Payroll Processing

Reviewer
AIS

Hall Chapter 6
Process Department in Input/ Source Output/ Product Document Accounting
Charge Document Records
Prepare Personnel Action forms
Personnel
1 Personnel Department
Action forms
2 Prepare Job Production  Job Ticket
Ticket Department  Time Cards
3 Job ticket Labor Distribution summary WIP
Update WIP Cost Accounting Subsidiary
account Department ledger
4 Prepare  Personnel Action  Payroll Register (to AP) Employee
Payroll
forms  Employee Paychecks (to Payroll
Payroll Department
 Time Cards Paymaster) Records
5 Distribute Paymaster Employee Paychecks Employee Paychecks unclaimed
(Treasury (returned to Payroll)
Paychecks
Department)
6 Prepare Payroll Register Voucher Packet (to CD Function): Accounts
Accounts Payable i. Cash Disbursement Payable
Accounts
Clerk/ Department Voucher (copy to GL) Subsidiary
Payable
ii. Payroll Register Ledger
7 Voucher Packet:  Payroll Checks (sent to bank, Check
i. Cash copy to AP) Register
Accounting
Prepare Disbursem  Voucher Packet (to AP where
Departments
Cash ent they are filed):
(Cash
Disburseme Voucher i. Cash Disbursement
Disbursement
nts ii. Payroll Voucher
Function)
Register ii. Payroll Register
 Journal voucher (to GL)
8  Labor Distribution General
Accounting Summary Ledger
Update
Department  Cash (Payroll
General
(General Ledger Disbursement Clearing
Ledger
Function) Voucher Account)
 Journal voucher
Notes
1. Nature of Payroll processing creates a need for specialized procedures:
a. Payroll procedures differ greatly among classes of employees (hourly, salaried, piece workers, commissioned) & special
accounting is required for employee deductions and withholdings for taxes that do not apply to trade discounts
b. Payroll activities are discrete events in which disbursements occur weekly, biweekly, monthly; the task in addition to
normal trade account checks can overload the general purchasing and cash disbursement system
c. Writing checks to employees requires special control and discourage payroll fraud

2. Forms/ Documents
a. Personnel action forms--- identify employees authorized to receive paycheck and are used to reflect changes in hourly
pay rates, deductions, and job classification
b. Job tickets--- capture the time that individual workers spend on each production job; used by cost accounting to allocate
direct labor charges to WIP accounts.
c. Time cards--- capture the time of the employee is at work; sent to payroll function for calculating the amount of
employee paycheck ; formal record for daily attendance
d. Labor distribution summary--- summary of accounting allocations on labor cost to the WIP account forwarded to GL

3. Form of payroll fraud involves submitting time cards for nonexistent employees where the perpetuator collects the paycheck
and cashes it

4. Paymaster is independent of the payroll process—not involved in payroll authorization and preparation
 5. Payroll imprest account— the cash disbursement function prepares a single check for the entire amount and deposits it here

6. Human Resource Management (HRM) system—captures and processes a wide range of personnel- related data, like
employee benefits, labor source planning, employee relations, employee skills, internal training, personnel actions, and payroll
processing; provide real time access to personnel files

7. Employee timekeeping: biometric time clocks, magnetic swipe ID cards, proximity cards, mobile remote devices

8. Controls in the Payroll System

a. Segregation of Duties:
Time keeping function and personnel function
should be separated
b. Supervision so that other employees will
not clock in for other employees
c. Independent verification on:
i. Supervisor must verify accuracy of time
cards before sending them to payroll
ii. Paymaster helps verify the existence of an
employee
iii. AP clerk verifies the accuracy of the
payroll register before creating a disbursement
voucher that transfers funds to the imprest
account
iv. GL department provides verification of
the overall process by reconciling the labor
distribution summary and the payroll
disbursement voucher

Romney Chapter 15

1. Knowledge Management systems--- software that stores and organizes expertise possessed
by individual employees so that the knowledge can be shared and used by others
2. Risk and Controls

3.