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 of hours reported on job tickets to the
with the expenditure cycle presented in Chapter 5, number of hours reported on time cards.
but two important differences distinguish these d. the payroll department compares the labor distribution
systems: summary to the hours reported on
1. the expenditure cycle processes routine acquisitions time cards.
of raw material and finished goods inventories while 3. Which internal control is not an important part of
fixed asset system processes nonroutine transactions for the payroll system?
a wider group of users in the organization. a. supervisors verify the accuracy of employee
2. organizations usually treat inventory acquisitions as time cards
an expense of the current period, while they capitalize b. paychecks are distributed by an independent
fixed assets that yield benefits for multiple periods. paymaster
c. the accounts payable department verifies the
logic of the fixed asset system. accuracy of the payroll register before transferring
1. asset acquisition payroll funds to the general checking
2. asset maintenance account
3. asset disposal. d. the general ledger department reconciles the
labor distribution summary and the payroll disbursement
Once the request is approved and a supplier is voucher
selected, the fixed asset acquisition task is similar to 4. The department responsible for approving pay
the expenditure cycle procedures described in rate changes is
Chapter 5, with two noteworthy differences: a. payroll
b. treasurer
1. receiving department delivers the asset into the c. personnel
custody of the user/manager rather than a central store d. cash disbursements
or warehouse. 5. Which function should distribute paychecks?
2. fixed asset department, not inventory control, a. personnel
performs the record-keeping function. b. timekeeping
c. paymaster
Common depreciation methods d. payroll
1. straight line, 2. sum-ofthe- years digits, 6. Which transaction is not processed in the fixed
3. double-declining balance, 4. units of production asset system?
a. purchase of building
Disposal options open to the firm b. repair of equipment
1. to sell, c. purchase of raw materials
2. scrap, d. sale of company van
3. donate, 7. Depreciation
4. retire the asset in place. a. is calculated by the department that uses the
The fixed asset system uses the depreciation fixed asset.
schedules to record end-of-period depreciation b. allocates the cost of the asset over its useful life.
transactions automatically. The specific tasks c. is recorded weekly.
include sa asset maintenance to: d. results in book value approximating fair market
(1) calculating the current periods depreciation, value.
(2) updating the accumulated depreciation and book 8. Depreciation records include all of the following
value fields in the subsidiary records, information about fixed assets EXCEPT the
(3) posting the total amount of depreciation to the a. economic benefit of purchasing the asset.
affected general ledger accounts (depreciation expense b. cost of the asset.
and accumulated depreciation), c. depreciation method being used.
(4) recording the depreciation transaction by adding a d. location of the asset.
record to the journal voucher file. 9. Which control is not a part of the fixed asset
When the clerk deletes the record from the fixed system?
asset subsidiary ledger, the system automatically sa a. formal analysis of the purchase request
disposal procedure to: b. review of the assumptions used in the capital
(1) posts an adjusting entry to the fixed asset control budgeting model
account in the general ledger, c. development of an economic order quantity
(2) records any loss or gain associated with the disposal model
(3) prepares a journal voucher. d. estimates of anticipated cost savings
10. Objectives of the fixed asset system do NOT
Multiple-Choice Questions include
1. The document that captures the total amount of a. authorizing the acquisition of fixed assets.
time that individual workers spend on each production b. recording depreciation expense.
job is called a c. computing gain and/or loss on the disposal of
a. time card. fixed assets.
b. job ticket. d. maintaining a record of the fair market value of
c. personnel action form. all fixed assets.
d. labor distribution form. 11. Which of the following is NOT a characteristic of
2. An important reconciliation in the payroll system the fixed asset system?
is when a. acquisitions are routine transactions requiring
a. the general ledger department compares the general authorization
labor distribution summary from cost accounting b. retirements are reported on an authorized disposal
to the disbursement voucher from accounts report form
payable. c. acquisition cost is allocated over the expected
b. the personnel department compares the number life of the asset
of employees authorized to receive a paycheck d. transfer of fixed assets among departments is
to the number of paychecks prepared. recorded in the fixed asset subsidiary ledger
c. the production department compares the number