Types of Controls

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Why cannot a transaction that

has been posted simply
be deleted if there are errors?
________________
Why is a purchase order saved
and not posted (to
subsidiary ledgers or the
general ledger)?
Because a liability does not
exist yet
What is an example of a
miscellaneous cash
receipt? Loan proceeds,
dividend income, sale
of stock
Why is a bank deposit not recorded to the general ledger? Not transaction occurs
What happens to the Accounts Receivable subsidiary ledger and the perpetual inventory records after a
credit sale is posted? They are updated for the effects of the transaction.
What window is used to process and record the receipt of goods from an open purchase order?
Receivings Transaction Entry window. After this window is posted, what gets updated (before posting
to the general ledger)? Accounts payable subsidiary records.
With an outstanding account receivable or with a write-off of an account receivable, what gets updated
(before posting to the general ledger)? A/R subsidiary records
When are A/R, COGS, Sales Revenue, Inventory, and Sales Tax Payable updated after a credit sale? When
the transaction is posted to the general ledger.
When are perpetual inventory records updated after a cash sale? When the windows are posted When
are the inventory G/L accounts updated? When the transactions is posted to the general ledger
Why is Applying a Sales Document (used for a Sales Return) not considered to be a transaction? It just
updates the AR subs. Record by applying the return to a specific invoice/invoices (applying a
return is not a transaction)
What screen is used to write-off an Accounts Receivable? Sales -> Transactions -> Transaction Entry
When is cash debited when the company received a miscellaneous cash receipt?When trans Posted to
general ledger
For a bank reconciliation, how do you indicate that a bank deposit has not cleared the bank by the cutoff
time of the bank statement? Click the check box (or dont) to indicate whether the deposit has
cleared.
Are fixed assets records changed when a purchase order for a fixed asset is prepared?_____________
When are perpetual inventory records updated for receiving goods from a purchase order? Yes, if inv was
received
Why is the general ledger A/R not updated as soon as the Cash Receipts Entry and Apply Sales Documents
windows are posted? ___________________
What is an example of a miscellaneous cash receipt? Loan proceeds, dividend income, sale of stock
When is the Accounts Payable subsidiary ledger updated after goods have been received? After the
receiving transactions entry window is posted When does the Accounts Payable general ledger
account get updated? When the transaction is posted to the general ledger.
What subsidiary records get updated when a vendors outstanding invoice is paid and the Payables Manual
Entry window is posted? Accounts payable
If a payment to a vendor for services purchased without a purchase order is made on the same day that
the invoice is recorded, what account in the G/L will eventually get credited? Accounts payable or cash
Did we have to include salaried employees when we set up a payroll batch (using the Transaction Entry
window for HR&Payroll)? NO
Does a general journal entry post to the general ledger or to a subsidiary ledger when the post button is
clicked? Goes to the general ledger
Give a reason why you would have to adjust the perpetual inventory records. Messing up transactions
#5 (mis-receiving goods from a purchase order)
Which steps would you use to add a new vendor? Purchasing->Cards->Vendor, enter all vendor
info, review options windows, save
What screen would you use to change an employees pay rate? HR & Payroll -> Cards -> Employee
What screen do you use to post transactions from the subsidiary ledgers to the general ledger? Financial
-> Transactions -> Series post
What screen will start the process to sort accounts receivable into various aging categories? Sales ->
Routines -> Aging, and then to print; Sales -> Routines -> Statements
Book 2 states about the topic of Error Correction: an even better option is to avoid posting transactions
that are in error. ;) Based on your experience with a complex system such as Microsoft Dynamics, why
do you think that is a recommended option?
Why is it easier to correct a purchase order than the receipt of goods from a purchase order? Have to
adjust the perpetual inventory
How do you print the general ledger trial balance? Click -> Financial -> Reports -> Trial balance, and
select summary
The Human Resources Management / Payroll Cycle

INTRODUCTION

The HRM/Payroll cycle is a recurring set of business activities and related data processing operations associated with
effectively managing the employee workforce.

INTRODUCTION

The most important tasks performed in the HRM/payroll cycle are:

Recruiting and hiring new employees
Training
Job assignment
Compensation (payroll)
Performance evaluation
Discharge of employees (voluntarily or involuntarily)
Payroll costs are also allocated to products and departments for use in product pricing and mix decisions.

INTRODUCTION

In this chapter, we focus primarily on the payroll system:

One of the largest and most important components of the AIS
Must be designed to meet:
Managements needs
Government regulations
Incomplete or erroneous payroll records:
Impair decision making
Can results in fines and/or imprisonment

INTRODUCTION

The design of the HRM system is also important because the knowledge and skills of employees are valuable assets, so
HRM systems should:
Help assign these assets to appropriate tasks; and
Help monitor their continuous development.

INTRODUCTION

There are five major sources of input to the payroll system:

HRM department provides information about hirings, terminations, and pay-rate changes.
Employees provide changes in discretionary deductions (e.g., optional life insurance).
Various departments provide data about the actual hours worked by employees.
Government agencies provide tax rates and regulatory instructions.
Insurance companies and other organizations provide instructions for calculating and remitting various withholdings.

INTRODUCTION

Principal outputs of the payroll system are checks:

Employees receive individual paychecks.
A payroll check is sent to the bank to transfer funds from the companys regular account to its payroll account.
Checks are issued to government agencies, insurance companies, etc., to remit employee and employer taxes, insurance
premiums, union dues, etc.
The payroll system also produces a variety of reports.

INTRODUCTION

Employees are an organizations most valuable assets:

Their knowledge and skills affect quality and quantity of goods and services.
Labor costs are a major expense in generating revenues and a key cost driver.
The traditional AIS has not measured or reported on the status of a companys human resources:
Financial statements do not regard employees as assets.
Under GAAP, the value of human services is not measured until they have been consumed.

INTRODUCTION

However, some companies are now creating positions for a direction of intellectual assets.
Some may even include HR info in their annual report, including reports on:
Human capital: The knowledge employees possess, which can be enhanced.
Intellectual capital: The knowledge thats been captured and implemented in decision support systems, expert systems, or
knowledge databases, so that it can be shared.

INTRODUCTION

Because employees are so valuable, turnover is expensive:

Average cost of replacement is 1.5 times the employees annual salary.
Turnover rates need to be managed so theyre not excessive.

The seven basic activities in the payroll

cycle are:

Update payroll master file

Update tax rates and deductions
Validate time and attendance data
INTRODUCTION
PAYROLL
CYCLE
ACTIVITIES
Prepare
payroll
Disburse
payroll
Employee morale is also important.
Calculate
benefitscycle
and taxes
Letsemployer-paid
take a look at payroll
Bad morale leads to high turnover.
Disburse payroll taxes and miscellaneous
activities.
Employee attitudes affect customer interactions and are positively correlated with profitability.
deductions
The payroll application is processed in
Employees need to:
batch mode because:
Believe they have the opportunity to do what they do best
Paychecks are issued periodically.
Believe their opinions count
Most
are paid
at the same
VALIDATE
TIME
ANDemployees
ATTENDANCE
DATA
Believe their coworkers are committed to quality
time.
Understand the connection between their jobs and the companys mission.

INTRODUCTION

PAYROLL CYCLE ACTIVITIES

How can information technology help?

Collecting time and attendance data
DISBURSE
electronically,
e.g.:PAYROLL

Badge readers
Efficiency
Opportunity: Direct Deposit
Electronic
time clocks
To effectively track intellectual capital and human resources, the AIS must do more than just record time and attendance
Direct deposit
can improve efficiency
Data entered
on terminals
and prepare paychecks.
and reduce
coststelephone
of payrolllogs
processing
Touch-tone
Payroll should be integrated with HRM so management can access data about employee-related costs and employee
Employee
copy of the
Using edit checks
to verify receives
accuracyaand
skills and knowledge.
check and an
earnings
statement
reasonableness
when
the data
are entered
Each bank receives a record of the
payroll deposits for that bank via EDI. The
record includes:
OUTSOURCING OPTIONS
Employee number
Social Security number
Many entities outsource payroll and HRM to:
Bank account number
Payroll service bureaus
Net pay amount
Maintain the payroll master file and perform payroll processing activities
Professional employer organizations (PEOs)
Perform the services of the payroll service bureau
DISBURSE PAYROLL
Also administer and design employee benefit plans
Generally more expensive than payroll service bureaus
Savings occur because:
While the cashier does authorize
release of funds, he/she does not sign each
OUTSOURCING OPTIONS
check.
Eliminates costs of buying,
When organizations outsource payroll processing, they send the service bureau or PEO at the
end of each
processing,
andperiod:
distributing paper checks.
Eliminates postage.
Additional costs:
Elimination of float between when
check is distributed and when it is deposited by
employee.
Savings typically outweigh costs

Personnel changes
Employee time and attendance data
The service bureau or PEO then:
Prepares paychecks, earnings statements, and a payroll register
Periodically produces tax documents

OUTSOURCING OPTIONS

Outsourcing is especially attractive to small and mid-size businesses because:

Its often cheaper for smaller companies
The bureau or PEO may provide a wider range of benefits
It frees up the companys computer resources for other areas
However, companies must carefully monitor service quality to ensure that these systems integrate HRM and payroll data
in a manner that supports effective management of employees.

GENERAL THREATS

Controls:
Payroll files should be backed up regularly.
At least one backup on site and one offsite.
All disks and tapes should have external and internal file labels to reduce chance of accidentally erasing important data.
Access controls should be utilized
User IDs and passwords
Logs of all activities, particularly those requiring specific authorizations, should be maintained.
Default settings on ERP systems usually allow users far too much access to data, so these systems must be modified to
enforce proper segregation of duties.

GENERAL THREATS contd.

Sensitive data should be encrypted in storage and in transmission.

Websites should use SSL for secure employee communications.
Payroll service bureaus and PEOs can help provide security for data.
VPNs (virtual private networks) should be used to exchange data with service bureaus or PEOs.
Acknowledgment messages and control totals should be used to ensure transmission accuracy.

KEY DECISIONS AND INFORMATION NEEDS

The payroll system should be integrated with cost data and HR information so management can make decisions with
respect to the following types of issues:
Future work force staffing needs
Employee performance
Employee morale
Payroll processing efficiency and effectiveness

KEY DECISIONS AND INFORMATION NEEDS

Benefits of an integrated HRM/payroll model:

Access to current, accurate information about employee skills and knowledge.
HRM activities can be performed more efficiently and costs reduced.
EXAMPLE: Employment application terminals in Wal-Mart.
Recruiting costs can be reduced, when applicant data is electronically accessible.

Human Resource Process in the Enterprise Value Chain

Payroll Cycle Events

Labor Acquisition
An economic increment event that represents the provision of labor by an employee to the enterprise
Usually is documented by a time card or other reporting mechanism with similar information

Payroll Cycle Events

Cash Disbursement
An economic decrement event that represents the distribution of cash to the employee from whom labor was acquired
Usually is documented by a paycheck or a direct deposit notification

Payroll Cycle Agents

Employee
external agent involved in instigation and commitment events and in economic events
Personnel Representative
internal represents the companys side for the initial or general instigation and commitment events
Supervisor
internal represents the companys interest in the ongoing or specific instigation, commitment, and economic events
Payroll Clerk
internal often involved in cash disbursements

Activities/Documents of Acquisition/Revenue Cycles

In Acquisition and Revenue cycles, common kinds of activities occur; you should familiarize yourself with these activities and know
what documents/screens are used to record them and what types of information those documents/screens capture

Acquisition Cycle Workflow and Documents

Instigation: A purchase requisition (whether on paper or as a data entry screen) summarizes information about this event

Acquisition Cycle Workflow and Documents

Purchase Order
Enterprise commits to receive a specific quantity of a good or service and to remit payment of a certain amount by a
specific future date/time
Supplier commits to deliver a specific quantity of a good or service by a specific future date/time

Acquisition Cycle: Workflow and Documents

Performance by Vendor (Economic Increment Event)

Performance = fulfillment of an obligation in a manner that releases the performer from all liabilities
Delivery of goods or services by vendor to enterprise
Called an acquisition, a purchase, a rental, a service acquisition, or a general & administrative (G&A) service acquisition
Acquisition or Purchase if title to goods transferred
Rental for temporary use of goods

Service Acquisition or G&A Service Acquisition if vendor provided utilities or services

Receiving Report (or equivalent record of receipt of services) best represents this event

Acquisition Cycle: Workflow and Documents

What about the vendor (supplier) invoice?

Traditionally, most enterprises use the vendor invoice to record economic increment events instead of recording them
based on receiving reports
Often a time lag occurs between vendors performance and receipt of the vendor invoice; the enterprise system is
technically out of date if the enterprise waits for the invoice to record the economic increment event

Vendor Invoice

Make all checks payable to: Joes Favorite Vendor

Please make sure your account number is on all correspondence and checks.
THANK YOU

Acquisition Cycle
Workflow and Documents

Performance by Enterprise
Payments because the commitment the enterprise made is to pay for the agreed upon goods and/or services
Economic Decrement Event
Often documented by a disbursement voucher; a document that indicates underlying documents have been examined
and payment is authorized

Disbursement Voucher

Acquisition Cycle: Workflow and Documents

Post-Purchase Activities: Returns & Allowances

Economic Increment Reversal Events
Though similar in mechanics, inherently different from economic decrement events
Giving something back that you had hoped would satisfy your needs, even though you will receive back what you gave in
exchange, is not the same as giving something up in exchange for something you want more

Acquisition Cycle: Workflow and Documents

Purchase Return transfers custody and title of goods back to vendor

Often involves request to return, packing slip, bill of lading, and debit memorandum
Purchase Allowance reduces the price paid to a vendor for goods or services because of a defect or dissatisfaction
Usually documented by a debit memorandum

Debit Memorandum

DEBIT MEMO
Your Source Company No.___3___
Your Source for Everything You Need
123 Main St.

Anytown, USA 12345

Revenue Cycle: Workflow and Documents

Agreements/Contracts
Enterprise agrees to deliver a specific quantity of goods and/or services at a specific date/time and place
Customer agrees to receive goods and/or services and to remit a specific amount of money for them by a specific date
May be a sale order (for goods), rental contract (for temporary use of goods), or service agreement (for services)

Revenue Cycle: Workflow and Documents

Customer Order vs Sale Order

Customer order is a one-sided commitment; customer is agreeing to receive and pay for goods/services
Customer order is in the customers format (in fact, to the customer it is a purchase order)
Sale order is a mutual commitment; enterprise has responded to the customers commitment by likewise committing to
providing the goods/services
Sale order is in the enterprises format

Sale Order Document

Revenue Cycle: Workflow and Documents

Sale (economic decrement event)

Workflow varies widely
Customers may come to enterprise to obtain service, consume goods, or to take goods with them
Enterprise may deliver goods or services to customer
Enterprise may use a commercial carrier to deliver goods to customer location
Performance = sale
But the name may vary to suit the nature of the performance
E.g. service, rental, performance (as in concert or show), gig, job, event, shipment, delivery, and so forth

Revenue Cycle: Workflow and Documents

Sale (economic decrement event)

Documents vary widely, common types include
Picking lists are often used to instruct warehouse personnel as to what to pick from the warehouse to ship to the customer
(or in some cases to hand to them over the counter)
Packing slips summarize the goods the company actually included in a shipment to the customer
Bill of lading summarizes data about a shipment as a whole how many containers are the goods packed into, what are
the dimensions, weight, etc.
Sale Invoice
Prepared primarily for commercial carriers

Make all checks payable to: Your

Sale invoice serves to remind customers of the commitment they made and request payment
Source Company

THANK YOU FOR YOUR BUSINESS!

Revenue
Cycle Workflow and Documents
Picking List

Performance by Customer

Cash Receipts because the

commitment the customer made
Packing Slip
is to pay for the agreed upon
goods and/or services

Economic Increment Event

Bill of Lading

Often documented by a
remittance advice; a document
UNIFORM STRAIGHT BILL OF LADING Domestic Document No. _15______
that accompanies a payment

Your Source Company Shippers No. ___14789B______

Your Source for Everything You Need Carriers No. ___8796801______
123 Main St. Date __5/5/2014______________
Anytown, USA 12345
___Federal Express______________
(Name of Carrier)

Revenue Cycle: Workflow and Documents

Post-Sale Activities: Returns & Allowances

Economic Decrement Reversal Events
Though similar in mechanics, these are inherently different from economic increment events
Getting something back that you had sold and losing the hope of getting cash for it (or having to give back the cash) is not
the same kind of event as purchasing something.

Revenue Cycle: Workflow and Documents

Sale Return transfers custody and title of goods back from customer enterprise

Often involves return authorization, receiving report, and credit memorandum

Sale Allowance reduces the price to be received from a customer for goods or
services because of a defect or dissatisfaction
Usually documented by a credit memorandum

Automatic Entry Controls: examples:

Automatic Calculation and Posting Controls:
examples?
Complete Data Controls: examples?
Valid Data Controls: examples?
Exceeded Limits Controls --- did we see any
of these?
Accounts Receivable Hold --- we did not see
these
Error Correction Controls: importance?
Access Controls/Separation of Duties --- we
did not see these