Accounting Information Systems: The Processes and Controls, 2nd Edition

SUMMARY OF STUDY OBJECTIVES

An introduction to payroll and fixed asset processes. Payroll and fixed asset processes are different from other expenditures in two ways. First, they tend to have fewer transactions than the process of purchasing raw materials. Second, each of these processes has both routine and nonroutine aspects. Payroll has routine processes for weekly, biweekly, or monthly payroll activities, but there are also nonroutine processes for hiring, terminating, or changing the status of employees. Fixed asset processes are routine for depreciating fixed assets, but nonroutine for approving the purchase and disposal of fixed assets.

Payroll processes. Employees must first be hired through the human resources department. The routine accounting processes for maintaining valid employees is the collection, review, and approval of time cards; the calculation of payroll based on pay rates, hours, and deductions; the preparation, approval, and signing of paychecks; a transfer of sufficient funds to the payroll account; distribution of paychecks; and updating payroll and general ledger records.

Risks and controls in payroll processes. Payroll processes involve large sums of cash and the potential for erroneous or inflated timekeeping. Proper controls are necessary to protect the cash and to ensure accurate and complete payroll records. These internal controls can be categorized into authorization, segregation, adequate records and documents, security of assets and documents, ...