Chapter 6 the Expenditure Cycle Part II: prepares copies of a cash disbursement voucher for

Payroll Processing and Fixed Asset Procedures the amount of the payroll.
 voucher register –The clerk records the voucher
The Conceptual Payroll System here
 voucher packet – (voucher and payroll register)
Payroll processing is actually a special-case submit to cash disbursements.
purchases system in which the organization purchases
labor rather than raw materials or finished goods for Prepare Cash Disbursement.
resale.  payroll imprest account – Upon the receipt of
the voucher packet, the cash disbursements
Personnel Department. The personnel department function prepares a single check for the entire
prepares and submits personnel action forms to the amount of the payroll and deposits it here
prepare payroll function.
PAYROLL CONTROLS
 personnel action forms –identify the employees
authorized to receive a paycheck and are used TRANSACTION AUTHORIZATION. The personnel
to reflect changes in hourly pay rates, payroll action form helps payroll keep the employee records
deductions, and job classification current.
Production Department. Production employees - This document describes additions, deletions,
prepare two types of time records: job tickets and time and other changes to the employee file and acts
cards. as an important authorization control to ensure
that only the time cards of current and valid
 job tickets–captures the time that individual employees are processed.
workers spend on each production job
*cost accounting uses these documents to allocate SEGREGATION OF DUTIES. The time-keeping
direct labor charges to work-in-process (WIP) function and the personnel function should be
accounts.
separated, the personnel function provides payroll with
 time cards–captures the time the employee is at pay rate information for authorized hourly employees
work.
SUPERVISION. Supervisors should observe the time-
Update WIP Account. After cost accounting allocates keeping process and reconcile the time cards with
labor costs to the WIP accounts, the charges are actual attendance.
summarized in a labor distribution summary.
ACCOUNTING RECORDS. The audit trail for payroll
Prepare Payroll includes the following documents:
1. Prepares the payroll register showing gross pay, 1. Time cards, job tickets, and disbursement vouchers.
deductions, overtime pay, and net pay. 2. Journal information, which comes from the labor
2. Enters the this information into the employee payroll distribution summary and the payroll register.
records 3. Subsidiary ledger accounts, which contain the
3. Prepares employee paychecks employee records and various expense accounts.
4. Sends the paychecks to the distribute paycheck 4. The general ledger accounts: payroll control, cash,
function. and the payroll clearing (imprest) account.
5. Files the time cards, personnel action form, and copy
of the payroll register ACCESS CONTROLS. The assets associated with the
payroll system are labor and cash.
Distribute Paycheck. Paymaster – to prevent
submitting time cards for nonexistent employees, this is
INDEPENDENT VERIFICATION. Examples of
used to distribute the paychecks to employees
independent verification controls in the payroll system:
 If a valid employee does not claim a paycheck, 1. Verification of time. Before sending time cards to
the paymaster returns the check to payroll payroll, the supervisor must verify their accuracy and
sign them.
Prepare Accounts Payable. The accounts payable (AP)
2. Paymaster. The use of an independent paymaster to
clerk reviews the payroll register for correctness and
distribute checks (rather than the normal supervisor)
helps verify the existence of the employees. The  captures and processes a wide range of
supervisor may be party to a payroll fraud by pretending personnel- related data, including employee
to distribute paychecks to nonexistent employees. benefits, labor resource planning, employee
3. Accounts payable. The AP clerk verifies the accuracy relations, employee skills, and personnel
of the payroll register before creating a disbursement actions (pay rates, deductions, and so on), as
voucher that transfers funds to the imprest account. well as payroll
4. General ledger. It provides verification of the overall
process by reconciling the labor distribution summary Personnel
and the payroll disbursement voucher.  The personnel department makes changes to
the employee file in real time via terminals
The physical payroll system.
Cost Accounting
MANUAL PAYROLL SYSTEM.
 The cost accounting department enters job cost
1. Payroll authorization and hours worked enter the data (real time or daily) to create the labor
payroll department from two different sources: usage file.
personnel and production.
2. The payroll department reconciles this information, Time-Keeping
calculates the payroll, and distributes paychecks to the  Upon receipt of the approved time cards from
employees. the supervisor at the end of the week, the time-
3. Cost accounting receives information regarding the keeping department creates the current
time spent on each job from production. This is used for attendance file.
posting to WIP account.
4. AP receives payroll summary information from the Data Processing
payroll department and authorizes the cash Control Implications
disbursements department to deposit a single check, in
the amount of the total payroll, in a bank imprest  must produce adequate records for independent
account on which the payroll is drawn. verification and audit purposes
5. The general ledger department reconciles summary  controls must be implemented to protect
information from cost accounting and AP. Control against unauthorized access to data files and
accounts are updated to reflect these transactions. computer programs.

THE CONCEPTUAL FIXED ASSET SYSTEM

Computer-Based Payroll Systems
Fixed assets are the property, plant, and equipment used
AUTOMATING THE PAYROLL SYSTEM USING in the operation of a business.
BATCH PROCESSING. - These are relatively permanent items that
often collectively represent the largest
Batch computer programs perform the check writing, financial investment by the organization.
detailed record keeping, and general ledger functions. -
The Logic of a Fixed Asset System
Control Implications 1. asset acquisition
2. asset maintenance
 promotes accounting accuracy
3. asset disposal
 reduces check-writing errors
 it does not significantly enhance operational
Asset Acquisition. Usually begins with the departmental
efficiency
manager (user) recognizing the need to obtain a new
REENGINEERING THE PAYROLL SYSTEM asset or replace an existing one. It depends on the asset’s
value.
Human resource management (HRM) system Asset Maintenance. Involves adjusting the fixed asset
subsidiary account balances as the assets (excluding
 For moderate-sized and large organizations, land) depreciate over time or with usage
payroll processing is often integrated within  Common depreciation methods in use are
this 1. straight line,
2. sum-of the-years’ digits
 3. double-declining balance
4. units of production

 Depreciation calculations are transactions that

the fixed asset system must be designed to
anticipate internally when no external event
(source document) triggers the action. An
important record used to initiate this task is the
depreciation schedule

Asset Disposal. When an asset has reached the end of its

useful life or when management decides to dispose of it,
the asset must be removed from the fixed asset
subsidiary ledger.

THE PHYSICAL FIXED ASSET SYSTEM

Computer-Based Fixed Asset System

Acquisition Procedures. The process begins when the

fixed asset accounting clerk receives a receiving report
and a cash disbursement voucher.

Asset Maintenance. The fixed asset system uses the

depreciation schedules to record end-of-period
depreciation transaction automatically

Disposal Procedures. The disposal report formally

authorizes the fixed asset department to remove from the
ledger an asset disposed of by the user department.

Controlling the Fixed Asset System

Authorization Controls

 Fixed asset acquisitions should be formal and

explicitly authorized.
 In the case of high-value items, there should be
an independent approval process that evaluates
the merits of the request on a cost-benefit basis.

Supervision Controls

 fixed assets are being used in accordance with

the organization’s policies and business
practices

Independent Verification Controls

 Periodically, the internal auditor should review

the asset acquisition and approval procedures to
determine
 the reasonableness of factors used in the
analysis