Purchases, Inventory and Payroll
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BA 427 – Assurance and Attestation Services Lecture 5 Internal Controls: Purchases, Inventory and Payroll Customer Mail room Cash Receipts Start Mail receipts checks & remittance advices prepare daily remittance list Accounts Controller Receivable General Ledger Bank = source document = action 2 Daily remittance list Checks Remittance advices = summary list or document = journal entry = ledger (G/L or subledger) Customer Mail room Cash Receipts Accounts Controller Receivable Start Mail receipts 2 Daily Remittance list checks & remittance advices prepare daily remittance list 2 Daily remittance list 1 checks & daily remittance list B prepare deposit slip A Bank A deposit slip & cash receipts bank validates deposit slip Checks Remittance advices General Ledger prepare G/L entry C Customer Mail room Cash Receipts Start Mail receipts Checks Remittance advices B Bank C A B prepare daily remittance list Daily remittance list General Ledger 2 Daily RemitDr cash tance list Cr A/R Remittance advices checks & remittance advices 2 Accounts Controller Receivable Reconcile Post to A/R sub ledger 1 checks & daily remittance list A/R sub ledger prepare deposit slip A Post to G/L validated deposit slip prepare G/L entry C General Ledger deposit slip & cash receipts bank validates deposit slip Lecture 5 – Internal Controls Purchases and Inventory Cycle Payroll Cycle Purchases and Inventory Control objectives for this cycle: Proper authorization of the purchase. Ordering the proper quality and quantity of goods on a timely basis. Acceptance only of goods that have been ordered. Purchases and Inventory Control objectives for this cycle: Receipt of proper terms and prices from the vendor. Payment only for goods and services that were ordered, received, and properly invoiced. Payment on a timely basis. Purchases and Inventory Organizational overview of purchases: Inventory Control Purchasing Department Receiving Department Inventory Warehouse Responsible for maintaining the perpetual inventory records. Responsible for physical control over inventory Accounts Payable Cash Disbursements Purchases and Inventory Segregation of Duties: Authorization for inventory purchases Recording of transactions Access to assets: inventory and cash disbursements Purchases and Inventory Examples of controls over purchases: The following documents are pre-numbered: Requisitions Purchase orders Receiving reports Payment vouchers Checks Also, the blank check stock is physically secured. Purchases and Inventory Examples of controls over purchases: Periodic physical counts of inventory are conducted, and reconciled to the perpetual records. Payroll Control objectives for this cycle: Proper authorization of the payroll. Appropriate calculation of the payroll. Safeguarding of assets associated with payroll. Proper distribution of the payroll. Proper accounting for payroll transactions. Payroll Segregation of Duties: Authorization of Payroll Transactions Recording of Payroll Transactions Custody of payroll checks Payroll Organizational overview of payroll: Human Resources Payroll Department Timekeeping Cost Accounting Accounts Payable Cash Disbursements Payroll Examples of Controls over Payroll Supervisors approve timecards Payroll is processed through its own checking account (often called an imprest account) Unclaimed paychecks are safeguarded by the Treasurer Timeclocks are used in many environments Bank Cash Cost TimePayroll DisburseAccounting keeping ments Accounts Payable H.R. Shops Bank Cash Cost TimeDisburseAccounting keeping ments Payroll H.R. Shops Start Imprest payroll fund Authorize rates & deductions paychecks Check into imprest fund To employees Sign & deposit check Job time tickets Payment voucher, Post to job order cost check & payroll register sheets Job time tickets Reconcile & approve timecards Clock cards Employees punch clock Authorize rates & deductions Job time tickets Approved clock cards Payroll register Accounts Payable Payroll register Payment voucher, check & payroll register
