is publically traded in Canada has to ensure compliance with Bill 198 requirements.
Now look at the Supplementary Handout on Accounting Systems (below)
ACCOUNTING SOFTWARE - ACS 2916
Using accounting software saves hours of time compared to handling the books manually and is usually more efficient than using spreadsheet. This is because accounting software reduces or eliminates redundant data entry, like entering the customer's address on the quote, then the work order, and then the invoice.
If you are a sole proprietor with no employees, low or no inventory and a handful of customers, you may not even need accounting software or there are free or low priced accounting software options available. Small business owners who carry inventory, have more customers or employees will save time and have more accurate records if accounting software is used.
Most accounting software is much easier to use than it once was, and some small business accounting software was designed for ease of use by a person with no accounting background at all.
Narrow down accounting software choices by making a list of small business accounting features you need to run your business. Most of small business accounting features include:
- Inventory management
- Sales tracking
- Manage customer contacts or work with your current contact management software
- Merchant account support to accept credit card payments
- Budgeting
- Payroll
- Business tax reporting
Industry-specific Accounting Software
Some accounting software is designed specifically for industries such as construction, manufacturing and wholesale distributors. If your small business is in an industry with specific accounting requirements, there may be accounting software with features to meet those requirements.
Talk to Others About Accounting Software
Before you buy accounting software, talk to at least three other people who use accounting software in businesses that are similar to yours. Discuss what they like about their accounting software and what needs improvement. You may find that there is no perfect accounting software out there, but do not be discouraged. The goal is to find accounting software that best meets your small business needs.
Find Accounting Software
Small business accounting software automates tasks and saves hours of time compared to manual accounting. Learn about the features and prices for a variety of small business accounting software packages with this list, which will be updated frequently.
Now that you have narrowed down your accounting software choices, carry this list of questions with you while you shop for small business accounting software.
Will the accounting software grow with your business? Find out if the software has modules you can add later if needed. A module that is commonly added after a business grows is for payroll accounting.
If modules cannot be added, does the software upgrade easily to a more capable version of the same accounting software? Or, does the software export to a data format such as CSV (comma-separated values) so it can be read by should you switch to another accounting software title later? CSV is a common file type used to import data from one software application to another, with commas separating the values in each field. CSV is often used to transfer data between databases or spreadsheet tables, and most financial software is a collection of databases or spreadsheets, making CSV a common method of transferring data between financial software or between financial software and spreadsheets or databases.
What accounting software does your bank support? Being able to download transactions from your bank saves a lot of time, so find out what accounting software your bank works with.
Online or desktop accounting software? Online accounting software is web-based software that runs securely through an Internet browser. Online accounting software is especially convenient for accessing accounting data and records from multiple computers.
Can access be restricted for some users? If more than one person will be using the accounting software, one individual may need full access to all functions, but others may only need access to data entry areas and not reports.
Does the accounting software come with a free trial? It is always best if you can try software before you buy it. To see how useful the software documentation is, click on Help in the free trial, then look for a user guide or tutorials.
Remember to figure support costs into your accounting software budget. Some accounting software provides fee-based support by email or phone from the moment you start using the software. However, it is common for the cost of small business accounting software to provide support at no cost for a set period of time so you can ask questions when you first start using the software without incurring additional expenses. After that time period, you pay for support annually, quarterly or on a per-use basis.
The accounting software may have a free online user forum where you can ask questions as well. This is often a good option to fee-based support when your question is about how to use a feature.
A smaller, less complex business needs fewer features than a larger business does. Remember the question in Step 3 regarding upgrading or adding modules to the accounting software later? No matter how irresistible extra "whistles and bells" seem, resist the temptation to buy more accounting software than you need.
Generally, you pay more for more features in accounting software and if your business grows enough to need more robust financial features, the cost is justified. For smaller businesses, there are now enough accounting software options available that over-buying is unnecessary.
Accounting software does not replace an accountant for ensuring that your business adheres to legal and accepted accounting and tax practices. But, when you use accounting software, you take every day accounting tasks out of the hands of an accountant, which saves money for a small business.
Good any accounting software will have the reports you need to give to your accountant on a monthly, quarterly and annual basis. Either the reports can be printed or they can be delivered securely to an accountant electronically.
Ask your accountant what reports are needed and be sure you can generate them with the accounting software you are considering.
Accounting software can be a great tool for your small business, allowing you to keep track of all your financial data, and easily produce reports for effective planning. But because you'll be using your accounting software frequently, it's important to ensure that you pick the accounting software that's right for your business and your needs.
Accounting Software Suitability For Your Business
Out-of-the-box accounting software is most suitable for small and medium-sized businesses that have standard accounting needs. If your business needs unique data reports, make sure the accounting software you choose offers customizable reports. If you run a service-related business, check to be sure the accounting software includes features such as a time and billing module.
Accounting Software Ease of Use Features
Does the accounting software allow you to print or electronically send cheques, purchase orders, and invoices? Does it have 'Net connectivity so you can bank online? Is it integrated with other software that you often use, such as Microsoft Office? Is it able to convert data from other accounting programs or databases? In other words, will the accounting software be able to meet all of your needs, now and in the future?
Accounting Software Learning Curve
All accounting software claims to be "user-friendly", but you'll still need to invest some time in learning how to use it. Take a close look at the accounting software before you buy it. Is the user interface intuitive and comfortable? Will you (and your employees) be able to sit down and learn it, or will you need a further investment in training?
Accounting Software Support
In terms of the learning curve, online help makes the program. Does the accounting software have features such as screentips, a searchable help index, demos, and example accounts to get you started? Are there print and online manuals available? And how accessible is the company's support? Talk to others who have used the accounting software if you can.
Accounting Software Scalability
Is the accounting software networkable? How easy or expensive is it to move from one user to multi-users? With some accounting software, adding new users is just a matter of buying the appropriate number of user licenses; with others, you have to purchase multiple copies of the accounting software program, which is much more expensive
Outgrowing your accounting software is like wearing pants. No matter how much you try to get them on they just won’t fit over your growing stomach. As your business grows you have to update procedures, systems, and software. A simple accounting software solution will no longer fit your changing needs. How do you know it’s time to upgrade your accounting software?
It definitely isn’t time to upgrade when you have outgrown your accounting software. To succeed in business you must have the foresight and ability to plan what needs and obstacles your small business will face around the corner. Lack of planning puts your business at risk.
The following factors upcoming in your business necessitate the need to review your accounting software and plan your upgrade:
1. Growing Customer Base: When you have a small simple business the invoicing and tracking customers is easy to monitor. With success comes a growing surge of more customers. Depending on the rate of customer growth, consider upgrading your accounting software to better manage your customers.
2. Deciding to Expand: Whether you want to increase the number of locations or projections, the decision to expand brings about new levels of complexity. To ensure your expansion goes smoothly, plan beforehand to upgrade your accounting systems to meet the need of rising complexity.
3. More Employees: A simple one person or small staff business will get by with basic accounting software. As your employee base grows, staff members will need greater access and sharing of key data across the network. The increase in staff will facilitate the need for an upgrade.