CHAPTER 6

The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures

Learning Objectives
Recognize the fundamental tasks

that constitute the payroll and fixed asset processes.

Be able to identify the functional

departments involved in payroll and fixed asset activities and trace the flow of these transactions through the organization.

Learning Objectives
Be able to specify the documents,

journals, and accounts that provide audit trails, promote the maintenance of historical records, and support internal decision making and financial reporting. Understand the exposures associated with payroll and fixed asset activities and recognize the controls that reduce these risks. Be aware of the operational features and the control implications of technology used in payroll and fixed

Discussions

This

chapter is divided into two major sections. The first begin with a conceptual overview of the payroll process emphasizing logical tasks, key entities, sources and uses of information, and the flow of key documents through an organization. We illustrate these features first with manual system and then consider the operational and control issues related to computer-based

Discussions

The second section examines fixed

asset systems. Fixed assets are the property, plant and equipment used in the operation of a business. This discussion focused on processes pertaining to the acquisition, maintenance, and disposal of its fixed assets.

Learning Insights
To determine which document is

used by cost accounting to allocate direct labor charges to work in process. know which department authorizes changes in employee per rates. learn about why should employees supervisor not distribute paychecks.

To

To

Learning Insights
To know why employee paychecks

be drawn against a special checking account. To learn why should employees clocking on and off the job be supervised. To determine what tasks does a payroll check perform upon receipt of hours-worked data from the production department.

Learning Insights
To determine what documents are

included in the audit trail for payroll. To know what are the strengths and weaknesses of a batch process with sequential files and batch process with direct access files. To learn about what information is found on the depreciation schedule and how this information be verified.

Fixed Asset Accounting

Fixed asset Accounting involves

three classes of procedures: 1. Asset Acquisition 2. Asset Maintenance 3. Asset Disposal

Summary

The chapter began with an examination

of payroll procedures. The discussion focused on fundamental task: the functional departments; and the documents, journals, and accounts that constitute the payroll system. Common exposures and controls and reduce risks inherent in payroll activities were explained.

Summary
In addition, the operational features and the control implications of technology used in payroll systems were reviewed. The section of expenditure cycle ( payroll processing and fixed asset procedures ) presented typical features of the fixed asset system.

Summary

Lastly

this chapter examined files, procedures, and reports fixed asset system. I concluded discussion by reviewing principal risks and controls in system.

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