Accounting Information System Chapter 6
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Transcript of Accounting Information System Chapter 6
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Accounting Information Systems, 6th edition
James A. Hall
COPYRIGHT © 2009 South-Western, a division of Cengage Learning. Cengage Learning and South-Western
are trademarks used herein under license
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Objectives for Chapter 6Fundamental tasks of payroll and fixed asset
processesFunctional depts. of payroll and fixed asset
activities and the flow of transactions through the organization
Documents, journals, and accounts needed for audit trails, record maintenance, decision making, and financial reporting
Exposures associated with payroll and fixed asset activities and the controls that reduce these risks
Operational features and the control implications of technology used in payroll and fixed asset systems
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DFD of Payroll Procedures
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Manual Payroll SystemPersonnel dept. uses personnel action forms to: activate new employeeschange the pay rate of employeeschange marital status and/or number of dependents
terminate employees
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Production employees fill out two forms:job tickets - account for the time spent
by the worker on each production jobtime cards - used to capture the total
time worked each pay period for payroll calculationsmust be signed by a supervisor
Manual Payroll System
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Cost Accounting dept:uses the job tickets to allocate labor costs to WIP accounts
summarizes these charges in a labor distribution summary which is forwarded to G/L dept.
Manual Payroll System
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Payroll dept receives personnel action forms and time cards.
Uses them to:prepare the payroll registerenter the information into the employee payroll
recordsprepare paycheckssend paychecks to Cash Disbursements and a
copy of the payroll register to Accounts Payable
Manual Payroll System
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Accounts Payable dept: prepares a cash disbursements voucher for the total amount of the payroll
sends copies to the Cash Disbursements and G/L depts.
Manual Payroll System
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Cash Disbursements dept:reviews and signs the paychecks and forwards them to a paymaster for distribution to the employees
writes a check for the payroll and deposits it into the payroll imprest account
Manual Payroll System
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G/L dept. makes the following journal entries:From the Labor Distribution Summary
WIP (Direct Labor) DRFactory Overhead (Indirect Labor) DR Wages Payable CR
From the Distribution VoucherWages Payable DR Cash CR Fed. Inc. Tax Withholding Payable CR State Inc. Tax Withholding Payable CR FICA Withholding Payable CR Other Withholding Payables CR
Manual Payroll System
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G/L dept. 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
Manual Payroll System
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Payroll Procedures Flowchart
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Payroll ControlsTransaction authorization - the personnel action form helps prevent: terminated employees from receiving checks
wage rates from being improperly changed for current employees
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Segregation of Duties - timekeeping and personnel functions should be separated
Supervision - need to monitor employees to ensure they are not “clocking in” for one another
Payroll Controls
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Accounting Records - audit trail includes:time cardsjob ticketsdisbursement voucherslabor distribution summarypayroll registersubsidiary ledger accountsgeneral ledger accounts
Payroll Controls
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Access Controls - need to prevent employees from having improper access to: accounting records, such as time cards which can be altered
unsigned checks
Payroll Controls
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Independent Verification: verification of time cardsdistribution of paychecks to authorized employees
verification of accuracy of payroll register by A/P dept.
G/L dept. reconciles the labor distribution summary and the payroll disbursement voucher
Payroll Controls
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Computer-Based Payroll Systems
Payroll is well-suited to batch processing and sequential files.Most employees on the master file
receive paychecks periodically.The computer program performs the
detailed record-keeping, check-writing, and general ledger functions.
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Reengineered HRM SystemsPayroll can be reengineered as a part of
human resource management (HRM).IT can process a wide range of personnel-
related data, including:employee benefitslabor resource planningemployee skills and trainingpay rates, deductions, and pay checksevaluations
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Key Features of Reengineered HRMPersonnel - can make changes to
the employee file in real timeCost Accounting - enters job cost
data either daily or in real timeTimekeeping - enters the
attendance file dailyData Processing - still uses batch
processing and prepares all reports, the checks, and updates the general ledger
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Reengineered HRM Systems… differ from automated manual and batch/sequential file systems because:operations depts. transmit transactions to data processing via terminals
direct access files are used for storagemany processes are performed real timereal-time access to personnel files required for direct inquiries
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Reengineering Payroll—Before (Batch)
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Reengineering Payroll—After (Real-Time)
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The Fixed Asset System (FAS)Fixed Assets - property, plant, and
equipment used in the operation of a business
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1. Acquisitionof asset.
2. Depreciation.3. Subsequent expenditures.
4. Disposalof asset.
Assetcost
Salvagevalue
$
Time (useful life)
Decline in asset’s service potentialCost
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DFD of Fixed Asset System
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Computer-Based FASFlowchart
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Objectives of FASAcquire fixed assets in accordance with
management approval and proceduresMaintain adequate accounting records of
asset acquisition, cost, description, and location
Maintain depreciation records for depreciable assets in accordance with acceptable method
Provide management with information to help it plan future fixed asset investments
Properly record the retirement and disposal of fixed assets
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Asset AcquisitionBegins when a dept. manager determines
that an old fixed asset needs to be replaced or that a new fixed asset is warranted
A purchase requisition is filled out.May require an authorizing signature for items
over a pre-specified limit
FAS dept. performs record-keeping functions.
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Asset MaintenanceInvolves adjusting FAS subsidiary account
balances as assets depreciateDepreciation calculations are internal
transactions that the FAS system bases upon a depreciation schedule.
Physical improvements must also be recorded to increase the subsidiary account balance and depreciation schedule.
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Asset DisposalAt the end of an asset’s useful life (or earlier disposition), the asset must be removed from the records and depreciation schedule
Disposals require disposal request forms and disposal reports as source documents.
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Computer-Based Fixed Asset System—Acquisition Receipt of assets are digitally recorded in the system, along with information such as its useful life, depreciation methods, etc.
Ledgers are automatically updated
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Computer-Based Fixed Asset System—Maintenance
Computerized FAS automatically:calculate current period’s depreciationupdate accumulated depreciation and book-
value fields in the subsidiary recordspost total depreciation to the affected general
ledger accounts record depreciation transactions by adding
records to the journal voucher file
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Computer-Based Fixed Asset System—Disposal
Computerized FAS automatically:post adjusting entries to the fixed
asset control account in the general ledger
record losses or gains associated with the disposal transaction
prepare journal voucher records
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FAS ControlsAuthorization - should be formal and explicit
because of high cost of FAS:acquisitions changes in depreciation methods (depends on
top mgt)Supervision - threat of misappropriation
requires constant management oversight: theft - secure physical locations of assets misuse - monitor on-the-job activities
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Independent Verification - internal auditors should periodically verify FAS records:the reasonableness of factors used in
decisions (useful life, discounts, budgeting model)
location, condition, and fair value of the fixed asset records in the subsidiary ledger
the programming logic for automatic calculations (depreciation)
FAS Controls