Accounting Information Systems: The Processes and Controls, 2nd Edition

REPORTING AS AN OUTPUT OF THE GENERAL LEDGER PROCESSES (STUDY OBJECTIVE 7)

The information in the general ledger accounts provides important feedback for both internal and external parties. External parties such as investors and creditors use summarized accounting data in the general purpose financial statements to evaluate business performance. Internal managers need financial and nonfinancial feedback for proper planning and control of operations. Internal managers need much more frequent and detailed reports than external users. The sections that follow describe the external and internal reporting concepts.

EXTERNAL REPORTING

The four general purpose financial statements—balance sheet, income statement, statement of cash flows, and statement of retained earnings—are created from general ledger account balances. These financial statements are generated at the end of the accounting cycle. The dollar amounts reported are all derived from general ledger account balances. Usually, accounts are combined and summarized when reported in general purpose financial statements. External users do not need detailed balance information on every existing account in the general ledger. For example, a large company may have several general ledger accounts for various types of cash and cash equivalents. These individual cash accounts are combined, or “rolled up,” into one dollar amount reported as Cash on the balance sheet. This same summary process occurs for all of the line items on the general ...