EXPENDITURE CYCLE II

• Payroll processing


  A special-case purchases system in which the organization purchases labor rather than raw materials or finished goods for resale
• Payroll procedures


  • Differ greatly among classes of employees (e.g. hourly, salaried, piece workers, commissioned)
  • Require special accounting procedures for employee deductions and withholdings for taxes
• General expenditure activities


  • Constitute a relatively steady stream of purchasing and disbursing transactions
• Payroll activities


  • 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 the general purchasing and cash disbursements system
• Writing checks to employees


  • Requires special controls
  • Combining payroll and trade transactions can encourage payroll fraud
• Payroll system in a manufacturing firm


  1. Personnel department prepares and submits personnel action forms

  2. Production department prepares job tickets and time cards

  3. Update WIP account

  4. Prepare payroll

  5. Distribute paycheck

  6. Prepare accounts payable

  7. Prepare cash disbursement

  8. Update general ledger
• Personnel action form


  Document used to advise payroll of changes in hourly pay rates, payroll deductions, and job classification
• Job ticket


  Document that captures the time individual workers spend on each production job
• Time card


  Document that captures the time the employee is at work
• Labor distribution summary


  Document that summarizes labor costs allocated to the WIP accounts
• Payroll register


  Document that shows gross pay, deductions, overtime pay, and net pay
• Employee payroll records


  Records that contain payroll information for each employee
• Employee paycheck


  Document that pays the employee their net pay
• Cash disbursement voucher


  Document that records the payroll amount in the voucher register and is submitted to cash disbursements
• Payroll imprest account

  Account used only for payroll, where a single check for the entire payroll amount is deposited
• Journal voucher


  Document prepared by cash disbursements and sent to the general ledger function
• The debits and credits from the general ledger entries must equal. If they do not, there is an error in the calculation of either labor distribution charges or payroll.
• Payroll controls


  • Transaction authorization (personnel action form)
  • Segregation of duties (time-keeping and personnel functions separated)
  • Supervision (supervisors should observe time-keeping and reconcile time cards)
  • Accounting records (time cards, job tickets, disbursement vouchers, journal information, subsidiary ledger accounts, general ledger accounts)
  • Access controls (control over access to accounting records)
  • Independent verification (verification of time by supervisor, use of paymaster, accounts payable verification, general ledger reconciliation)
• Fixed assets


  Property, plant, and equipment used in the operation of a business
• The specific objectives of the fixed asset system are to: process the acquisition of fixed assets, maintain adequate accounting records, maintain accurate depreciation records, provide management information, and properly record the retirement and disposal of fixed assets.
• Fixed asset system logic

  1. Asset acquisition

  2. Asset maintenance

  3. Asset disposal
• Depreciation schedule


  Record used to initiate depreciation calculations, showing when and how much depreciation to record
• Fixed asset controls


  • Authorization controls (formal and explicitly authorized acquisitions)
  • Supervision controls (management supervision of physical security)
  • Independent verification controls (review of acquisition and approval procedures, verification of location/condition/value of assets, verification of depreciation calculations)
• Fixed asset system objectives

  1. Process the acquisition of fixed assets as needed and in accordance with formal management approval and procedures

  2. Maintain adequate accounting records of asset acquisition, cost, description, 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 asset investments

  5. Properly record the retirement and disposal of fixed assets
• Fixed asset system:

  • Asset Acquisition
  • Asset Maintenance
  • Asset Disposal