CHAPTER 6: THE EXPENDITURE CYCLE PART II: ➢ Cash Disbursements dept:

PAYROLL PROCESSING AND FIXED ASSET PROCEDURES

• reviews and signs the paychecks and forwards
❖ PAYROLL SYSTEM them to a paymaster for distribution to the
employees
➢ Personnel dept. uses personnel action forms to:
• writes a check for the payroll and deposits it into
• activate new employees
the payroll imprest account
• change the pay rate of employees
➢ G/L dept. makes the following journal entries:
• change marital status and/or number of
• From the Labor Distribution Summary
dependents

• terminate employees
➢ Production employees fill out two forms:
• From the Distribution Voucher
• 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 ➢ G/L dept. makes a journal entry to transfer the
➢ Cost Accounting dept: cash from the operating bank account to the payroll
imprest account:
• uses the job tickets to allocate labor costs to WIP
accounts

• summarizes these charges in a labor distribution

summary which is forwarded to G/L dept. ❖ PAYROLL CONTROLS
➢ Payroll dept receives personnel action forms and ➢ Transaction authorization - the personnel action
time cards. form helps prevent:
➢ Uses them to: • terminated employees from receiving checks
• prepare the payroll register • wage rates from being improperly changed for
current employees
• enter the information into the employee payroll
records ➢ Segregation of Duties - timekeeping and
personnel functions should be separated
• prepare paychecks
➢ Supervision - need to monitor employees to
• send paychecks to Cash Disbursements and a copy
ensure they are not “clocking in” for one another
of the payroll register to Accounts Payable
➢ Accounting Records - audit trail includes:
➢ Accounts Payable dept:
• time cards
• prepares a cash disbursements voucher for the
total amount of the payroll • job tickets

• sends copies to the Cash Disbursements and G/L • disbursement vouchers

depts
• labor distribution summary

• payroll register
 • subsidiary ledger accounts ➢ Cost Accounting - enters job cost data either daily
or in real time
• general ledger accounts
➢ Timekeeping - enters the attendance file daily
➢ Access Controls - need to prevent employees from
having improper access to: ➢ Data Processing - still uses batch processing and
prepares all reports, the checks, and updates the
• accounting records, such as time cards which can general ledger
be altered
❖ REENGINEERED HRM SYSTEMS
• unsigned checks
differ from automated manual and batch/sequential file
➢ Independent Verification: systems because:
• verification of time cards • operations depts. transmit transactions to data
• distribution of paychecks to authorized employees processing via terminals

• verification of accuracy of payroll register by A/P • direct access files are used for storage
dept. • many processes are performed real time
• G/L dept. reconciles the labor distribution • real-time access to personnel files required for
summary and the payroll disbursement voucher direct inquiries
❖ COMPUTER-BASED PAYROLL SYSTEMS ❖ THE FIXED ASSET SYSTEM (FAS)
➢ Payroll is well-suited to batch processing and ➢ Fixed Assets - property, plant, and equipment
sequential files. used in the operation of a business
• Most employees on the master file receive ❖ LIFE OF A FIXED ASSET
paychecks periodically.
➢ The computer program performs the detailed
record-keeping, check-writing, and general ledger
functions
❖ REENGINEERED HRM SYSTEMS
➢ Payroll can be reengineered as a part of human
resource management (HRM).
➢ IT can process a wide range of personnel-related
data, including:

• employee benefits
❖ OBJECTIVES OF FAS
• labor resource planning
➢ Acquire fixed assets in accordance with
• employee skills and training management approval and procedures
• pay rates, deductions, and pay checks ➢ Maintain adequate accounting records of asset
acquisition, cost, description, and location
• evaluations
➢ Maintain depreciation records for depreciable
❖ KEY FEATURES OF REENGINEERED HRM
assets in accordance with acceptable method
➢ Personnel - can make changes to the employee
➢ Provide management with information to help it
file in real time
plan future fixed asset investments
➢ Properly record the retirement and disposal of • post total depreciation to the affected general
fixed assets ledger accounts
❖ ASSET ACQUISITION • record depreciation transactions by adding
records to the journal voucher file
➢ Begins when a dept. manager determines that an
old fixed asset needs to be replaced or that a new ❖ COMPUTER-BASED FIXED ASSET SYSTEM—
fixed asset is warranted DISPOSAL
➢ A purchase requisition is filled out. ➢ Computerized FAS automatically:
• May require an authorizing signature for items • post adjusting entries to the fixed asset control
over a pre-specified limit account in the general ledger
➢ FAS dept. performs record-keeping functions. • record losses or gains associated with the disposal
transaction
❖ ASSET MAINTENANCE
➢ Involves adjusting FAS subsidiary account balances • prepare journal voucher records
as assets depreciate ❖ FAS CONTROLS
➢ Depreciation calculations are internal transactions ➢ Authorization - should be formal and explicit
that the FAS system bases upon a depreciation because of high cost of FAS:
schedule.
• acquisitions
➢ Physical improvements must also be recorded to
increase the subsidiary account balance and • changes in depreciation methods
depreciation schedule. ➢ Supervision - threat of misappropriation requires
❖ ASSET DISPOSAL constant management oversight:

➢ At the end of an asset’s useful life (or earlier • theft - secure physical locations of assets
disposition), the asset must be removed from the • misuse - monitor on-the-job activities
records and depreciation schedule
➢ Independent Verification - internal auditors
➢ Disposals require disposal request forms and should periodically verify FAS records:
disposal reports as source documents.
• the reasonableness of factors used in decisions
❖ COMPUTER-BASED FIXED ASSET SYSTEM— (useful life, discounts, budgeting model)
ACQUISITION
• location, condition, and fair value of the fixed
➢ Receipt of assets are digitally recorded in the
asset records in the subsidiary ledger
system, along with information such as its useful life,
depreciation methods, etc. • the programming logic for automatic calculations
(depreciation)
➢ Ledgers are automatically updated
❖ COMPUTER-BASED FIXED ASSET SYSTEM—
MAINTENANCE
➢ Computerized FAS automatically:

• calculate current period’s depreciation

• update accumulated depreciation and book-value

fields in the subsidiary records