Auditing the expenditure cycle

1. What is the importance of the job ticket? Illustrate the flow of this document and
its information from inception to impact on the financial statements?

The job ticket is used to assign each labor hour of work to a particular work in
progress account on the computer. In the world of cost accounting, these work tickets are
very essential. The job tickets are completed by production employees, who record the
entire amount of time that they spend on each production task on which they are assigned.
These are then sent to the cost accountants, who utilize them to post the labor expenses to
particular work-in-progress (WIP) accounts such as direct labor, indirect labor, overhead, and
others. As part of this process, the cost accountant creates a labor distribution summary,
which includes the information that the general ledger clerk needs in order to make the
required entries into the general ledger accounts.

2. What document support the payment of an invoice? Discuss where these

documents originate and the resulting control implications?

In some cases, the purchase requisition, purchase order, and receiving report may be
used to support the payment of an invoice (in addition to the invoice itself). The buy
requisition is generated by inventory management and reflects the needs for goods in the
warehouse. The buy order is issued by the purchasing department and serves as a record of
the order that has been made. This report is generated by the receiving department and
contains information on the amount and kinds of products that have been received. For this
reason, accounts payable must establish (a) whether the products purchased were
requested by a department other than buying (i.e., inventory management), (b) whether
purchasing ordered the goods from a legitimate vendor, and (c) whether or not the goods
were really received. Payment of the invoice should only be made if all three criteria are
fulfilled. Otherwise, the invoice should be rejected. Furthermore, payments should only be
made for items that have been received in acceptable condition.

3. Discuss the time lags between realizing and recognizing economic events in the
purchase and payroll systems. What is the accounting profession's view on this matter as it
pertains to these two systems?

In the case of accounts payable, there is a lag between the time the item that was
bought is received and the time the obligation to the vendor is recorded on the ledger. The
receipt of an invoice is the occurrence that typically results in the recording of a vendor's
obligation for the amount due. The time lag may vary from practically nothing for highly
integrated EDI systems to a few days for less integrated EDI systems. Because of this small
latency in the recording procedure, liabilities are underestimated during this time period.
When it comes to payroll expenses, wages to employees accumulate for each minute, hour,
and day that they are employed. However, during the period between when the employees
earn their salaries and when they are paid, these expenses are not recognized as a liability
on the balance sheet. These time delays are usually between half a week and a week in
length. Unless the company is in the process of shutting its books or producing interim
financial statements, none of these time delays should be a source of worry. However, at this
stage, estimates or accruals of the amounts due should be established, and the records
should be updated accordingly.