Chapter 6—The Expenditure Cycle Part II: I I: Payroll Processing and Fixed Asset Procedures TRUE/FA!E
1. Time cards cards are used used by cost cost accounting to allocate direct labor labor charges to work in process. process. ANS: F 2. The personne personnell department department autho authorizes rizes change changess in employee employee pay rates. rates. ANS: T . !ost payroll payroll systems systems "or "or mid#size mid#size "irms use use real#time real#time data data processing processing.. ANS: F $. To impro%e internal control& control& paychecks should be distributed by the employee's super%isor super%isor.. ANS: F (. )mployee )mployee paycheck paycheckss should should be drawn drawn against against a special special checking checking account. account. ANS: T *. +ecause +ecause a time clock is used& used& no super%ision super%ision is re,uired re,uired when when employees employees enter enter and lea%e the work work place. ANS: F -. n%entory n%entory control control per"orms per"orms the the "ormal record record keeping keeping "unction "unction "or "i/ed assets assets.. ANS: F 0. The deprecia depreciation tion schedu schedule le shows shows when assets assets are "ully "ully depreciat depreciated. ed. ANS: T . Authoriza Authorization tion to to dispose dispose o" "i/ed "i/ed assets assets should should be issued issued by the user user o" the asset. asset. ANS: F 1. 3ork#in#pro ork#in#process cess records records are are updated updated by payroll payroll personn personnel. el. ANS: F 11. deally& deally& payroll checks checks are written written on a special bank account used used only "or payroll. ANS: T
12. The super%isor is the best person to determine the e/istence o" a 4phantom employee5 and should distribute paychecks. ANS: F 1. 6ayroll processing can be automated easily because accounting "or payroll is %ery simple. ANS: F 1$. Timekeeping is part o" the personnel "unction. ANS: F 1(. Fi/ed asset accounting systems include cost allocation and matching procedures that are not part o" routine e/penditure systems. ANS: T 1*. Asset maintenance in%ol%es only the recording o" depreciation charges. 6hysical impro%ements are always e/pensed. ANS: F 1-. Fi/ed Asset Systems must keep track o" the physical location o" each asset to promote accountability. ANS: T 10. Time cards capture the total time an indi%idual worker spends on each production 7ob. ANS: F 1. Accounting con%entions and 8S rules sometime speci"y the depreciation parameters to be used. ANS: T 2. The "i/ed asset disposal report authorizes the user department to dispose o" a "i/ed asset. ANS: F "UTIPE C#$ICE
1. The document that captures the total amount o" time that indi%idual workers spend on each production 7ob is called a a time card . b 7ob ticket . c personnel action "orm . d labor distribution "orm .
ANS: + 2. An important reconciliation in the payroll system is a general ledger compares the labor distribution summary "rom cost accounting to the . disbursement %oucher "rom accounts payable b personnel compares the number o" employees authorized to recei%e a paycheck to the . number o" paychecks prepared c production compares the number o" hours reported on 7ob tickets to the number o" hours . reported on time cards d payroll compares the labor distribution summary to the hours reported on time cards .
ANS: A . 3hich internal control is not an important part o" the payroll system9 a Super%isors %eri"y the accuracy o" employee time cards. . b 6aychecks are distributed by an independent paymaster. . c Accounts payable %eri"ies the accuracy o" the payroll register be"ore trans"erring payroll . "unds to the general checking accounting. d eneral ledger reconciles the labor distribution summary and the payroll disbursement . %oucher.
ANS: ; $. 3hich transaction is not processed in the Fi/ed Asset System9 a purchase o" building . b impro%ement o" e,uipment . c purchase o" raw materials . d sale o" company %an .
ANS: ; (.
ANS: + *.
ANS: A -. 3hich control is not a part o" the Fi/ed Asset System9 a "ormal analysis o" the purchase re,uest . b re%iew o" the assumptions used in the capital budgeting model . c de%elopment o" an economic order ,uantity model . d estimates o" anticipated cost sa%ings .
ANS: ; 0. =b7ecti%es o" the Fi/ed Asset System do not include a authorizing the ac,uisition o" "i/ed assets . b recording depreciation e/pense . c computing gain and>or loss on disposal o" "i/ed assets . d maintaining a record o" the "air market %alue o" all "i/ed assets .
ANS: < . 3hich o" the "ollowing is not a characteristic o" the Fi/ed Asset System9 a Ac,uisitions are routine transactions re,uiring general authorization. . b 8etirements are reported on an authorized disposal report "orm. . c Ac,uisition cost is allocated o%er the e/pected li"e o" the asset. . d Trans"er o" "i/ed assets among departments is recorded in the "i/ed asset subsidiary . ledger.
ANS: A 1. n the payroll subsystem& which "unction should distribute paychecks9 a personnel . b timekeeping . c paymaster . d payroll .
ANS: ; 11. 3here does the responsibility lie "or reconciling the labor distribution summary and the payroll disbursement %oucher9 a cash disbursements . b cost accounting . c personnel . d general ledger .
ANS: < 12. 3hich o" the "ollowing statements is not true9 a 8outine payroll processing begins with the submission o" time cards. . b 6ayroll clerks must %eri"y the hours reported on the time cards. . c 6ayroll reconciles personnel action "orms with time cards and prepares paychecks. . d ;ash disbursements signs paychecks and "orwards them to the paymaster "or distribution. .
ANS: + 1. n a manu"acturing "irm& employees use time cards and 7ob tickets. 3hich o" the "ollowing statements is not correct9 a ?ob tickets are prepared by employees "or each 7ob worked on& so an employee may ha%e . more that one 7ob ticket on a gi%en day. b An indi%idual employee will ha%e only one time card. . c The time reported on 7ob tickets should reconcile with the time reported on time cards. . d 6aychecks should be prepared "rom the 7ob tickets. .
ANS: < 1$. 3hich department is responsible "or appro%ing changes in pay rates "or employees9 a payroll . b treasurer . c personnel . d cash disbursements .
ANS: ; 1(. 3hich o" the "ollowing situations represents a serious control weakness9 a Timekeeping is independent o" the payroll department. . b 6aychecks are distributed by the employees immediate super%isor. . c Time cards are reconciled with 7ob tickets. . d 6ersonnel is responsible "or updating employee records& including creation o" records "or . new hires.
ANS: + 1*. 3hy would an organization re,uire the paymaster to deli%er all unclaimed paychecks to the internal audit department9 a to detect a 4phantom employee5 "or whom a check was produced . b to pre%ent an absent employee@s check "rom being lost . c to a%oid paying absent employees "or payday . d to pre%ent the paymaster "rom cashing unclaimed checks .
ANS: A 1-. 3hich o" the "ollowing is not a reasonable control "or "i/ed assets9 a 6roper authorization is re,uired "or ac,uisition and disposal o" "i/ed assets. . b Fi/ed asset records show the location o" each asset. . c Fully depreciated assets are immediately disposed o". . d
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ANS: ; 10. ;ost accounting updates work#in#process accounts "rom a time cards . b the labor distribution summary . c 7ob tickets . d personnel action "orms .
ANS: ; 1. 6ayroll uses time card data to do all o" the "ollowing e/cept a prepare the payroll register . b update employee payroll records . c prepare the labor distribution summary . d prepare paychecks .
ANS: ; 2. 6ayroll checks are typically drawn on a the regular checking account . b a payroll imprest account . c a wages payable account . d petty cash .
ANS: + 21. The personnel action "orm pro%ides authorization control by a pre%enting paychecks "or terminated employees . b %eri"ying pay rates "or employees . c in"orming payroll o" new hires . d all o" the abo%e
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ANS: < 22. Accounting records that pro%ide the audit trail "or payroll include all o" the "ollowing e/cept a time cards . b 7ob tickets . c payroll register . d accounts payable register .
ANS: < 2. 6ersonnel actions "orms are used to do all o" the "ollowing e/cept a acti%ate new employees . b terminate employees . c record hours worked . d change pay rates .
ANS: ; 2$. The payroll department per"orms all o" the "ollowing e/cept a prepares the payroll register . b distributes paychecks . c updates employee payroll records . d prepares paychecks .
ANS: + 2(. The document that records the total amount o" time spent on a production 7ob is the a time card . b 7ob ticket . c labor distribution summary . d personnel action "orm
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ANS: ; 2*. A control techni,ue that can reduce the risk o" a terminated employee being paid is a a security camera %iewing the time clock . b the super%isor taking role during the shi"t . c paychecks being distributed by an independent paymaster . d reconciliation o" time cards and 7ob tickets .
ANS: ; 2-. Accounts payable a signs paychecks . b prepares the payroll %oucher . c reconciles time cards and employee records . d distributes paychecks to employees .
ANS: + 20. All o" the "ollowing are processed by the Fi/ed Asset System e/cept a sale o" unneeded e,uipment . b purchase o" raw materials . c repair o" production e,uipment . d purchase o" a new plant .
ANS: + 2. The Fi/ed Asset System per"orms all o" the "ollowing e/cept a determines the need "or new assets . b maintains depreciation records . c records retirement and disposal o" assets . d tracks the physical location o" "i/ed assets
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ANS: A . The payroll department per"orms all o" the "ollowing e/cept a prepares paychecks . b trans"ers ade,uate "unds to the payroll imprest account . c updates employee payroll records . d prepares the payroll register .
ANS: + 1.
ANS: ; 2. The Fi/ed Asset System is similar to the e/penditure cycle e/cept a "i/ed asset transactions are non#routine and re,uire special authorization and controls . b "i/ed assets are capitalized& not e/pensed . c both a and b . d none o" the abo%e .
ANS: ; . Asset maintenance in%ol%es a the recording o" periodic depreciation . b ad7usting the asset records to re"lect the cost o" physical impro%ements . c keeping track o" the physical location o" the assets . d all o" the abo%e
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ANS: < $. The Fi/ed Asset Systems does all o" the "ollowing e/cept a records ac,uisition o" assets . b records impro%ements to assets . c estimates the "air market %alue o" assets in ser%ice . d records the disposal o" assets .
ANS: ; (. Asset disposal a occurs as soon as an asset is "ully depreciated . b re,uires no special authorization . c automatically initiates the purchase o" a replacement asset . d must "ollow "ormal authorization procedures .
ANS: < !#$RT A%!&ER
1.
This type o" "raud can be reduced or eliminated by using a paymaster to distribute paychecks to employees in person. Any uncollected paychecks are then returned to payroll. Also& mail "inal paychecks to terminated employees. $. 3hy should employee paychecks be drawn against a special checking account9 ANS: A separate imprest account is established "or the e/act amount o" the payroll based on the payroll summary. 3hen the paychecks are cashed& this account should clear lea%ing a zero balance. Any errors in checks additional checks or abnormal amountsB would result in a non#zero balance in the imprest account and>or some paycheck would not clear. This will alert management to the problem so correcti%e action can be taken. (. 3hy should employees clocking on and o"" the 7ob be super%ised. ANS: A "orm o" payroll "raud in%ol%es employees clocking the time cards o" absent employees. +y super%ising the clocking in and out process& this "raud can be reduced or eliminated. *. 3hat is a personnel action "orm9 ANS: The personnel action "orm pro%ides the payroll department with a list o" currently acti%e employees& so that any submission o" time cards by super%isors "or "ictitious or e/#employees will not be processed. -. n a manu"acturing "irm& employees typically "ill out two di""erent documents regarding their time worked. 3hat are they9 3hy are there two9 ANS: The two documents are the time card and the 7ob ticket. Two are re,uired because the time card records all the time worked by an employee during the period while the 7ob ticket details the time by pro7ect. 0. Cist two types o" authorization re,uired in the Fi/ed Asset System. ANS: authorization to purchase the asset and to dispose o" the asset . Cist "our types o" data that appear on a depreciation schedule. ANS: item description& depreciation method& use"ul li"e& date ac,uired& cost& sal%age %alue& accumulated depreciation& depreciation e/pense per period& book %alue 1. 3hich documents prompt the "i/ed asset department to create a "i/ed asset record9 ANS: the recei%ing report and the disbursement %oucher 11.
ANS: Super%isors must authorize the disposal o" the computer. Dnless so authorized& the record will continue to show that the employee is responsible "or the computer. 12.
10. 3hat is recorded by the asset maintenance part o" the Fi/ed Asset System9 ANS: periodic depreciation "ollowing an appro%ed depreciation schedule and physical impro%ements to the asset to increase the subsidiary account and to ad7ust the depreciation schedule 1. ow are the "ollowing carried out in the Fi/ed Asset System: authorization& super%ision& independent %eri"ication9 ANS: Independent authorization is re,uired to ac,uire an asset and to "ormalize the depreciation schedule. Supervision must be e/ercised o%er the physical assets. Independent verification must con"irm the location& e/istence& and condition o" the assets. 2. 3hich department authorizes changes to employee pay rates9 ANS: The personnel department %ia the personnel action "orm E!!A'
1. The ol" ;lub ;ompany makes custom gol" clubs. The manu"acturing super%isor inter%iews people who ha%e specialized manu"acturing skills& and he in"orms payroll when an employee is hired. The employees use a time clock to record the hours they work. The employees are also re,uired to keep a record o" the time they spend working on each order. The super%isor appro%es all time cards. The accountant analyzes the 7ob tickets and prepares a labor distribution summary. 6ayroll prepares the payroll register and paychecks. The super%isor distributes the paychecks to the employees. 6ayroll in"orms cash disbursement o" the "unds re,uired to co%er the entire payroll amount. The cash disbursements clerk ensures that there are ade,uate "unds in the company's regular checking account to co%er the payroll.
!68=H)!)NT: 6aychecks should be written on a separate payroll account. 2. manager. The "i/ed asset department per"orms the record keeping "unction. The e/penditure cycle processes routine transactions which are o"ten debited to in%entory or e/pensed. The recei%ing department deli%ers routine purchases to a central store or warehouse. n%entory ;ontrol per"orms the record keeping "unction "or in%entory purchases. . Three ma7or tasks are handled by the Fi/ed Asset System. 3hat is the purpose o" each9 3hat special control issues a""ect each9 ANS: Asset ac,uisition handles the steps leading to the ac,uisition o" new "i/ed assets: recognition o" need& authorization and appro%al& possible capital in%estment analysis& and selection o" supplier. +ecause o" the %alue o" "i/ed assets& special appro%als are needed. Asset maintenance in%ol%es ad7usting the subsidiary account balances "or depreciation& and impro%ements and tracking location. ;ontrol in%ol%es accountability by keeping track o" the physical location o" each asset. Asset disposal handles the remo%al o" assets "rom the subsidiary ledger when the asset is taken out o" ser%ice. This re,uires special appro%al and preparation o" a disposal report. $. The +accus ;orp. manu"actures medical e,uipment. This is a capital intensi%e industry and in%estments in "i/ed assets e/ceed I( million a year. The minimum cost "or production e,uipment is I-(&. 3hen super%isors want new production machinery& they contact the plant manager. The plant manager appro%es or denies the re,uest based on discussions with the production super%isor& the repair and maintenance super%isor& and the ,uality control super%isor. A purchase order is prepared by the purchasing department and sent to one o" the three ma7or suppliers o" production machinery "or medical e,uipment. The e,uipment is deli%ered immediately to the production "loor and put into ser%ice. At the end o" the month& the production super%isor in"orms the general ledger clerk about the receipt o" the machinery. The general ledger clerk establishes an asset record "or the machine. At the end o" the year& the general ledger clerk computes straight#line depreciation based on a 1#year li"e with a 1 percent sal%age %alue.
The general ledger clerk takes a physical in%entory e%ery three years. About -( percent o" the "i/ed assets can be located and identi"ied. =ther assets ha%e serial numbers that are inaccessible& so the item cannot be matched to a "i/ed asset record. Some "i/ed asset records cannot be traced to an actual item. Se%eral machines that ha%e been scrapped and are being used "or spare parts were matched to "i/ed asset records. At the last in%entory& the general ledger clerk did not make any ad7ustments to the "i/ed asset records e/plaining that -( percent accuracy in the "i/ed asset physical in%entory was e/cellent.
!68=H)!)NT: The general ledger clerk should not be taking the physical in%entory count. Also& the physical count should occur more "re,uently. 3)AGN)SS: Fi/ed assets cannot be matched with records. !68=H)!)NT: Apply easily accessible labels to identi"y "i/ed assets. 3)AGN)SS: Fi/ed assets cannot be located and are not remo%ed "rom the books. !68=H)!)NT: Fi/ed assets that cannot be located must be remo%ed "rom the "i/ed asset records. 3)AGN)SS: Fi/ed assets that are scrapped remain on the books. !68=H)!)NT: Assets that are scrapped should be remo%ed "rom the "i/ed asset records. 3)AGN)SS: The clerk regards -(J accuracy as e/cellent. !68=H)!)NT: Acceptance o" -(J accuracy is poor. Any %ariation should be in%estigated and records updated. (. 3hy does the payroll process lend itsel" to batch processing9 ANS: 6ayroll lends itsel" to batch computerization because it is processed at "i/ed time inter%als which permits some time lag. 6rocessing the payroll "ile usually in%ol%es most employees each time it is processed& which is an e""icient use o" computer resources and can be accomplished with a single pass through the "ile. *.
