THE

EXPENDITURE
CYCLE PART II
PAYROLL PROCESSING AND
FIXED ASSET PROCEDURES
The Conceptual Payroll System
Payroll processing is a special case purchasing
system that allows an organization to buy labor
rather than supplies or finished commodities for
resale.
The nature of payroll processing, however, creates
the need for specialized procedures for the following
reasons:
i. A company can create universal purchasing
and payment policies that cover all suppliers
and stock products.
ii. General expenditure activities constitute a
relatively steady stream of purchasing and
disbursing transactions.
iii. Writing checks to employees requires special
controls.
Data Flow Diagram of Payroll Procedures
PAYROLL SYSTEM GENERAL TASKS
PRODUCTION DEPARTMENT
PERSONNEL DEPARTMENT

1. Job tickets are tools for recording the
1. Personnel action forms are amount of time that certain employees
documents used to record changes spend on each production job. These tickets
to pay rates, payroll deductions, and are used in cost accounting to allocate
job classification. They are used to costs to WIP.

identify employees who are allowed 2. Time cards are a tool used to record an

to receive paychecks. employee's attendance at work for payroll

purposes.
PAYROLL SYSTEM GENERAL TASKS
UPDATE WIP ACCOUNT
1. After cost accounting allocates labor
costs to the WIP accounts, a labor
distribution summary is prepared. A
labor distribution summary is a
summarization of labor costs in work-
in-process accounts, this is forwarded
to the GL function.
PREPARE PAYROLL
(DONE BY THE PAYROLL DEPARTMENT)
1. Payroll dept. receives pay rate and withholding data from the
personnel dept. and hours-worked from production.
2. Employee payroll records is the system an employer uses to
calculate, track, and report employee pay.
3. Paychecks are a bank check given as salary or wages; these are sent
to distribute paycheck function.
4. The payroll register is a document showing gross pay, deductions,
overtime pay, and net pay.
5. Payroll dept. files time cards, personnel action forms, and payroll
register copy
PAYROLL SYSTEM GENERAL TASKS

PREPARE CASH DISBURSEMENT

DISTRIBUTE PAYCHECK; PREPARE 1. The payroll imprest account is an account

ACCOUNTS PAYABLE (PREPARE CASH into which a single check for the entire
DISBURSEMENT VOUCHER) amount of the payroll is deposited; copy of the

check is sent to AP and journal voucher
prepared and sent to the GL function.
 The general ledger function receives the labor
distribution summary from cost accounting, the
disbursement voucher from accounts payable,
and the journal voucher from cash
disbursements.

UPDATE
GENERAL The debits and credits from these
entries must be equal.

LEDGER
When the equality has been verified,
the clerk files the voucher and labor
distribution summary.
 Review of the operational features
and control issues pertinent to a
THE basic technology system.

PHYSICAL
PAYROLL Features and controls of an integrated

SYSTEM
system that uses advanced
technologies.
Basic Technology Payroll System
BASIC TECHNOLOGY PAYROLL SYSTEM
Key tasks of a basic technology system:
1. Personnel action and time and attendance information from the
personnel and production departments, respectively, initiate the
payroll process.
2. The payroll department reconciles this information, calculates the
payroll, and sends the paychecks to the paymaster for distribution to
employees.
3. Cost accounting receives information regarding the time spent on
each job from production.
4. Accounts payable receives payroll summary information (payroll
register) from the payroll department and authorizes the cash
disbursements department to deposit a single check, in the amount of
the total payroll, in a bank imprest account on which the payroll is
drawn.
5. The general ledger department reconciles summary information from
cost accounting and accounts payable.
Integrated Payroll and HRM System
(Advanced Technology)
 ADVANCED TECHNOLOGY PAYROLL SYSTEM
The human resource management (HRM) HUMAN RESOURCES
system captures and processes a wide

range of personnel related data, including 1. Clerks enter data in employee records in real
employee benefits, labor resource time.
planning, employee relations, employee
skills, and personnel actions (pay rates,
COST ACCOUNTING
deductions, and so on), as well as payroll.

HRM systems need to provide real-time

1. The labor usage file is a file in which the cost
access to personnel files for purposes of
accounting department enters job cost data
direct inquiries and recording changes in
(real time or daily).
employee status as they occur.
 ADVANCED TECHNOLOGY PAYROLL SYSTEM
EMPLOYEE TIMEKEEPING

4. Proximity cards are similar to swipe cards but
1. The time and attendance file is generated by
don't require the user to slide the card through a
employees directly entering timekeeping data
in real time. reader.
2. Biometric time clocks verify employees' 5. Mobile remote devices allow employees to
identities by using fingerprint or hand-vein
clock in using handheld devices (PDA or cell
scan technology.
3. Magnetic swipe ID cards work like a credit phone) or web browsers from laptop computers.
card. Each employee is issued an ID card that This option is popular among businesses with
has a magnetic strip containing employee
employees in the field who travel between clients
information. The employee swipes the card
and with companies engaged in global business
through the time clock to record start and end
time on the job. with foreign-based employees.
ADVANCED TECHNOLOGY PAYROLL SYSTEM
DATA PROCESSING Labor costs distributed to WIP, overhead and

expense accounts.
1. The employee records file comprises Online labor distribution file is created.
the additions of new employees, Payroll is calculated and an online payroll register
deletions of terminated employees, is created.
changes in work dependents,
Employee record files are updated.
changes in withholdings, and
Paychecks are prepared, signed and distributed.
changes in job status such as job
Funds to cover payroll are transferred to the
title and pay rate. Human resources
payroll imprest account and the transfer is
clerks enter data into the employee
recorded.
records file in real time from
terminals. Digital journal vouchers are entered and system
automatically updates the GL.
 GROUP 3

CUDAL, JEWEL
CORRALES, CLAIRE-ARN
PACCALAGAN, CES
PAGULAYAN, KIRSTHEN
URSULUM, KATHLYN