Transcript
CHAPTER 6
The Expenditure Cycle Part II
Payroll Processing and Fixed Asset Procedures
THE CONCEPTUAL FRAMEWORK SYSTEM
Payroll processing - a special-case purchases system in which the
organization purchases labor other than raw materials or finished goods for
resale.
The nature of payroll processing creates the need for specialized products for
the following reasons:
1. A firm can design general purchasing and disbursement procedures
that apply to all vendors and inventory items. Payroll procedures,
however, differ greatly among classes of employees. For example,
different procedures are needed for hourly employees, salaried
employees, piece workers, and commissioned employees. Also, payroll
processing requires special accounting procedures for employee
deductions and withholdings for taxes do not apply to trade discounts.
2. General expenditure activities constitute a relatively steady stream of
purchasing and disbursing transactions. Business organizations thus
design purchasing systems to deal with their normal level of activity.
Payroll activities, on the other hand, are discrete events in which
disbursements to employees occur weekly, biweekly, or monthly. The
task of periodically preparing large numbers of payroll checks in
addition to the normal trade account checks can overload general
purchasing and cash disbursements system.
3. Writing checks to employees requires special controls. Combining
payroll and trade transactions can encourage payroll fund.
Personnel Department – prepares and submits personnel action forms to
the prepare payroll function.
Personnel action forms – these documents identify employees authorized
to receive a paycheck and are used to reflect changes in hourly pay rates,
payroll deductions, and job classification.
Production Department – production employees prepare two types of time
records: job tickets and time cards.
Job tickets – capture the time that individual workers spend on each
production job. Cost accounting uses these documents to allocate direct
labor charges to work-in-process (WIP) accounts.
Time cards – capture the time that the employee is at work. These are sent
to prepare payroll function for calculating the amount of the employee’s
paycheck.
After cost accounting allocates labor costs to the WIP accounts, the charges
are summarized in a labor distribution summary and forwarded to the
general ledger function.
Payroll Department – receives pay rate and withholding data from the
personnel department and hours worked data from the production
department. A clerk in payroll then performs the following tasks:
1. Prepares the payroll register showing gross pay, deductions, overtime
pay, and net pay.
2. Enters then this information into the employee payroll records.
3. Prepares employees paychecks.
4. Sends the paychecks to the distribute paycheck function.
5. Files the time cards, personnel action form, and copy of the payroll
register.
Paymaster – distributes paychecks to employees to prevent payroll fraud
which involves submitting time cards for nonexistent employees. This
individual is independent of the payroll process – not involved in payroll
authorization or preparation tasks.
Accounts payable clerk – reviews the payroll register for correctness and
prepares copies of a cash disbursement voucher for the amount of the
payroll. The clerk records the voucher in the voucher register and submits
the voucher packet to cash disbursements. A copy of the disbursement
voucher is sent to the general ledger function.
Payroll imprest account – a single check for the entire amount o f the
payroll prepared by the cash disbursements function is deposited in this
account. Employee paychecks are drawn on this account, which is only used
for payroll.
General ledger function – receives the labor distribution summary from
cost accounting, the disbursement form AP, and the journal voucher from
cash disbursements.
Payroll Controls
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Transaction Authorization
Segregation of Duties
Supervision
Accounting Records
Access Controls
Independent Verification
Independent Verification:
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4.
Verification of time
Paymaster
Accounts payable
General ledger
THE PHYSICAL PAYROLL SYSTEM
Manual Payroll System
Personnel dept. uses personnel action forms to:
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activate new employees
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change the pay rate of employees
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change marital status and/or number of dependents
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terminate employees
Production employees fill out two forms:
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job tickets - account for the time spent by the worker on each
production job
time cards - used to capture the total time worked each pay
period for payroll calculations
must be signed by a supervisor
Cost Accounting dept:
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uses the job tickets to allocate labor costs to WIP accounts
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summarizes these charges in a labor distribution summary
which is forwarded to G/L dept.
Payroll dept receives personnel action forms and time cards.
Uses them to:
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prepare the payroll register
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enter the information into the employee payroll records
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prepare paychecks
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send paychecks to Cash Disbursements and a copy of the payroll
register to Accounts Payable
Accounts Payable dept:
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prepares a cash disbursements voucher for the total amount
of the payroll
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sends copies to the Cash Disbursements and G/L depts.
Cash Disbursements dept:
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reviews and signs the paychecks and forwards them to a
paymaster for distribution to the employees
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writes a check for the payroll and deposits it into the payroll
imprest account .
Payroll Controls
1. Transaction authorization - the personnel action form helps prevent:
(a)terminated employees from receiving checks , and (b) wage rates
from being improperly changed for current employees
2. Segregation of Duties - timekeeping and personnel functions should
be separated
3. Supervision - need to monitor employees to ensure they are not
“clocking in” for one another
4. Accounting Records - audit trail includes:
time cards
payroll register
job tickets
subsidiary ledger
accounts
disbursement vouchers
labor distribution
summary
general ledger
accounts
5. Access Controls - need to prevent employees from having improper
access to (a)accounting records, such as time cards which can be
altered, and (b)unsigned checks
6. Independent Verification:
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verification of time cards
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distribution of paychecks to authorized employees
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verification of accuracy of payroll register by A/P dept.
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G/L dept. reconciles the labor distribution summary and the
payroll disbursement voucher
COMPUTER-BASED PAYROLL SYSTEMS
AUTOMATING THE PAYROLL SYSTEM USING BATCH
SYSTEM
Payroll Systems
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run periodically (weekly or monthly)
well suited to batch processing
Control Implications
The strengths and weaknesses of this system are similar to those
in the batch system for general expenditures discussed earlier.
This system promotes accounting accuracy and reduces checkwriting errors.
REENGINEERING THE PAYROLL SYSTEM
Human Resource Management (HRM) System
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payroll processing is often integrated within the HRM system for
moderate-sized and large organizations
captures and processes personnel-related data including:
o employee benefits
o labor resource planning
o employee relations
o employee skils
o personnel actions (pay rates, deductions)
o payroll
need to provide real-time access to personnel files for purposes of
direct inquiries and recording changes in employee status as they
occur
this system differs from the simple automated system in three ways:
o departments transmit transactions to data processing via
terminals
o direct access files are used for data storage
o many processes are now performed in real time
Key Operating Features of HRM System
Personnel - makes changes to the employee file in real-time via
terminals. These changes include additions of new employees,
deletions of terminated employees, changes in dependents, changes in
withholding, and changes in job status
(pay rate).
Cost Accounting - enters job cost data (real-time or daily) to create the
labor usage file.
Time-Keeping - creates the current attendance file upon receipt of the
approved time cards from the supervisor at the end of the week
Data Processing
Control Implications
The real-time features of the payroll system provide many of the
operational benefits including reductions in paper, clerical labor,
and the lag time between event occurrences and recording them.
Computer-based systems must produce adequate records for
independent verification and audit purposes. Also, controls must
be implemented to protect against unauthorized access to data
files and computer programs.
THE CONCEPTUAL FIXED ASSET SYSTEM
Fixed Assets are the property, plant and equipment used in the
operation of a business. These are relatively permanent items that
often collectively represent the largest financial investment by the
organization.
Specific objectives of the fixed asset system
1. Process the acquisition of fixed assets as needed in accordance with formal
management approval and procedures.
2. Maintain adequate accounting records of asset acquisition, cost, depreciation,
and physical location in the organization
3. Maintain accurate depreciation records for depreciable assets in accordance
with acceptable methods.
4. Provide management with information to help plan for future fixed assets
investments.
5. Properly record the retirement and disposal of fixed assets
The process involves three categories of tasks: asset acquisition,
asset maintenance, and asset disposal.
THE PHYSICAL FIXED ASSET SYSTEM
Computer-Based Fixed Asset System; demonstrates realtime processing
The Fixed Asset System
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automatically updates the fixed asset control account in the general
ledger and prepares journal vouchers for the general ledger
department as evidence of the entry.
produces reports for accounting management.
prepares a depreciation schedule for each asset based on the
depreciation parameters contained in the fixed asset records. The
schedule is stored on computer disk to permit future depreciation
calculations.
CONTROLLING THE FIXED ASSET SYSTEM
Authorization Controls – because fixed asset acquisitions
should be formal and explitly authorized, each transaction should
be initiated by a written request from the user or department.
Supervision Controls – Supervisors must ensure that 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. System errors that miscalculated depreciation can
result in the material misstatement of operatin expense,
reported earnings, and asset values.
