The Expenditure Cycle Part II:

Payroll
Processing and Fixed Asset
Procedures
Chapter 6
Overview of the Expenditure
Cycle – Part II
Payroll Processing: Managing employee compensation
and related reporting.
1.Human Resources (HR) Department – Manages
employee records and job classifications.
2.Payroll Department – Processes payroll calculations
and issues payments.
3.Accounting Department – Records payroll expenses
and liabilities.
4.External Entities – Includes tax authorities and
benefit providers.
Payroll System Process Flow

1.Employee Record Creation (HR inputs data)

2.Time and Attendance Data Collection (Clock-in/out
systems)
3.Payroll Calculation (Wages, deductions, and net pay)
4.Payment Distribution (Direct deposit or checks)
5.Reporting and Compliance (Tax filings and
employee records)
Payroll System General Tasks
Personnel action and time and attendance
information from the personnel and
production departments, respectively,
initiate the payroll process
DEPARTMENT:
Human Resources/Personnel Department

FORM:
Personnel action forms is a document
identifying employees authorized to
receive a paycheck; the form is used to
reflect changes in pay rates, payroll
deductions, and job classification 4
Payroll System General Tasks

Personnel action and time and attendance

information from the personnel and production
departments, respectively, initiate the payroll
process
DEPARTMENT:
Production Department
FORMS
• Job tickets are mechanisms to capture the time
that individual workers spend on each production
job.
• Time cards are a tool to capture the time the
employee is at work.
5
Payroll System General Tasks

Update WIP Account

DEPARTMENT:
Cost Accounting
FORM
• A labor distribution
summary is a
summarization of labor
costs in work-in-process
accounts.
Payroll System General Tasks

DEPARMENT:
Payroll
• Prepare Payroll
FORMS:
• Employee payroll records is the system an employer uses to calculate, track, and report employee pay.
• Paychecks are a bank check given as salary or wages.
• The payroll register is a document showing gross pay, deductions, overtime pay, and net pay.
• Distribute Paycheck
DEPARTMENT:
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.
DEPARTMENT:
Cash Disbursements Department
• Prepare Cash Disbursement
• Deposit a single check, in the amount of the total payroll, in a bank imprest account on which the payroll is drawn.
Payroll Register

8
Employee Payroll Record

9
Employee Paycheck

10
UPDATE GENERAL LEDGER
DEPARTMENT:
General Ledger Department
• Receives the labor distribution summary from cost
accounting, the disbursement voucher from accounts
payable, and the journal voucher from cash
disbursements.
• The debits and credits from these entries must be
equal.
• When the equality has been verified, the clerk files the
voucher and labor distribution summary.
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ADVANCED TECHNOLOGY PAYROLL
SYSTEM
• The human resource management (HRM) system
captures and processes a wide range of personnel related
data, including employee benefits, labor resource planning,
employee relations, employee skills, and personnel actions
(pay rates, deductions, and so on), as well as payroll. HRM
systems need to provide real-time access to personnel files
for purposes of direct inquiries and recording changes in
employee status as they occur.
• Human Resources
• Cost Accounting
• The labor usage file is a file in which the cost accounting
department enters job cost data (real time or daily).
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ADVANCED TECHNOLOGY PAYROLL
SYSTEM (continued)
Employee Timekeeping
• The time and attendance file is generated by employees
directly entering timekeeping data in real time.
• Biometric time clocks verify employees’ identities by using
fingerprint or hand-vein scan technology.
• Magnetic swipe ID cards work like a credit card. Each
employee is issued an ID card that has a magnetic strip
containing employee information. The employee swipes the
card through the time clock to record start and end time on
the job.
• Proximity cards are similar to swipe cards but don’t require
the user to slide the card through a reader.
13
ADVANCED TECHNOLOGY PAYROLL
SYSTEM (continued)
• Employee Timekeeping (continued)
• Mobile remote devices allow employees to clock in using
handheld devices (PDA or cell phone) or web browsers from
laptop computers. This option is popular among businesses with
employees in the field who travel between clients and with
companies engaged in global business with foreign-based
employees.
• Data Processing
• The employee records file comprises the additions of new
employees, deletions of terminated employees, changes in work
dependents, changes in withholdings, and changes in job status
such as job title and pay rate. Human resources clerks enter data
into the employee records file in real time from terminals.
14
Payroll System Risks and
Controls
What is the document that captures the total amount of
time that individual workers spend on each production
job?
 Payroll in Action: Process, Detect,
Protect
IN CLASS ACTIVITY
Instructions:
✅ Phase 1: Payroll Simulation
1. Group Formation:
Create teams of 4-5. Each team represents a company's payroll department.
2. Assign Roles (or Rotate Tasks):
1. HR Specialist: Handles employee onboarding and pay rate data.
2. Production Department: Handles Timecards
3. Payroll Processor: Calculates gross pay, deductions, and net pay.

4. Accounts Clerk: Prepares checks and payroll registers.

5. Auditor: Cross-checks all calculations for errors.
3. Payroll Scenario Packets (Excel):
Each team receives:
1. Employee Profiles (with pay rates, benefits, job status)
2. Timecards (with clock-in/out data)
3. Payroll Register Payroll Calculation Template (Excel-style)
4. Paycheque Template
5. Risk Checklist (common payroll risks)
6. Audit
Overview of the Expenditure
Cycle – Part II
Fixed Assets Procedures: Tracking, maintaining, and
accounting for long-term physical assets.
Fixed Assets Procedures Overview
Acquisition: Purchase or lease of long-term assets.
Maintenance: Tracking depreciation and asset
condition.
Disposal: Retiring or selling obsolete assets
Data Flow Diagram for Fixed Asset
System

19
Depreciation Schedule

20
Fixed Assets System Process
Flow
1.Asset Acquisition Request (Approval and
procurement)
2.Asset Record Creation (Inventory tracking and
valuation)
3.Depreciation Calculation (Systematic expense
allocation)
4.Asset Disposal (Proper documentation and record
updates)
THE PHYSICAL FIXED ASSET SYSTEM
Acquisition Procedures
• When the fixed asset accounting clerk receives a receiving
report and a cash disbursement voucher. These documents
provide evidence that the firm has physically received the
asset and show its cost.
Asset Maintenance
• The fixed asset system uses the depreciation schedules to
record end-of-period depreciation transactions automatically.
Disposal Procedures
• The disposal report formally authorizes the fixed asset
department to remove from the ledger an asset disposed of by
the user department.
22
Computer-Based Fixed Asset System

23
Fixed Assed Record Structure

24
Asset Status Report

25
Fixed Asset Depreciation Report

26
FIXED ASSET SYSTEM RISKS AND
CONTROLS
Authorization Controls
• Fixed asset acquisitions should be formal and explicitly
authorized.
Supervision Controls
• Management supervision is an important element in the
physical security of fixed assets.
Independent Verification Controls
• Periodically, the internal auditor should review the asset
acquisition and approval procedures to determine the
reasonableness of factors used in such decisions.

27
Fixed Assets Risks and Controls

Asset Misappropriation: Implement physical and

digital safeguards.
Improper Valuation: Follow GAAP for accurate
reporting.
Inadequate Recordkeeping: Maintain detailed asset
logs.
Compliance Failure: Regular audits and adherence to
policies.
Technology in Payroll and Fixed Asset
Management

Automation: Reduces human error and increases

efficiency.
Enterprise Resource Planning (ERP)
Systems: Integrates payroll and asset data.
Cloud Solutions: Enables remote access and data
backups.
Blockchain: Ensures secure and transparent
recordkeeping.