SUA—The Sales and Cash Receipts Process



SUA—Payroll Process

Subcyles:

1. Receipt and payment of employee services.

2. Payroll accruals.

Accountant’s objectives:

1. All existing payroll transactions are recorded.

2. All transactions are recorded and summarized at the correct amounts.

3. All transactions are correctly classified as defined by the chart of accounts.

4. All transactions are included in the proper period.

5. Accrued payroll and payroll taxes at the balance sheet date are stated at the correct amount.

6. All material disclosures affecting the accounts are included in the financial statements and related footnotes.

SUA—Payroll Process

1) Receipt and payment of employee services:

Transaction Actions Documents Accounts

Disbursement Hire employee Personnel Record Cash

for employee Deduction author- Wage Expense services ization form Salary Expense

Receive employee services Time Card (Doc. 21) Taxes payable .

Pay for employee services Payroll check (withholding &

payroll taxes)

Record in payroll journal Payroll journal

and subsidiary ledger Employee earnings subsidiary ledger

Summarize payroll journal Payroll Journal/GL

Post to GL GL –pg 35. subLedger pg.40 &41

SUA—Payroll Process

2) Payroll Accruals

Transaction Actions Documents Accounts

Payroll Accrual Determine payroll and Payroll accrual memo Wage expense

Payroll tax payroll tax accrual Salary expense

accrual Wages payable

Record in general journal General journal (pg 3) Salaries payable

Payroll tax exp.

Post to GL Electronic spreadsheet Payroll taxes

payable

SUA—Payroll Process-Internal Controls

1. Adequate documents and records—formal time cards for recording regular and overtime hours and the payment by check or by direct deposit are important controls. Time cards and paychecks should be prenumbered and controlled.

2. Authorization of transactions—

■ When you hire people—check to make sure they are qualified.

■ Wage rate—pay must be set by an appropriate person in the company.

■ Regular and Overtime hours. In general, they should be signed by the manager or by their manager.

■ Dismissal of personnel. Controls are needed to make sure people are not paid after dismissal. In some states you have to pay people they day they leave (so payroll, when I worked there, knew when someone was about to be fired).

3. Use of automatic time clocks.

4. Segregation of duties: the following individuals should not have access to signed payroll checks: personnel who authorize hiring or dismissing staff, anyone who collects or approves time cards, anyone with responsible for preparing checks, related accounting records, or payroll bank reconciliation. This minimizes the risk of fraud.

SUA-Payroll Process – Internal Controls (continued)

5. Separate bank account for payroll cash—many companies keep payroll in a separate bank account, from the general cash account. This facilitates reconciliation. There is only one type of cash receipt and one type of cash disbursement. This is an example of an “imprest’ account.

Imprest accounts:

Cash receipt: a transfer on the payroll payment date from the general cash account.

Cash disbursements: after all employees have cashed their checks, the amount of the balance in the payroll account is zero

When an imprest account is used, payments to the government and others for withheld taxes, payroll taxes, and fringes are paid through the general cash account.

6. Independent checks on performance:

a. Prepare an independent bank reconciliation,

b. Recalculate hours shown on time cards, compare wage rates to union contracts, compare withholdings,

c. Account for all payroll time cards and checks.

SUA--Inventory Cycle

Waren uses the Periodic Inventory System:

+ - =

↓ ↓ ↓ ↓

From prior From General From periodic Determined from

Period Ledger inventory count other three

sources--plug

Steps in Determining Inventory Using the Periodic Method

1. Count inventory using tags of count sheets: need to have two people independently count the inventory. If two people independently arrive at the same figure, assume it is correct. If not, recount,

2. Summarize inventory: raw materials, WIP, FG, perhaps by FIFO, LIFO, etc.,

3. Determine correct unit cost of inventory,

4. Extend price (cost) times quantity and add for total inventory,

5. Record in General Ledger by journal entry.

Inventory Cycle

How to record in General Ledger: (periodic method)

1. Calculate GOGS using the formula: B/I + Net Purchases* – E/I = COGS

* Net Purchases = Gross Purchases + Freight-in – Purchase Returns – Purchase Discounts

2. Credit Purchases and Freight-in to bring these accounts to zero for the new fiscal year.

3. Debit COGS to record on the Income Statement.

4. Debit Purchase Returns and Purchase Discounts to bring these accounts to zero for the new fiscal year.

5. If ending inventory increases, debit inventory by an amount to increase it to the new year-end balance. If inventory decreases, credit inventory.

Inventory Cycle

Example:

B/I = $50,000. E/I = $60,000. Inventory purchases equal $200,000. You returned $5,000 in inventory, and your purchase discounts were $2,000. Freight-in is $3,000.

What is COGS?

Inventory Cycle

What is your year-end journal entry? This type of entry is one of the five adjusting entries required in the SUA project.

Perpetual Inventory Method:

■ Record cost of goods sold with each sale.

■ Better inventory records.

■ More timely COGS information.

Ending Inventory on the books can be compared to physical count of ending inventory.

-----------------------

Beginning

Inventory

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h›hónhón5?>*[pic]CJaJh0v¨5?>*[pic]CJ aJ h0v¨h0v¨5?>*[pic]CJ aJ

hØdBCJ aJ hŸRNet Purchases (including Freight-in)

Ending

Inventory

Cost of Goods Sold

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