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Limitations of the General Ledger Approach

15 January, 2016 - 09:50

Recall in Database Management Systems the discussion regarding the limitations of traditional file processing approaches and the emerging focus on event-driven systems. The discussion focused on the limitations that come from having disjointed files for financial and nonfinancial information. The traditional general ledger approach has been a primary suspect as the source of many of these problems.

While other business event information may be captured in separate systems operated by other departments, such as marketing, any such nonfinancial information becomes separated from the financial information. Once the end-of-period closings are completed for the general ledger, the detailed business event-level data are eventually purged from the general ledger system—the interest being only in maintaining correct current balances for each account. It is at this point that, even if there were a link between financial and nonfinancial information in the business event data, the relationships are lost as soon as the periodic closings are completed and the financial data discarded. From that point on, information for decision making is limited to only that information captured in the account files. If you decide you want more detailed information than these accounts provide, historical business events usually cannot be reconstructed.

You will recall that in Database Management Systems we noted the evolution toward database-driven systems—and in particular, event-driven systems. This discussion explains why the rapidly expanding information needs of management created conflict with traditional general ledger structures. The move toward enterprise systems accelerated because of the frustration of managers who needed access to integrated financial and nonfinancial data.