Accounting Cycles

1
APPENDIX F
ACCOUNTING CYCLES
On the following pages are five flowcharts and accompanying tables describing the steps in five basic
accounting cycles and the controls in each step for an organization large enough to have an optimal
segregation of duties.
NOTE: Except for manual checks and remittance advices, the flowcharts presented do not assume
the use of either a paper-based or an electronic system. Each document symbol represents a
business activity or control, whether manual or computerized.
NOTE: In the diagrams that follow, documents that originate outside the organization are separated
by a thick border.
Copyright © 2021 Gleim Publications, Inc. All rights reserved. Duplication prohibited. Reward for information exposing violators. Contact copyright@gleim.com.
2 Appendix F: Accounting Cycles
Figure F-1
Appendix F: Accounting Cycles 3
Sales-Receivables System Flowchart Table

Function Authorization Custody Recording
Inventory Inventory Accounts General
Department Customer Sales Credit Shipping Billing
Warehouse Control Receivable Ledger
Step Business Activity Internal Control

Sales receives a customer order and prepares a Reconciling sequentially numbered sales
1 multi-part sales order then forwards it to Credit. orders helps ensure that orders are
legitimate.
Credit performs a credit check. If the customer is Ensures that goods are shipped only to
2 creditworthy, Credit approves the sales order. actual customers and that the account is
unlikely to become delinquent.
Credit sends copies of the approved sales order Notifies these departments that a
3 to Sales, Inventory Warehouse, Shipping, Billing, legitimate sale has been made.
and Inventory Control.
Upon receipt of the approved sales order, Sales The customer’s expectation of receiving
4 sends an acknowledgment to the customer. goods reduces the chances of misrouting
or misappropriation.
Upon receipt of the approved sales order, the Ensures that goods are removed from the
5 Inventory Warehouse pulls the goods and forwards Inventory Warehouse only as part of a
them to Shipping. legitimate sale.
Shipping verifies that the goods received from Ensures that the correct goods are
Inventory Warehouse match the approved sales shipped.
6
order, prepares a packing slip and a bill of
lading, and ships the goods to the customer.
Shipping forwards a copy of the packing slip and Notifies these departments that the goods
7
bill of lading to Inventory Control and Billing. have been shipped.
Upon receipt of the packing slip and bill of Ensures that inventory records are
lading, Inventory Control matches them with the updated once the goods have been
8
approved sales order and updates the inventory shipped.
records.
Upon receipt of the packing slip and bill of Ensures that customers are billed for
lading, Billing matches them with the approved all goods, and only those goods, that
sales order, prepares a multi-part invoice, were actually shipped. Reconciling
9
and sends a copy to the customer. Typically, a sequentially numbered invoices helps
remittance advice is included for use in the cash prevent misappropriation of goods.
receipts cycle.
Accounts Receivable receives an invoice copy Ensures that customer accounts are kept
10
from Billing and posts a journal entry to the AR file. current.
Accounts Receivable prepares a daily invoice Separation of the Accounts Receivable,
11 summary for the day and forwards it to General Billing, and General Ledger helps assure
Ledger for posting to the GL file. integrity of recording.
General Ledger receives a daily invoice Updating inventory, AR, and GL files
summary from AR to post to the GL file. separately provides an additional
12
accounting control when they are
periodically reconciled.
Figure F-2
Cash Receipts System Flowchart Table

Mail Cash Accounts General
Department Customer Bank
Room Receipts Receivable Ledger

Mail Room opens customer mail with two clerks Reduces risk of misappropriation by a
always present. Customer checks are immediately single employee. Checks stamped “For
1 endorsed “For Deposit Only into Account XXX.” Deposit Only into Account XXX” cannot
Remittance advices are separated (one is be diverted.
prepared if not included in the payment).
Mail Room prepares a remittance listing of all Remittance listing provides a control total
2 checks received during the day and forwards it for later reconciliation.
with the checks to Cash Receipts.
Cash Receipts prepares a deposit slip and Bank provides independent evidence that
3 deposits checks in Bank. Bank validates the the full amount was deposited.
deposit slip.
Mail Room sends remittance advices to Accounts Ensures that customer accounts are kept
4 Receivable for updating of customer accounts in current.
the AR file.
Mail Room also sends a copy of the remittance Updating AR and GL files separately
5 listing to General Ledger for posting of the total to provides an additional accounting control
the GL file. when they are periodically reconciled.
Validated deposit slip is returned to General Ensures that all cash listed on the
6 Ledger to compare with remittance listing. remittance listing from the Mail Room was
deposited.
Accounts Receivable periodically sends an Customers will complain about mistaken
7 account statement to customers showing all billings or missing payments.
sales and payment activity.
Figure F-3
Purchases-Payables System Flowchart Table

Inventory Inventory Accounts General
Department Purchasing Vendor Receiving
Control Warehouse Payable Ledger

Inventory Control prepares a purchase Predetermined inventory levels trigger
requisition when inventory reaches the authorization to initiate a purchase
1
reorder point due to sales and sends it to transaction.
Purchasing and Accounts Payable.
Purchasing locates the authorized vendor in • Purchasing ensures that goods are
the vendor file, prepares a purchase order, bought only from vendors who have been
and updates the purchase order file. preapproved for reliability.
2
• Reconciling sequentially numbered
purchase orders helps ensure that orders
are legitimate.
Purchasing sends the purchase order to • Receiving is put on notice to expect
Vendor, Receiving, and Accounts Payable. shipment.
3 Receiving’s copy has blank quantities. • Accounts Payable is put on notice that
liability to this vendor will increase when
goods arrive.
When goods arrive, Receiving accepts Because quantities are blank on Receiving’s
goods based on the file copy of the copy of the purchase order, employees must
4 purchase order, prepares a receiving count items to prepare the receiving report.
report, and forwards the receiving report
with the goods to the Inventory Warehouse.
The Inventory Warehouse verifies that Detects any loss or damage between
goods received match those listed on the Receiving and the Inventory Warehouse.
5
receiving report. Inventory Warehouse accepts responsibility
for safeguarding receipted goods.
Receiving sends the receiving report to Ensures that inventory records are current.
Inventory Control for matching with the
6
purchase requisition and updating of
inventory records.
Receiving also sends a copy of the Accounts Payable ensures that all
receiving report to Accounts Payable for documents reconcile and will await the
matching with the purchase order and arrival of the vendor invoice to record the
7
purchase requisition. payable transaction (as shown in the Cash
Disbursements System Flowchart on the
next page).
Figure F-4
Cash Disbursements System Flowchart Table

Cash Accounts General
Department Vendor Purchasing
Disbursements Payable Ledger

Purchasing receives a vendor invoice. • Purchasing ensures the vendor invoiced
The vendor invoice is matched with the for the proper amount and the terms are as
purchase order and approved for payment. agreed.
1 The purchase order is marked as closed in • Purchasing can follow up on partially filled
the purchase order file if completed, and the orders.
approved vendor invoice is forwarded to
Accounts Payable.
Accounts Payable matches the approved • Matching all documents provides
vendor invoice with the file copies of the assurance that only goods that were
purchase requisition, purchase order, appropriately ordered, received, and
and receiving report and prepares a invoiced are recorded as a liability.
2 payment voucher. The payment voucher • Periodic reconciliation with the payment
is recorded in the accounts payable file. vouchers in the tickler file (maintained by
due date) with the accounts payable file
(maintained by vendor) ensures proper
recording.
The payment voucher, with the attached Filing by due date ensures that payment will
documents, is filed in a tickler file by be made on a timely basis (e.g., to obtain
due date. The daily total of all payment discounts or avoid default).
3
vouchers is sent to the General Ledger to
record the purchase (inventory) and liability
(accounts payable).
On the due date, the payment voucher • Cash Disbursements cannot issue a check
and attached documents are removed from without an approved payment voucher.
the tickler file sent to Cash Disbursements • Large payments may require two
4
for check preparation, signing, and signatures on the check to provide
mailing. The check is recorded in the cash additional oversight.
disbursements journal.
The payment voucher and attached Stamping the documents “Paid” prevents
5 documents are stamped “Paid,” and the them from supporting a second, illicit
check is mailed to the vendor. payment voucher.
The daily total of all checks written and Periodic reconciliation of the accounts
mailed for the day is sent to General Ledger payable and general ledger ensures proper
6
to record the reduction in accounts payable recording.
and cash.
Figure F-5
Payroll System Flowchart Table

Human Cash Dis- Time- Cost Accounts General
Department Production Bank Payroll
Resources bursements keeping Accounting Payable Ledger

Human Resources sends an authorized Ensures that only actual employees are
1 employees’ rates and deductions list to included on the payroll and that rates of pay
Payroll. and withholding amounts are accurate.
Employees record the start and end times of The recording process mechanically or
2 their workdays on employee clock cards held electronically captures employee work hours.
in Timekeeping.
Production employees record time worked on Allows accumulation of labor costs by job as
3
various tasks on job time tickets. well as tracking of direct and indirect labor.
At the end of each day, a production supervisor Ensures that employees worked only
approves the job time tickets and forwards authorized hours. Reconciles the time
4
them to Timekeeping, where they are allocated to direct and indirect labor with total
reconciled with the employee clock cards. time worked.
Timekeeping prepares a summary of hours Ensures that employees are paid the proper
worked by employee and forwards it to amount.
5 Payroll. Payroll matches it with the authorized
employees’ rates and deductions list and
prepares a payroll register.
Timekeeping prepares a summary of hours Ensures that direct labor costs are
6 worked by job and forwards it to Cost appropriately assigned to jobs.
Accounting for updating of the job cost records.
Accounts Payable receives the payroll Ensures that a payable is accrued. Authorizes
register from Payroll, prepares a payment the transfer of cash to the payroll imprest
7
voucher, and forwards it along with the payroll account.
register to Cash Disbursements.
Payroll also forwards the payroll register to Updating AP and GL files separately provides
8 General Ledger for posting of the total to the an additional accounting control when they are
GL file. periodically reconciled.
Cash Disbursements compares the payment Ensures that the correct amount is transferred
voucher with the payroll register total and to the payroll imprest account (and
9
initiates the bank transfer to the payroll imprest governmental authorities).
fund.
Paychecks are distributed to employees by the Treasurer has custody responsibility but no
Treasurer function. recording or authorization responsibility. This
10 ensures that Payroll or supervisory personnel
cannot perpetrate fraud by creating fictitious
employees.

Accounting Cycles

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Accounting Cycles

Uploaded by

Copyright:

Available Formats

1

Sales-Receivables System Flowchart Table

Step Business Activity Internal Control

Cash Receipts System Flowchart Table

Step Business Activity Internal Control

Purchases-Payables System Flowchart Table

Step Business Activity Internal Control

Cash Disbursements System Flowchart Table

Step Business Activity Internal Control

Payroll System Flowchart Table

Step Business Activity Internal Control

You might also like