Conceptual Payroll System

- organization purchases labor instead of materials and finished products for resale
Need for special procedure:
a.) each employee has different pay
b.) payroll activities are discrete events
c.) writing checks require special controls

The different departments:

A.) Personnel Department – They prepare and submit the personnel action forms to the
prepared payroll function. The documents identify the employees authorized to receive the
paycheck depending on the hours worked and different deductions.

B.) Production Department – They are the department who prepare two types of records: job
tickets and time cards. Job tickets capture the time that individual workers spend on each
production job. Time cards capture the time of the employee at work.

UPDATE WIP Account

- If the labor costs are already allocated to the WIP accounts, the charges are summarized in a
labor distribution summary and forwarded to the general ledger.

Preparation of Payroll
1.) Prepares payroll register
2.) Enters information in the employee payroll records
3.) Prepares employee paychecks
4.) Sends the paycheck to the distribute paycheck function
5.) Files time cards, personnel action form, and a copy of the payroll register

In distribution of paycheck
- Most companies use a paymaster to distribute the paychecks to the employees to avoid fraud.
If a valid employee does not claim the paycheck, the paymaster returns it to the payroll.

Cash Disbursement
- Upon receipt of the voucher, the cash disbursements function prepares a single paycheck for
the whole amount of the payroll and deposits it in the payroll imprest fund. Employee
paychecks are drawn on this account to be used for the payroll. The clerk sends a copy of the
check along with the disbursement vouchers and the payroll register to the AP department,
where they are filed. Finally, a journal voucher is prepared and sent to the general ledger
function.