Which department checks disbursement vouchers and maintains both the voucher register and general ledger?

CHAPTER 5: The Expenditure Cycle Part I: Purchases and Cash Disbursement Procedures 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.

MONITOR INVENTORY RECORDS: Purchase Requisition – it is prepared when inventory drop to predetermined reorder point.

PREPARE PURCHASE ORDER: 1. PPO function receives the purchase requisition. 2. Purchase order is prepared for each vendor. 3. Copy of PO is sent to the vendor. 4. Copy is sent to the set up AP function for filing temporarily in the AP pending file. 5. Blind copy is sent to the receive goods function. 6. Last copy is filed in the open/closed purchased order file.

RECEIVE GOODS: • Upon receipt, the receiving department counts and inspects the goods. • A blind copy of the PO is used to force workers to count the goods. • A receiving report is prepared and copies sent to the raw materials storeroom, purchasing department, Inventory Control, and A/P department. • A/P department eventually receives copies of the PR, PO, receiving report, and the supplier’s invoice. UPDATE INVENTORY RECORDS: •

A/P department reconciles these documents, posts to the purchases journal, and records the liability in the accounts payable subsidiary ledger.

SET UP ACCOUNTS PAYABLE: •

A/P department periodically summarizes the entries in the purchases journal as a journal voucher which is sent to the General Ledger (G/L) department. Inv-Control or Purchases DR Accts Payable-Control CR

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. Early Payment

The firm forgoes interest income that it could have earned on the funds.

Late Payment

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The firm will lose purchase discounts or may damage its credit standing.

Detailed Cash Disbursement System:

CHAPTER 6: The Expenditure Cycle Part II: Payroll Processing and Fixed Asset Procedures The Conceptual Payroll System: Payroll processing – is actually a special-case purchases system in which the organization purchases labor rather than raw materials or finished goods for resale. 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. Prepare Accounts Payable • prepares a cash disbursements voucher for the total amount of the payroll. • sends copies to the Cash Disbursements and General Ledger department. • Prepare Cash Disbursements • 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. Update General Ledger •

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:   

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Transaction authorization – it helps prevent terminated employees from receiving checks and wage rates from being improperly changed for current employees. Segregation of Duties – the timekeeping and personnel functions should be separated. Supervision - need to monitor employees to ensure they are not “clocking in” for one another. Supervisors should observe the time-keeping process and reconcile the time cards with actual attendance. Accounting Records - audit trail includes:  time cards  job tickets  disbursement vouchers  labor distribution summary  payroll register  subsidiary ledger accounts  general ledger accounts

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Access Controls - control needed to prevent employees from having improper access to accounting records, such as time cards which can be altered and unsigned checks. Independent Verification: The following are examples of independent verification controls in the payroll system:  verification of time cards  distribution of paychecks to authorized employees  verification of accuracy of payroll register by A/P dept.  general ledger department reconciles the labor distribution summary and the payroll disbursement voucher.

The Conceptual Fixed Asset System: Fixed assets - the property, plant, and equipment used in the operation of a business. Fixed Asset System: 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). Controlling the Fixed Asset System • •

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Authorization Controls - Fixed asset acquisition should be formal and explicit authorized. Supervision Controls - important element in the physical security of fixed assets. It ensures that fixed assets are being used in accordance with the organization’s policies and business practices. Independent Verification Controls - internal auditor should review the asset acquisition and approval procedures to determine the reasonableness of factors used in the analysis.

Which department performs the reconciliation of the cash disbursement journal voucher and the account summary from accounts payable department?

What purpose does a purchasing department serve?

Which department is responsible for initiating the purchase of materials?

What are the steps taken in the cash disbursement system?