CHAPTER 6 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset 1
Procedures
The Physical Fixed Asset System
COMPUTER-BASED FIXED ASSET SYSTEM
Because many of the tasks in the fixed asset system are similar in concept to the purchases system in
Chapter 5, we will dispense with a review of manual procedures. Figure 6-13 illustrates a computer-
based fixed asset system, which demonstrates real-time processing. The top portion of the flowchart
presents the fixed asset acquisition procedures, the center portion presents fixed asset maintenance
procedures, and the bottom portion presents the asset disposal procedures. To simplify the flowchart and
focus on the key features of the system, we have omitted the processing steps for AP and cash
disbursements.
2 PART II Transaction Cycles and Business
Processes
F I G U R E
6-12 DEPRECIATION SCHEDULE
OZMENT’S INDUSTRIAL SUPPLY
ASSET LISTING WITH DEPRECIAT ION SCHEDULES
FROM 200 THROUGH 200
Code Type Description Month# Depn. exp. Acc. depn. Book value
200 OFF&F
OFFICE FURNITURE
Depn. method: SYD
Life in years: 5
Date acquired
2/01/09 Date retired
Cost 5,500.00
Residual 500.00
Acc. Depn. 2,222.23
1 138.89 138.89 5,361.11
2 138.89 277.78 5,222.22
3 138.89 416.67 5,083.33
4 138.89 555.56 4,944.44
5 138.89 694.45 4,805.55
6 138.89 833.34 4,666.66
7 138.89 972.23 4,527.77
8 138.89 1,111.12 4,388.88
9 138.89 1,250.01 4,249.99
10 138.89 1,388.90 4,111.10
• • • •
• • • •
• • • •
52 27.78 4,777.80 722.20
53 27.78 4,805.58 694.42
54 27.78 4,833.36 666.64
55 27.78 4,861.14 638.86
56 27.78 4,888.92 611.08
57 27.78 4,916.70 583.30
58 27.78 4,944.48 555.52
59 27.78 4,972.26 527.74
60 27.78 5,000.04 499.96
Assets listed: 1
Acquisition Procedures
The process begins when the fixed asset accounting clerk receives a receiving report and a cash
disburse- ment voucher. These documents provide evidence that the firm has physically received the
asset and show its cost. From the computer terminal, a clerk creates a record of the asset in the fixed
asset subsidi- ary ledger. Figure 6-14 presents a possible record structure for this file.
CHAPTER 6 The Expenditure Cycle Part II: Payroll Processing and Fixed Asset 3
Procedures
F I G U R E
6-13 COMPUTER-BASED FIXED ASSET SYSTEM
Data Processing Fixed Asset
Department Department
Receiving Account
Procedure s
Asset
Acquisition Rec. Disb.
Fixed
Procedures Asset File
Repor Vouche
Enter
Journal New
Voucher Asset on
File
Fixed
Asset
To GL/FRS Repor
Procedure Genera
s l
User
Department
Asset
Maintenanc
Fixed Depreciatio
e Asset File n Schedule
Procedures Change
Enter Asset s
Update Transfer
Journal Depreciation Data
Voucher and
Disposition
FA
To GL/FRS Depreciatio
Procedure Genera n Report
s l
Asset Sales or
Disposal
Disposal
Fixed
Procedures Asset File
Disposa
l
Remove
Journal Asset
Voucher from
Files
To GL/FRS
Procedure Genera Report
s l s
Notice that in addition to the historic cost information, the record contains data specifying the asset’s
useful life, its salvage (residual) value, the depreciation method to be used, and the asset’s location in
the organization.
The fixed asset system automatically updates the fixed asset control account in the general ledger and
prepares journal vouchers for the general ledger department as evidence of the entry. The system also
pro- duces reports for accounting management. Figure 6-15 illustrates the fixed asset status report
showing the cost, the accumulated depreciation (if any), and residual value for each of the firm’s fixed
assets.
4 PART II Transaction Cycles and Business
Processes
F I G U R E
6-14 FIXED ASSET RECORD STRUCTURE
ASSET
ITEM ASSET LIFE/ RESIDUAL DEPR. PERIOD/ RETIRE ACCUM. BOOK
NUMBER LOCATION DESCRIP. TYPE MONTHS COST VALUE METHOD MONTH DATE DEPN. VALUE
200 Rm. 182 Photocopie Off&F 60 5,500.0 500.00 SYD 5 N/A 694.45 4,805.55
r 0
Based on the depreciation parameters contained in the fixed asset records, the system prepares a
depre- ciation schedule for each asset when its acquisition is originally recorded. The schedule is stored
on com- puter disk to permit future depreciation calculations.
Asset Maintenance
The fixed asset system uses the depreciation schedules to record end-of-period depreciation transactions
automatically. The specific tasks include (1) calculating the current period’s depreciation, (2) updating
the accumulated depreciation and book value fields in the subsidiary records, (3) posting the total
amount of depreciation to the affected general ledger accounts (depreciation expense and accumulated
deprecia- tion), and (4) recording the depreciation transaction by adding a record to the journal voucher
file. Finally, a fixed asset depreciation report, shown in Figure 6-16, is sent to the fixed asset department
for review.
Department managers must report any changes in the custody or status of assets to the fixed asset
department. From a computer terminal a clerk records such changes in the fixed asset subsidiary ledger.
Disposal Procedures
The disposal report formally authorizes the fixed asset department to remove from the ledger an asset
disposed of by the user department. When the clerk deletes the record from the fixed asset subsidiary
ledger, the system automatically (1) posts an adjusting entry to the fixed asset control account in the
gen- eral ledger, (2) records any loss or gain associated with the disposal, and (3) prepares a journal
voucher. A fixed asset status report containing details of the deletion is sent to the fixed asset
department for review.
