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 $. To impro%e internal internal control& control& paychecks paychecks should be distributed distributed by the employee's employee's super%isor. super%isor. ANS: F (. )mployee )mployee paycheck paycheckss should should be drawn drawn against against a special special checking checking account. account. ANS: T *. +ecause +ecause a time clock is used& used& no super%ision super%ision is re,uired re,uired when when employees employees enter enter and lea%e the work work place. ANS: F -. n%entory n%entory control control per"orms per"orms the the "ormal record record keeping keeping "unction "unction "or "i/ed assets assets.. ANS: F 0. The deprecia depreciation tion schedu schedule le shows shows when assets assets are "ully "ully depreciat depreciated. ed. ANS: T . Authoriza Authorization tion to to dispose dispose o" "i/ed "i/ed assets assets should should be issued issued by the user user o" the asset. asset. ANS: F 1. 3ork#in 3ork#in#proc #process ess records records are updated updated by payroll payroll personn personnel. el. ANS: F 11. deally& deally& payroll checks are written on a special bank account used only "or payroll. ANS: T 12. The super%isor super%isor is the the best person person to determine the e/istence o" a 4phantom employee5 and should distribute paychecks.
ANS: F 1. 6ayroll 6ayroll processin processing g can be automated automated easily easily because because accounting accounting "or payroll payroll is %ery simple. simple. ANS: F 1$. Timekeep Timekeeping ing is is part part o" the the personn personnel el "unction "unction.. ANS: F 1(. Fi/ed asset accounting systems include include cost allocation and matching procedures that that are not part o" routine e/penditure systems. ANS: T 1*. Asset maintenance maintenance in%ol%es in%ol%es only only the recording o" depreciation depreciation charges. charges. 6hysical 6hysical impro%ements impro%ements are always e/pensed. ANS: F 1-. Fi/ed Asset Systems must keep track o" the physical physical location location o" each asset to promote accountability. accountability. ANS: T 10. Time cards capture capture the total time time an indi%idual worker spends spends on each production production 7ob. 7ob. ANS: F 1. Accounting con%entions and 8S rules sometime sometime speci"y the depreciation depreciation parameters parameters to be used. ANS: T 2. The "i/ed asset disposal disposal report authorizes the the user department department to dispose o" o" a "i/ed asset. ANS: F "UTIPE C#$ICE
1. The document document that captures captures the total total amount amount o" time that indi%idual indi%idual workers spend on each production 7ob is called a a. time card b. 7ob ticket c. pers person onne nell acti action on "or "orm m d. labo laborr dist distri ribu buti tion on "or "orm m ANS: + 2. An importan importantt reconcil reconciliati iation on in the the payroll payroll system system is a. general general ledger ledger compares compares the labor labor distribut distribution ion summary summary "rom cost cost account accounting ing to the the disbursement %oucher "rom accounts payable b. personnel compares the the number o" employees authorized authorized to recei%e a paycheck to the the number o" paychecks prepared
c. production production compar compares es the number number o" hours hours reported reported on 7ob 7ob tickets tickets to the number number o" hours hours reported on time cards d. payroll payroll compares compares the labor labor distribu distribution tion summary summary to the the hours reporte reported d on time cards cards ANS: A . 3hich intern internal al control control is not not an important important part part o" the payroll payroll system9 system9 a. Super%iso Super%isors rs %eri"y %eri"y the accuracy accuracy o" employ employee ee time time cards. cards. b. 6aychecks are distributed distributed by an independent paymaster. c. Accounts Accounts payable payable %eri"ies %eri"ies the accuracy accuracy o" the payroll payroll register register be"ore be"ore trans"err trans"erring ing payroll payroll "unds to the general checking accounting. d. eneral eneral ledger ledger reconciles reconciles the labor labor distribut distribution ion summary summary and the payroll payroll disbursem disbursement ent %oucher. ANS: ; $. 3hich transacti transaction on is not not processed processed in in the Fi/ed Fi/ed Asset Asset System9 System9 a. purc purcha hase se o" o" bui build ldin ing g b. impro%ement o" e,uipment e,uipment c. purc purcha hase se o" raw raw mat mater eria ials ls d. sale sale o" com company pany %an %an ANS: ; (. or and>or loss loss on disposal disposal o" "i/ed "i/ed asset assetss d. maintaini maintaining ng a record record o" o" the "air "air market market %alue %alue o" o" all "i/ed "i/ed assets assets ANS: <
. 3hich o" o" the "ollowing "ollowing is is not a characteri characteristic stic o" the the Fi/ed Ass Asset et System9 System9 a. Ac,uisit Ac,uisitions ions are are routine routine transactio transactions ns re,uirin re,uiring g general general authorizat authorization. ion. b. 8etirements are reported on an authorized disposal disposal report "orm. c. Ac,uisit Ac,uisition ion cost cost is allocated allocated o%er the the e/pected e/pected li"e o" o" the asset. asset. d. Trans"e Trans"err o" "i/ed assets assets among departme departments nts is recorded recorded in the "i/ed "i/ed asset subsidi subsidiary ary ledger. ledger. ANS: A 1. n the payroll payroll subsystem& subsystem& which which "unction "unction should should distribut distributee paychecks9 paychecks9 a. personnel b. timekeeping c. paym aymaster d. payroll ANS: ; 11. 3here does the responsibility responsibility lie lie "or reconciling reconciling the labor distribution distribution summary summary and the the payroll disbursement %oucher9 a. cash cash disb disbur urse seme ment ntss b. cost accounting c. personnel d. gener eneral al led ledge ger r ANS: < 12. 3hich o" the the "ollowi "ollowing ng stateme statements nts is is not not true9 true9 a. 8outine 8outine payroll payroll proces processing sing begins begins with with the the submissi submission on o" time time cards. cards. b. 6ayroll clerks must %eri"y %eri"y the hours reported on the the time cards. c. 6ayroll 6ayroll reconciles reconciles person personnel nel action action "orms "orms with time time cards and prepar prepares es paychecks. paychecks. d. ;ash disburs disbursement ementss signs paychecks paychecks and and "orwards "orwards them to the paymaste paymasterr "or distributi distribution. on. ANS: + 1. n a manu"acturing manu"acturing "irm& employees use time cards and 7ob tickets. 3hich 3hich o" the the "ollowing statements is not correct9 a. ?ob tickets tickets are prepared prepared by employ employees ees "or each each 7ob worked worked on& on& so an employ employee ee may ha%e ha%e more that one 7ob ticket on a gi%en day. b. An indi%idual employee employee will ha%e only one one time card. c. The time time reported reported on 7ob tickets tickets should should reconc reconcile ile with with the time time reported reported on time cards. cards. d. 6aychecks 6aychecks shou should ld be be prepared prepared "rom the 7ob tickets. tickets. ANS: < 1$. 3hich departm department ent is responsib responsible le "or appro%ing appro%ing changes changes in pay rates rates "or employees employees99 a. payroll b. treasurer c. personnel d. cash cash dis disbu burs rsem emen ents ts ANS: ; 1(. 3hich o" the the "ollowing "ollowing situation situationss represents represents a serious serious control control weakness9 weakness9 a. Timekeep Timekeeping ing is is indepen independent dent o" the the payroll payroll departm department. ent. b. 6aychecks are distributed distributed by the employees immediate immediate super%isor. super%isor. c. Time Time cards cards are are reconc reconcile iled d with with 7ob tick tickets ets.. d. 6ersonnel 6ersonnel is respons responsible ible "or updating updating employ employee ee records& records& including including creation creation o" records records "or
new hires. ANS: + 1*. 3hy would an organization organization re,uire the paymaster to deli%er deli%er all unclaimed unclaimed paychecks to the internal audit department9 a. to detect detect a 4phantom 4phantom employee5 employee5 "or "or whom a check check was was produced produced b. to pre%ent an absent employee@s employee@s check "rom being lost c. to a%oid a%oid paying paying abse absent nt employ employees ees "or "or payday payday d. to pre%en pre%entt the paymaster paymaster "rom cashi cashing ng unclaim unclaimed ed checks checks ANS: A 1-. 3hich o" o" the "ollowing "ollowing is is not a reasonabl reasonablee control control "or "i/ed "i/ed assets9 assets9 a. 6roper 6roper authorizat authorization ion is re,uired re,uired "or "or ac,uisitio ac,uisition n and disposa disposall o" "i/ed assets. assets. b. Fi/ed asset records show show the location o" each asset. asset. c. Fully depreciate depreciated d assets assets are immedi immediately ately disposed disposed o". d.
c. pay payroll roll regi regist ster er d. acco accoun unts ts pay payable able regi regist ster er ANS: < 2. 6ersonnel 6ersonnel action actionss "orms are are used to to do all o" o" the "ollowi "ollowing ng e/cept e/cept a. acti acti%a %ate te new new empl employ oyees ees b. terminate employees c. reco record rd hour hourss wor worke ked d d. chan change ge pay pay rate ratess ANS: ; 2$. The payroll payroll departm department ent per"orm per"ormss all o" the the "ollowing "ollowing e/cep e/ceptt a. prepa prepares res the payrol payrolll regi registe ster r b. distributes paychecks paychecks c. upd update atess emplo employe yeee payr payroll oll records records d. prep prepar ares es pay paych chec ecks ks ANS: + 2(. The documen documentt that records records the the total amount amount o" time time spent on a produc production tion 7ob 7ob is the a. time card b. 7ob ticket c. labo laborr dist distri ribu buti tion on sum summa mary ry d. pers person onne nell act actio ion n "or "orm m ANS: ; 2*. A control control techni, techni,ue ue that can reduce reduce the risk o" a terminated terminated employ employee ee being paid paid is a. a secur security ity came camera ra %iewi %iewing ng the the time time cloc clock k b. the super%isor taking taking role during the shi"t shi"t c. paychecks paychecks being being distribu distributed ted by an indepe independent ndent paymaster paymaster d. reconcilia reconciliation tion o" time cards and 7ob tickets tickets ANS: ; 2-. 2-. Acco Accoun unts ts pay payab able le a. sign signss pay paych chec eck ks b. prepares the payroll %oucher %oucher c. recon reconcil ciles es time time cards cards and and emplo employe yeee record recordss d. distri distribu butes tes payc paychec hecks ks to employ employees ees ANS: + 20. All o" the "ollow "ollowing ing are process processed ed by the Fi/ed Fi/ed Asset Asset System System e/cept e/cept a. sale sale o" o" unne unneed eded ed e,u e,uip ipme ment nt b. purchase o" raw materials c. repair repair o" produc producti tion on e,uipm e,uipment ent d. purc purcha hase se o" a new new plan plantt ANS: + 2. The Fi/ed Fi/ed Asset Asset System System per"orm per"ormss all o" the the "ollowin "ollowing g e/cept e/cept a. determ determine iness the the need need "or "or new new assets assets b. maintains depreciation depreciation records
c. record recordss retirem retirement ent and and dispo disposal sal o" o" assets assets d. tracks tracks the the physical physical location location o" "i/ed "i/ed assets assets ANS: A . The payroll payroll departm department ent per"orm per"ormss all o" the the "ollowing "ollowing e/cep e/ceptt a. prep prepar ares es pay paychec checks ks b. trans"ers ade,uate "unds "unds to the payroll imprest imprest account c. upd update atess emplo employe yeee payr payroll oll records records d. prepa prepares res the payrol payrolll regi registe ster r ANS: + 1. 1.
1. or some paycheck would not clear. This will alert management to the problem so correcti%e action can be taken. (. 3hy should should employ employees ees clocking clocking on on and o"" o"" the 7ob 7ob be super%is super%ised. ed. 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 3hat is a perso personn nnel el acti action on "orm "orm99 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 employees typically "ill out two di""erent di""erent documents documents regarding regarding their 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 two types o" authori authorizatio zation n re,uired re,uired in the Fi/ed Fi/ed Asset Asset System. System. ANS: authorization to purchase the asset and to dispose o" the asset
. Cist "our "our types types o" data data that appea appearr on a depreciat depreciation ion schedu schedule. le. 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 documen documents ts prompt prompt the "i/ed asset asset departmen departmentt to create a "i/ed asset asset record9 record9 ANS: the recei%ing report and the disbursement %oucher 11.
The personnel action form is a document which identi"ies employees who should recei%e a paycheckE re"lects changes in pay rates& payroll deductions& and 7ob classi"ications. The job ticket collects in"ormation on the time indi%idual workers spend on each production 7ob. captures the total time that an employee is at work. The time card captures
1-. ow do "i/ed "i/ed asset asset systems systems di""er di""er "rom "rom the the e/penditu e/penditure re cycle9 cycle9 ANS: The "i/ed asset system processes nonroutine transactions "or a wider group o" users in the organization than the e/penditure cycle. Further& the e/penditure cycle processes routine ac,uisitions o" raw materials in%entories "or the production "unction and "inished goods in%entories "or the sales "unction. The e/penditure cycle transactions are o"tentimes automatically appro%ed b y the system& while "i/ed asset transaction appro%als typically demand indi%idual attention due to the uni,ueness o" the transactions. 10. 3hat is recorde recorded d by the asset asset maintenan maintenance ce part o" the the Fi/ed Ass Asset et System9 System9 ANS: periodic depreciation depreciation "ollowing an appro%ed appro%ed depreciation schedule schedule and physical impro%ements impro%ements to the asset to increase the subsidiary account and to ad7ust the depreciation schedule 1. ow are the "ollowing "ollowing carried out out in the the Fi/ed Asset System: authorization& authorization& super%ision& super%ision& independent independent %eri"ication9 ANS: Independent authorization 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 verification must con"irm the location& e/istence& and condition o" the assets. 2. 3hich department department authorizes authorizes change changess to employee employee pay pay rates9 rates9 ANS: The personnel department %ia the personnel action "orm E!!A'
1. The ol" ;lub ;ompany ;ompany makes custom gol" gol" clubs. 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 appro%es all time cards. The accountant analyzes the 7ob tickets and prepares a labor distribution summary. summary. 6ayroll prepares the payroll register and paychecks. paychecks. The super%isor super%isor distributes the the paychecks to the employees. 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: Segregate duties. 6ersonnel should hire hire employees and a paymaster should distribute paychecks. 3)AGN)SS: )mployees could be paid "or time they do not workE a co#worker could record an absent worker as present punch the time clockB. !68=H)!)NT: Super%ise the time clock. 8econcile time cards and 7ob time tickets. 3)AGN)SS: 6ayroll has authorization and transaction transaction processing responsibilities. responsibilities. 6ayroll is authorizing the disbursement to "und the entire payroll. Accounts payable is not part o" the system. !68=H)!)NT: Segregate dutiesE accounts payable payable should %eri"y the accuracy o" the payroll register and create a disbursement %oucher. %oucher. 3)AGN)SS: 6ayroll is "unded through through the general checking checking account. !68=H)!)NT: 6aychecks should be written on a separate payroll account. 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 in%entory purchases. . Three ma7or tasks are handled by the Fi/ed Asset System. 3hat 3hat is the purpose o" each9 3hat 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. 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 +accus ;orp. manu"actu manu"actures res medical medical e,uipment e,uipment.. This is a capital capital intensi%e intensi%e industry industry and 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& 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 "loor and put into ser%ice. At the end o" o" the month& the production production super%isor in"orms in"orms the general ledger clerk about the receipt o" the machinery. The 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 repair department per"orms routine maintenance on all o" the production e,uipment. e,uipment. =ccasionally the repair department rebuilds a machine to e/tend its use"ul li"e. All o" the costs associated with the repair department are charged to manu"acturing o%erhead. 3hen a machine becomes obsolete& production employees employees mo%e it to a corner o" the "actory "loor "loor and break it down so that that parts can be used in other machines. 6roduction employees routinely remo%e parts "or personal use. Some smaller machines ha%e disappeared completely "rom the "actory "loor. The general ledger clerk takes a physical in%entory e%ery three years. About 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.
3)AGN)SS: )mployees remo%e e,uipment and e,uipment e,uipment parts "rom the premises without authorization. !68=H)!)NT: )mployees should recei%e written written authorization be"ore remo%ing parts or e,uipment "rom the "actory. 3)AGN)SS: The general ledger clerk is conducting conducting the physical in%entory and maintaining maintaining the record keeping. !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 accessible labels to identi"y "i/ed assets. 3)AGN)SS: Fi/ed assets cannot be located and are not remo%ed "rom "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 scrapped remain on the books. books. !68=H)!)NT: Assets that are scrapped should should be remo%ed "rom the "i/ed asset records. 3)AGN)SS: The clerk regards -(J -(J accuracy as e/cellent. !68=H)!)NT: Acceptance o" -(J accuracy is poor. Any Any %ariation should be in%estigated and records updated. (. 3hy does does the payrol payrolll process process lend lend itsel" itsel" to batch batch processi processing9 ng9 ANS: 6ayroll lends itsel" to batch computerization because it is processed at "i/ed time inter%als which permits some time lag. 6rocessing 6rocessing the payroll "ile usually usually in%ol%es most most employees each time it is processed& which is an e""icient e""icient use o" computer computer resources and can be accomplished accomplished with a single single pass through the "ile. *.
. The automati automaticc depreciation depreciation charg charges es calculated calculated by the "i/ed "i/ed asset asset system should should be re%iewed re%iewed and %eri"ied "or accuracy and completeness. System errors that miscalculate depreciation can result in the material misstatement o" operating e/penses& reported earnings& and asset %alues.
