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Purchase Processing Procedures - include the tasks involved in identifying inventory needs,
placing the order, receiving the inventory and recognizing the liability. Procedures apply to both
manufacturing and retailing firms.
> Manufacturing firms – authorized by the production planning and control function.
> Merchandising firms – authorized by the inventory control function.
• A/P department reconciles these documents, posts to the purchases journal, and
records the liability in the accounts payable subsidiary ledger.
Vouchers Payable System – under this system, the AP department uses cash disbursement
vouchers and maintains a voucher register.
Vouchers – provide improved control over cash disbursements and allow firms to consolidate
several payments to the same supplier, thus reducing the number of checks written.
POST TO GENERAL LEDGER – with this step, the purchases phase of the expenditure cycle is
completed.
Cash Disbursement System – processes the payment of obligations created in the purchases
system. Ensure that only valid creditors receive payment and that amounts paid are timely and
correct.
The firm forgoes interest income that The firm will lose purchase discounts
.
it could have earned on the funds. or may damage its credit standing.
Detailed Cash Disbursement System:
CHAPTER 6: The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures
PERSONNEL DEPARTMENT:
Personnel department – prepares and submits personnel action forms to the prepare payroll
function. It uses personnel action forms to:
activate new employees
change the pay rate of employees
change marital status and/or number of dependents
terminate employees
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 fill out two forms:
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. It must be signed by a supervisor.
COST ACCOUNTING DEPARTMENT – uses the job tickets to allocate labor costs to WIP
accounts. It summarizes these charges in a labor distribution summary which is forwarded to
G/L dept.
Prepare Payroll:
The 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 the information into the employee payroll records.
3. Prepares employee paychecks.
4. Sends the paychecks to the distribute paycheck function.
5. Files the time cards, personnel action form, and copy of the payroll register.
Distribute Paycheck
A form of payroll fraud involves submitting time cards for nonexistent employees. To
prevent this, many companies use a paymaster to distribute the paychecks to employees.
Paymaster – this individual is independent of the payroll process—not involved in payroll
authorization or preparation tasks.
• G/L department makes a journal entry to transfer the cash from the operating bank
account to the payroll imprest account:
Cash - Payroll Imprest Account DR
Cash - Operating Account CR
Payroll Controls:
Fixed assets - the property, plant, and equipment used in the operation of a business.
Asset Acquisition – begins when a department manager determines that an old fixed asset
needs to be replaced or that a new fixed asset is warranted.
Asset Maintenance – involves adjusting fixed asset system subsidiary account balances as
assets depreciate.
Asset Disposal – the asset must be removed from the records and depreciation schedule at the
end of an asset’s useful life (or earlier disposition).
• Independent Verification Controls - internal auditor should review the asset acquisition
and approval procedures to determine the reasonableness of factors used in the
analysis.