Ch. 16 ACCT 427 (general ledger)
General Ledger
"Ending balance" financial data for every asset, liability, equity, revenue, and expense GL accounts.
suspense account
"Holding place account" used when one side of entry is only available to be booked at the time the entry is made
Audit trail
A traceable path of a transaction from a point of origin through to its final output. Makes sure there is a common link in sets of data so we can drill down a big number back to its details if we need to. Problem is that sometimes businesses run out of computer space.
A
A user looking at the A/P subledger would note that Fly A Kite owes two different vendors at the end of the fiscal period. A. True B. False
close process
Adjusting and closing entries occur during the timeframe referred to as the _____ _____ or "closing of books", between the Fiscal Year-End and the finalization of financial statements.
manual
Adjusting entries are usually _____ journal entries. An exception to this would be adjusting entries that are the same amount each period or based on an easy consistent calculation. AIS software can be automatically programmed to record those entries.
Controller
After all adjusting entries are made, reviews have been performed, and the adjusted trial balance balances, the period is 'closed' and financial statements can be generated. Who should have access to the 'close year' button?
Run to Run totals
Calculation after JE is processed to check the accuracy; the Journal Voucher balance matches the updates made to the correct journals, sub-ledgers, and general ledger. Automated check that the user doesn't see.
close process
Common activities in the ______ _______: - resolving known errors - adjusting the cash balance when performing bank reconciliation - accruing for employee payroll - booking journal entries for estimates (bad debt expense, depreciation) - clearing suspense GL accounts
A
Given the background of this assignment, which segregation of duties roles were fulfilled and by whom by the journal entries recorded 1/2? A. The intern recorded and you authorized the journal entries. Custody was not described. B. You recorded and the intern authorized the journal entries. Custody was not described. C. You recorded and maintained custody of the cash from these journal entries; your supervisor authorized the journal entries. D. The intern maintained custody of cash, you recorded, and your supervisor authorized the journal entries.
A
If you are looking at an unadjusted trial balance and dollar amounts are present for GL accounts, what should you assume? A. Closing and adjusting entries have not yet been recorded B. Adjusting journal entries have not yet been recorded but closing entries have C. Closing entries have not been recorded yet but adjusting entries have. D. No journal entries have been recorded
Subsidiary Ledger
Individual JE activity for one GL account broken into sub-accounts (AP subsidiary ledger lists all payables, organized by vendor)
Journals
Individual JE activity grouped by coming from a similar source/cycle. Repository of many journal entries, similar JE's together.
detective
Is an audit trail a preventative control, detective control, or both
general journal
Records infrequent/non-routine journal entry actions. Such as taking out a loan, issuing stock, impairment, and depreciation. Used for one-off journal entries that are recorded here.
Standard Adjusting Entry
Template for recurring AJE made each period in the same amount, such as depreciation expense.
Expenditure Cycle activities GL process
These are saved to both the purchasing journal and the AP sub-ledger, then from the purchasing journal, it goes to the general ledger activities, general ledger (document), unadjusted trial balance, financial reports for users (unadjusted)
Ongoing process integrity controls
These controls are automatically performed by the AIS to prevent data entry errors.
Validity Check
To ensure that data is input exists in other transactions or in master data, if required. - ex: Journal entries required an existing GL account number in the chart of accounts.
Field (format) check
To ensure that data is input in the proper format. (text, numbers, length, etc). - ex: journal entries will not allow the user to type text (ABC) in the amount ($) field.
Zero-balance Checks
To verify that the transaction zeroes out, when expected. - ex: fournal entries debits (+) should equal credits (-)
grade book total
What are journals equivalent to your records at tamu? (transcript, course catalog, grade book total, grade book types)
specialized and general
What are the two types of journals?
C
What is an example of a transaction that may be in a specialized journal for a retailer? A. Issuing a bond payable B. An impairment of a cash register C. Receiving cash for a placed order D. A mark-to-market adjustment of an available-for-sale security
course catalog
What is the chart of accounts equivalent to your records at texas A&M? (transcript, course catalog, grade book total, grade book types)
transcript
What is the general ledger equivalent to you records at texas a&m? (transcript, course catalog, grade book total, grade book types)
grade book types
What is the subsidiary ledger equivalent to your records at tamu? (transcript, course catalog, grade book total, grade book types)
A, B
What kind of coding does Fly A Kite employ for naming its customers and vendors? Select any that apply. A. Mnemonic B. Sequence C. Block
11
What step is this in the general ledger process? AIS records closing entries in the General Journal
D
Which of the following is not an example of a specialized journal? A. Sales Journal B. Cash Receipts Journal C. Cash Disbursement Journal D. General Journal
Extensible Business Reporting Language (XBRL)
-A language that helps convert financial statements into something more user-friendly for external users. - This is specifically designed for use in communicating the content of financial data. - It creates TAGS for each data item (eg revenue) similar to that used by HTML. The SEC REQUIRES that this data be filed quarterly and annually. - External users can use analysis software to look at financial information when it's properly tagged - proper tagging of data elements must be done by accountants. It takes lots of time to set up these tags initially. - if done within an AIS, these tags can be saved and re-applied to next year's set of financial statements. If can also be exported from one AIS to another easily.
Journal
A _____ is an AIS-specific document that stores information when individual journal entries are posted manually or through documents.
timestamps, journals, sub ledgers, store, internal
How can AIS assist with creating an audit trail? - Information entered into the AIS will have a date and ______ and will list the user who is logged in and submitted the transaction. - control accounts, like the GL account number, links activity easily between _____, _______ and general ledger. - if configured, an AIS can _____ documents electronically so hard copies don't have to be kept to support the audit trail. - the existence of an audit trail is an ______ control.
Chart of Accounts
Listing of all general ledger accounts with their brief description.
A
Performing the reconciliation in this assignment would not have helped address which risk? A. The risk that a journal entry was not recorded in a journal or subledger. (if it wasn't recorded in a journal or subledger it won't be on the gl, so this would be non-existent in recon) B. The risk that a journal entry was recorded in a journal but not in a subledger. C. The risk that a journal entry would have been recorded in a subledger but not a journal. D. The risk that a journal was not completely or accurately closed to the general ledger.
A
Performing the reconciliation would have been considered what kind of control? Think about this in relation to the risks this control addresses in the previous question. A. Detective B. Preventative C. Reversive D. Pervasive
general ledger activities
Periodic consolidation of all cycle activities. Things that our software does for us to consolidate the financial data that has been accumulating in the business process cycles. The result of the accumulation is a general ledger document. Goal is to produce accurate financials.
specialized journals
Records large numbers of repetitive debits/credits. ex: Sales Journal, Cash Receipts Journal, Cash Disbursement Journal, etc.
Accruals
Represents entries made at the end of an accounting period to reflect events that have occurred but for which cash has not yet been received or disbursed. (payables and receivables)
Deferrals
Represents entries made at the end of an accounting period to reflect the exchange of cash before the service has been provided. (prepaid and unearned)
Corrections
Represents entries made to counteract the effects of errors found in the general ledger.
Revaluations
Represents entries made to reflect either differences between the actual and recorded value of an asset or a change in accounting principle.
Estimates
Represents entries that reflect a portion of expenses that occur over a number of accounting periods. (depreciation)
Completeness Check
Test to ensure that all pertinent data are entered in required fields before the transaction can be saved. - ex: journal entries required the date, GL account, and amount fields to be completed at a minimum.
C
The General Ledger is a report/document which lists each general ledger account and its: A. Detailed history of activity (all debits and credits) over a period B. Brief description (e.g., "Cash") only C. Ending balance, from a financial standpoint D. The general ledger is not a report/document
A
The activity you recorded in the Purchases Journal of the Manual GL Template is an example of: A. Transactional Data B. Master Data
A
The data for the three items listed in the 'Approved Price List' tab of the Manual GL Template is an example of A. Master Data B. Transactional Data
validity
The error "Customer Tara Blasor does not exist" shows which type of ongoing process integrity control?
C
The general ledger is a report/document which lists each general ledger account and its: A. detailed history of activity (all debits and credits) B. brief description C. Ending balance, from a financial standpoint D. The general ledger is not a document/report
Unauthorized disclosure of General Ledger Data (financials are "leaked" to the public prior to finalization of financial statements)
What risk is associated with these controls? 1. access to view general ledger should be restricted to appropriate personnel. -> preventative 2. the general ledger should be encrypted. this will PREVENT outside users who may incidentally get GL data from being able to make sense of it.
Inaccurate, incomplete, or fraudulent general ledger data exists which may result in incorrect financial statements or other reports
What risk is associated with these controls? 1. check to ensure that general ledger/trial balance balances (dr = cr) -> detective 2. reconcile general ledger to sub-ledger totals, specialized journals, and the general journal to make sure balances equal -> detective 3. GL master data and transactional data cannot be edited after the period has been closed -> preventative 4. access to change GL master data should be restricted to manager level (or above), as an authorization function. -> preventative 5. access to change GL transactional data should be restricted to recording function of accounting clerk or employee. -> preventative 6. manual journal entries should be created and approved by two different individuals. Approver should be manager level -> preventative 7. automated/scheduled adjusting journal entries should be established within AIS. This avoids inaccurate journal entries from typos. -> preventative 8. financial statements and internal controls are audited by an independent third party. -> detective 9. The AIS is capable of recording an audit trail of transactions -> detective
Loss or destruction of general ledger data
What risk is associated with these controls? 1. general ledger should be backed up on a periodic (daily to weekly) basis -> preventative
Inaccurate XBRL-formatted financials are submitted to the SEC
What risk is associated with these controls? 1. reconciliation of data, if SEC notices the amounts are off, you can get in lots of trouble -> detective 2. saving and reusing tags -> preventative
12
What step is this in the general ledger process? Adjusted and closed trial balance and financial statements for the fiscal period are finalized and cannot be edited
7
What step is this in the general ledger process? Adjusting JE is saved on general journal, and one or multiple subledgers
10
What step is this in the general ledger process? CONTROLLER closes the books
5
What step is this in the general ledger process? Closing process starts after the fiscal year, accounting manager reviews unadjusted trial balance to identify any needing adjusting.
13
What step is this in the general ledger process? Financial statements are filed with the SEC in both the 10-K and XBRL format
8
What step is this in the general ledger process? General Ledger updates the adjusted trial balance and financial statements are up to date
4
What step is this in the general ledger process? General Ledger updates the unadjusted trial balance
3
What step is this in the general ledger process? JE is closed to the general ledger
9
What step is this in the general ledger process? Management and auditors review the financial statements and make correction/adjustment entries where necessary.
2
What step is this in the general ledger process? The JE is saved on the ONE journal, and one, multiple, or no sub-ledgers.
1
What step is this in the general ledger process? User completes routine document in the AIS that automatically triggers a JE in the AIS or the user completes a routine manual JE
6
What step is this in the general ledger process? Users record adjusting JEs
sales, cash receipts, cash disbursements, purchases, payroll, general
What were the journals from the general ledger project?
AR, AP, Inventory, Fixed Asset
What were the sub-ledgers used for the general ledger project?
B
Which of the following best describes general ledger activities? A. General ledger activities happen prior to activities in an individual business process cycle, such as the revenue cycle B. One goal of general ledger activities is to output complete and accurate financial statements C. General ledger activities are high-level activities a company should perform regarding financial reporting while specific ledger activities are the more specific activities a company should perform
A
Which of the following best describes the timing of when journal entries are recorded and where? A. Journal entries are first recorded on a journal and sub-ledger at the same time; the journal is periodically closed to the general ledger (such as toward the end of a fiscal period). B. Journal entries are recorded on a journal first; the journal is periodically closed to the sub-ledger and general ledger (such as toward the end of a fiscal period). C. Journal entries are recorded on the general journal first; then, respective journals and sub-ledgers; then, the general ledger (toward the end of a fiscal period). D. The general ledger is recorded first and then the respective journals and sub-ledgers in order to enforce a strong audit trail.
A
Which of the following controls *prevents* the risk of inaccurate financial statements? A. Manual journal entries should be created and approved by two different individuals before the entries are finalized and posted to the financial statements. B. XBRL-formatted financials are reconciled to audited 10-K formatted financials after they are submitted to the SEC. C. Access to view the financial statements should be restricted to appropriate personnel. D. All of the above prevent the risk of inaccurate financial statements.
A
Which of the following controls would detect the risk that incorrect financial statements have been posted to the public for march? A. An internal audit in July of this year unveils a materiality misstated journal entry. B. Financial statements are audited by an independent third party in jan of this year before they are filed with the SEC C. GL master and transactional data cannot be edited after the period has been closed. D. The AIS performs zero-balance checks on JE when they are being recorded.
D
Which of the following does describe activities that a company would complete during their close process? A. Recording adjusting journal entries such as accruals and deferrals B. record closing journal entries C. review adjusted trial balance to ensure that all adjustments have been made before finalizing the reporting period and producing finanials D. All of the above
C
Which of the following is not a common type of a journal? Note: In this assignment, I used the "common" journal names to be consistent with the text, although I do want you to also understand that companies may customize journal names to suit their needs. While you may see that journal names vary in real life, you will still see that systems track journal entries in various journals - organized by purpose - similar to this assignment and the textbook. A. Payroll B. Sales C. Accruals D. Cash Disbursements
D
Which of the following is true regarding XBRL? A. It is a specific programming language which helps organize financial data by topic/account so it is indexed and easily searchable. B. XBRL financial statements are required by the SEC C. XBRL is intended to help external users download and analyze company financial data. D. All of the above
A, C
Which of the following statements about payroll payable (FICA, medicare, etc) and withholding accounts is true? Select all that apply. A. FICA payable represents the portion of payroll taxes owed by the company; FICA withheld represent the portion of payroll taxes taken out of the employee's paycheck which is also owed by the company to the government. B. FICA Withheld impacts FICA Expense when it is originally recorded. C. FICA Withheld and FICA Payable are both current liabilities. D. The calculation of these accounts are affected by the income that the company makes for the month.
D
Which of the following statements is false regarding XBRL? A. XBRL-formatted financial statements are required by the SEC B. XBRL is intended to help external users download and analyze company financial data C. XBRL is a specific programming language which helps organize financial data by topic/account so it is indexed and easily searchable D. XBRL stands for eXtra Balancing of Revenues and Losses
A
Which of the following statements is false? A. All journal entries recorded in a period will impact the general journal. B. All journal entries recorded in a period will impact the general ledger. C. The Cash Disbursement journal would likely have a column associated with a credit to the Cash GL account because it is likely this action will happen every journal entry recorded on this journal. D. Accounts Receivable sub-ledger shows the A/R GL Account broken into sub-accounts, by customer. E. The process/action of making sure an individual journal balances (all credits = all debits) before posting the journal to the General Ledger would be a good example of an internal control.
A
Why does the audit trail exist? A. It allows someone to drill down to the details of a transaction from starting from an aggregation of all transactions, or it allows you to start with the details and see how it flows through to the end of the process and is aggregated with other transactions. B. Because it is an alert mechanism to let you know when an audit failure is coming. C. because it is required by the IRS.
Limit Check
Will not allow the transaction to proceed when a transaction exceeds a certain threshold. - ex: journal entries over a materiality threshold cannot be entered by an authorization-level person (manager) ad approved by a higher-level person (controller)
Sign Check
Will require that data is positive (or negative) if expected. - ex: revenue GL accounts hold a credit balance (-), produce error or warning when it is debited.
A
You are sitting at the AIS entering a new transaction for a sale to Tara Blasor and receive this message when you clicked save: "Customer 'Tara Blasor' does not exist". Which ongoing processing integrity control triggered this error message? A. Validity B. Format C. Limit D. Completeness
journals, subsidiary
_____ and ______ ledgers are the same data, they are just organized different to help us depending on what data we are trying to retrieve from the system.
closing entries
_______ _______ are programmed to occur in the AIS automatically when the closing process is started in the system. Users don't book them.
