8 CONCEPTUAL PAYROLL SYTEM PROCEDURE: Reengineering payroll system differs from the

simple automated system in three ways:

1. Personnel Deparment 1. the various departments transmit transactions to data
2. Production Deparment processing via terminals,
3. Update WIP Account 2. direct access files are used for data storage,
4. Prepare Payroll 3. many processes are now performed in real time.
5. Distribute Paycheck
6. Prepare Accounts Payable Reengineering payroll system:
7. Prepare Cash Disbursement 1. personnel
8. Update General Ledger 2. cost accounting
3. time keeping
7 CONCEPTUAL PAYROLL SYTEM DEPARMENT 4. data processing
5. control implications
1. Personnel Deparment
2. Production Deparment Changes to the employee file in real time via
3. Cost Accounting Deparment terminals that personnel department makes:
4.Payroll Deparment 1. additions of new employees
5. Accounts Payable Deparment 2. deletions of terminated employees
6. Cash Disbursement Deparment 3. changes in dependents
7. General Ledger Deparment 4. changes in withholding
5. changes in job status (pay rate).
Two types of time records that production
employees prepare: Data Processing
1. job tickets At the end of the work period, the following tasks are
2. time cards performed in a batch process:
1. Labor costs are distributed to various WIP, overhead,
A clerk in payroll then performs the following tasks. and expense accounts.
1. Prepares the payroll register showing gross pay, 2. An online labor distribution summary file is created.
deductions, overtime pay, and net pay. 3. An online payroll register is created from the
2. Enters the this information into the employee payroll attendance file and the employee file.
records 4. The employee records file is updated.
3. Prepares employee paychecks). 5. Payroll checks are prepared and signed.
4. Sends the paychecks to the distribute paycheck 6. The disbursement voucher file is updated and a check
function. is prepared for the funds transfer to the payroll imprest
5. Files the time cards, personnel action form, and copy account.
of the payroll register. 7. At the end of processing, the system retrieves the
labor distribution summary file and the disbursements
2 DUTIES THAT SHOULD BE SEPARATED: voucher file and updates the general ledger file.
1. time-keeping function
2. personnel function real-time features of the payroll system operational
benefits :
organization will offer a range of valid pay rates 1. reductions in paper
based on : 2. clerical labor,
1. experience 3. lag time between event occurrence and recording
2. job classification them.
3. seniority
4. merit 5 specific objectives of the fixed asset system are
to:
examples of independent verification controls in the 1. Process the acquisition of fixed assets as needed and
payroll system: in accordance with formal management approval
1. Verification of time and procedures.
2. Paymaster 2. Maintain adequate accounting records of asset
3. Accounts payable. acquisition, cost, description, and physical location in
4. General ledger. the organization.
3. Maintain accurate depreciation records for
following key tasks in manual payroll system. depreciable assets in accordance with acceptable
1. Payroll authorization and hours worked enter the methods.
payroll department from two different sources: 4. Provide management with information to help plan for
personnel and production. future fixed asset investments.
2. The payroll department reconciles this information, 5. Properly record the retirement and disposal of fixed
calculates the payroll, and distributes paychecks to the assets.
employees.
3. Cost accounting receives information regarding the Examples of fixed assets
time spent on each job from production. 1. land
4. AP receives payroll summary information from the 2. buildings
payroll department and authorizes the cash 3. furniture
disbursements department to deposit a single check, in 4. machinery
the amount of the total payroll, in a bank 5. motor vehicles
imprest account on which the payroll is drawn.
5. The general ledger department reconciles summary
information from cost accounting and AP.
Control accounts are updated to reflect these
transactions.
The fixed asset system shares some characteristics
with the expenditure cycle presented in Chapter 5,
but two important differences distinguish these
systems:
1. the expenditure cycle processes routine acquisitions
of raw material and finished goods inventories while
fixed asset system processes nonroutine transactions for
a wider group of users in the organization.
2. organizations usually treat inventory acquisitions as
an expense of the current period, while they capitalize
fixed assets that yield benefits for multiple periods.
logic of the fixed asset system.
1. asset acquisition
2. asset maintenance
3. asset disposal.
Once the request is approved and a supplier is
selected, the fixed asset acquisition task is similar to
the expenditure cycle procedures described in
Chapter 5, with two noteworthy differences:
1. receiving department delivers the asset into the
custody of the user/manager rather than a central store
or warehouse.
2. fixed asset department, not inventory control,
performs the record-keeping function.
Common depreciation methods
1. straight line, 2. sum-ofthe- years digits,
3. double-declining balance, 4. units of production
Disposal options open to the firm
1. to sell,
2. scrap,
3. donate,
4. retire the asset in place.
The fixed asset system uses the depreciation
schedules to record end-of-period depreciation
transactions automatically. The specific tasks
include sa asset maintenance to:
(1) calculating the current periods depreciation,
(2) updating the accumulated depreciation and book
value fields in the subsidiary records,
(3) posting the total amount of depreciation to the
affected general ledger accounts (depreciation expense
and accumulated depreciation),
(4) recording the depreciation transaction by adding a
record to the journal voucher file.
When the clerk deletes the record from the fixed
asset subsidiary ledger, the system automatically sa
disposal procedure to:
(1) posts an adjusting entry to the fixed asset control
account in the general ledger,
(2) records any loss or gain associated with the disposal
(3) prepares a journal voucher.
Multiple-Choice Questions
1. The document that captures the total amount of
time that individual workers spend on each production
job is called a
a. time card.
b. job ticket.
c. personnel action form.
d. labor distribution form.
2. An important reconciliation in the payroll system
is when
a. the general ledger department compares the
labor distribution summary from cost accounting
to the disbursement voucher from accounts
payable.
b. the personnel department compares the number
of employees authorized to receive a paycheck
to the number of paychecks prepared.
c. the production department compares the number
of hours reported on job tickets to the
number of hours reported on time cards.
d. the payroll department compares the labor distribution
summary to the hours reported on
time cards.
3. Which internal control is not an important part of
the payroll system?
a. supervisors verify the accuracy of employee
time cards
b. paychecks are distributed by an independent
paymaster
c. the accounts payable department verifies the
accuracy of the payroll register before transferring
payroll funds to the general checking
account
d. the general ledger department reconciles the
labor distribution summary and the payroll disbursement
voucher
4. The department responsible for approving pay
rate changes is
a. payroll
b. treasurer
c. personnel
d. cash disbursements
5. Which function should distribute paychecks?
a. personnel
b. timekeeping
c. paymaster
d. payroll
6. Which transaction is not processed in the fixed
asset system?
a. purchase of building
b. repair of equipment
c. purchase of raw materials
d. sale of company van
7. Depreciation
a. is calculated by the department that uses the
fixed asset.
b. allocates the cost of the asset over its useful life.
c. is recorded weekly.
d. results in book value approximating fair market
value.
8. Depreciation records include all of the following
information about fixed assets EXCEPT the
a. economic benefit of purchasing the asset.
b. cost of the asset.
c. depreciation method being used.
d. location of the asset.
9. Which control is not a part of the fixed asset
system?
a. formal analysis of the purchase request
b. review of the assumptions used in the capital
budgeting model
c. development of an economic order quantity
model
d. estimates of anticipated cost savings
10. Objectives of the fixed asset system do NOT
include
a. authorizing the acquisition of fixed assets.
b. recording depreciation expense.
c. computing gain and/or loss on the disposal of
fixed assets.
d. maintaining a record of the fair market value of
all fixed assets.
11. Which of the following is NOT a characteristic of
the fixed asset system?
a. acquisitions are routine transactions requiring
general authorization
b. retirements are reported on an authorized disposal
report form
c. acquisition cost is allocated over the expected
life of the asset
d. transfer of fixed assets among departments is
recorded in the fixed asset subsidiary ledger