The Production Cycle

Overview
The Inventory conversion cycle of X Company involves one economic event which is the consumption of labor, material, and overhead to produce a marketable product. The company issues reports at the beginning of the period to check the status of raw materials, finished goods, and the capacity of the production lines. The production schedules are sent to the production department and the material requisitions were approved by the inventory control department; the production takes place. In the meantime, the production schedule is made. After the production is completed, a production status report is created and is sent to the production control department. The completed units are sent to the inventory control department. The cost accounting department receives purchase orders, job time cards, and material requisition forms and processes the financial data related to the job order. The journal vouchers are used to update the general ledger to post adjustments. The documents are sent to the management.

Internal Control
Control Objectives The companys internal control is designed in way that is consistent with the managements objectives. The purposes of these are to ensure to efficiency and effectiveness of operations and the reliability of financial reporting. In the Inventory Conversion Cycle, internal control objectives are: Production is done effectively and efficiently. Productions are properly authorized and scheduled. Productions are made via standards and customers orders. Raw materials acquisition and issuances are properly authorized. Raw materials are ordered on time based on scheduling. Goods produced are of the highest standards or quality. Finished goods are valued properly. Inventories and goods are safeguarded and limited in access. Transactions are properly recorded. Records are maintained and access is restricted. Back-ups are maintained for contingency. Variance is analyzed properly.

General Controls
Segregation of Duties Segregation of duties between transaction authorization and execution is implemented. There should be a separation of the production function from accounting, warehousing, and shipping functions. There should be segregation of duties over purchases and custody of inventory. Segregation of duties of functions between systems development and computer operations.

Documentation Controls Adequate documentation should be present. Documentation procedures ensure proper recording of transactions. Pre-numbered documents exist. Adequate reports regarding production are produced periodically.

Asset Accountability Controls Materials requisition is duly supported by materials requisition form. Periodic reconciliation of actual physical inventories with the general ledger control accounts should be conducted.

Transfer to finished goods inventory should have corresponding completed production reports.

There should be periodic physical inventory count. Proper accounting for variances should be applied.

Management Production Controls Production personnel have the proper training and knowledge about the production process. Proper supervision must be present during the production process. Production processed is periodically supervised. Control reports must be submitted to the managers for decision making.

Authorization Controls Materials requisitions are properly authorized. Production process starts upon approval. Transfer of finished goods to the warehouse is properly authorized. Release of finished goods from the warehouse is properly authorized.

Access Controls Physical assets should be physically safeguarded. Employees with access to data are given usernames and passwords. Employee access should be restricted to appropriate user interfaces. There should be proper record of all logistics information. Back up procedures are properly installed and working.

Access to highly sensitive information should only be allowed upon management authorization.

Application Controls
Input Control Pre-numbered forms are used to ensure completeness of transactions. Pre-numbered are used in sequence. Documents and forms bear the signatures of appropriate authority. Adequate data validation procedures should be followed to correct detected errors during data entry. Transactions must be encoded only once.

Processing Controls Appropriate verification process for computations should be followed to correct data errors detected during processing stage. Transactions with missing documents should be properly dealt with by an investigation. Adequate transaction logs must be present. Control totals are calculated before further processing of transaction.

Output Controls To secure on-time performance, cut-off procedures should be followed. There is periodic review of actual cost production.

Documents are numerically filed. Outputs such as periodic reports and summaries should be produced for management analysis.

System output must not be misplaced, misdirected or corrupted. There is proper disposal of aborted copies. Adequate documentation should be in place to comply with requirements.

Requisition of Raw Materials

Finance Department Inventory Clerk 1. Performs status check of raw materials and finished goods the submits an Inventory Status Report to the Production Departments terminal on a regular basis

Production Department Production Supervisor 2. Receives a notification on his terminal that the goods already reached the reorder point, 3. If they already reached the reorder point, fills up two (2) Materials and Supplies Requisition Slips (MSRS) 4. Forwards the MSRS 1 and 2 to the Production Manager for approval, Production Manager 5. Authorizes the MSRS and signs the Requested by line,

6. Requests the Production Supervisor to submit the MSRS 2 to the Inventory Control, 7. Updates the Requisition Log in the computer which immediately updates the corresponding decrease in the Materials Inventory Master Files,

Logistics Department Inventory Control 8. Receives the MSRS 1 and 2 and checks the availability of the materials. 9. Approves and signs the Approved by line of the MSRS 1 and 2. 10. Authorizes the release of materials and orders the warehouseman to transfer the goods to the production area. 11. Checks if the quantity and quality if materials to be released are in such state as requested. 12. Forwards the MSRS 1 and 2 to the Production Supervisor together with the goods transferred. 13. After the signing of the MSRS 1 and 2 by the Production Supervisor, files the MSRS 1 numerically to keep track of the inflows and outflows of the goods. Warehouseman 14. Upon receipt of MSRS 1 and 2, transfers the goods to the Production Department.

15. Lets the Production Supervisor sign the MSRS 1 and 2 to signify the receipt of the goods transferred. 16. Brings back the MSRS 1 to the Inventory Control

Production Department Production Supervisor 17. Verifies the quality and quantity of materials if they are in accordance with the requisition. If the goods do not correspond with the required quality and/or quantity, returns unsigned MSRS 2 to the Inventory Control and resolves the dispute. Otherwise, signs the MSRS 2.

18. Notifies the Production Manager of the receipt of goods, 19. Forwards the MSRS 2 to the Cost Accountant.

Conversion of Inventory
Production Department

Production Manager 1. Upon the receipt of notice from the Production Supervisor, makes Production Schedule. 2. Provides the Production Supervisor a copy of the Production Schedule. Production Supervisor 3. Receives a copy of the Production Schedule from the Production Manager. 4. Orders production staff to start the production. 5. Enters the starting time of production staff in time cards.

Quality Control and Transfer to Finished Goods

Production Supervisor 1. At the end of each day, enters the time ended of the production staff in the time cards. 2. Makes an Employee Accomplishment Report daily and sends it to the Production Manager. Production Manager 3. Approves and files the Employee Accomplishment Report prepared by the Production Supervisor chronologically. 4. After approval of Quality Control with respect to the quality of finished goods, prepares Daily Production Report based on the Employee Accomplishment

Report and the approved Finished Goods and sends it to the Inventory Clerk, Warehouse Supervisor and Cost Accountants terminal. 5. Prepares Daily Employee Time Summary and sends it to the Payroll Clerks terminal. Production Supervisor 6. Places a seal on products passing the inspection. 7. Orders the transfer of goods to the Warehouse Department. 8. Sends a Turn-over slip to the Warehouse Supervisor together with the transferred finished goods.

Warehouse Department Warehouseman 9. Transfers the finished goods to the Finished Goods section in the warehouse. Warehouse Supervisor 10. Receives one copy of the Daily Production Report from the Production Department. 11. Compares the Daily Production Report with the actual finished goods received. If the goods match, signs the Turn-over slip and returns it to the Production Supervisor.

If the goods dont match, resolves the conflict with the Production Department.

Assigning and Recording of Costs

Production Department Production Supervisor 1. Sends a copy of the time cards to the Cost Accountants terminal.

Finance Department

Inventory Clerk 2. Upon receipt of the Daily Production Report, updates the Inventory Records in terms of quantity produced and quantity of materials used. Cost Accountant 3. Summarizes the costs of production. 4. Records unit cost, total costs, and quantities. 5. Upon receipt of a copy of time cards, classifies the work done as Direct Labor or Indirect Labor then posts it to the Work-in-Process records. 6. Upon Receipt of MSRS 2, posts the materials issued to the Work-in-Process records. 7. Files the MSRS chronologically.

Variance Computation and Analysis

Finance Department Cost Accountant 1. Analyzes materials variance into price and quantity variance. 2. Analyzes labor variance into rate and time variance.

3. Analyzes factory overhead variance. 4. Prints the 2 copies of the Variance Report. 5. Forwards the 1 copy of the Variance Report to the Finance Manager. 6. Files 1 copy of Variance Report chronologically. Finance Manager 7. Receives the Variance Report from the Cost Accountant. 8. Analyzes the reports and makes recommendations. 9. Files the Variance Report chronologically.

Preparation of Cost of Production Report

Finance Department Cost Accountant 1. Prepares two (2) copies off the Cost of Production Report. 2. Files the first copy of the CPR chronologically and sends the second copy to the General Accountant

Inventory Clerk 3. Prepares and Prints the Materials Status Report, Finished Goods Status Report, and Supplies Status Report. 4. Forwards the Materials Status Report, Finished Goods Status Report, and Supplies Status Report to the General Accountant. General Accountant 5. Receives the CPR from the Cost Accountant. 6. Receives Materials Status Report, Finished Goods Status Report, and Supplies Status Report from the Inventory Clerk. 7. Checks and analyzes the documents. 8. Files the aforementioned documents chronologically.

The Revenue-Receipt Cycle

Overview

Internal Control
Control Objectives All contracts with walk in customers are subject to review prior to approval. To report all orders as they are received. Prices of the items as well as discounts shall be approved by appropriate officers.

Credit standing of clients must be reviewed regularly.

To bill customers for goods as goods are delivered.

To record all payments from customers on a timely basis.

To provide error reports on discrepancies in recording sales.

To separate incompatible duties to reduce the possibility of fraud.

To employ information system which is reliable in producing timely and accurate information needed for Financial Reporting Purposes.

To provide reliable documents that would be used to maintain a good flow of operation and would serve as evidence to transactions that are to be inspected by auditors.

General Controls
Transaction Authorization and Execution Contracts with customers are subject to full review and authorization prior to approval.

 Credit limits should be set based on the review of customers credit standing.

The billing officer shall only use authorized rates given by the accounting department.

For those accounts that become past due, proper delinquent notice shall be provided to the customer.

Write-offs shall only be allowed after careful deliberation and proper review by authorized officers.

Managers of each department must affix their signatures on documents passing their terminal before it goes out of their respective offices. Warehouse manager shall be the one to authorize the release of finished goods for delivery. Authorization for write-off should be given by a person not involved in recording of accounts receivable and custody of collections. Credit and Debit Memoranda shall not be honored unless approved by authorized personnel.

For merchandise returned, the Receiving Clerk shall examine the condition of the items.

Segregation of duties

Approvals for customer acceptance, setting of prices, credit and terms are made by personnel not involved in preparation of contracts.

Person involved in custody of assets such as cashier, inventory clerk, delivery personnel should not be involved in record-keeping of such assets.

Documentation Controls Pre-numbered documents shall be utilized in sequence and any loss shall be the responsibility of the personnel in-charge of its custody.

All forms should contain sufficient information to completely and clearly record each transaction in the revenue-receipt cycle.

Organizational policies and procedures related to revenue-receipt cycle are put in hard copy and are kept properly.

All documents should be properly canceled. Credit and Debit Memoranda shall be maintained in written forms. Documents must be duly signed by at least two persons before releasing it.

Asset Accountability Access to cash and records must be strictly given to authorized personnel.

Cancelled checks should be stamped with CANCELLED and a list should be made periodically.

Cash and inventory counts shall be done periodically and compared with the cash and merchandise inventory balances respectively per records.

The Warehouseman should check the authenticity of the customers official receipt before allowing transferring out of inventory.

The Warehouseman will not be allowed to take the inventories out of the warehouse without a picking ticket.

Managers of departments must affix their signatures on documents passing their office before it is forwarded to other departments.

Before each deposit, the Cashier should check correspondence of the total cash per physical count and the cash total as shown in the Remittance List.

For merchandise returned, the Receiving Clerk shall examine the condition of the items.

Access

Sales returns should be subject to the approval of the Credit Officer.

Cash, checks and other collections as well as undeposited funds shall be kept in a safe or vault protected with locks and/or security guards as appropriate.

Usernames and passwords shall be used to restrict access to authorized personnel. Personnel are required to change their passwords in regular intervals.

Terminals are restricted in the functions they are allowed to be performed. Finished goods are delicately stored to ensure quality before delivery and prevent inappropriate usage by unauthorized personnel.

Organizational Controls Employees should be competent, well trained and regularly evaluated.

Duties of authorization, recording and custody should be vested upon separate employees.

o The personnel processing transaction is separate from the one authorizing customer orders.

o Recording of receipts and custody of cash and its subsequent deposit should be performed separately by different employees.

o All collections must be reconciled by an employee not involved in the receipting or recording of such collections. o Authorization for write-off should be given by a person not involved in recording of accounts receivable and custody of collections.

Compliance to internal controls shall be reviewed periodically and proper changes should be taken to enhance the system.

Documents, reports, narratives and flowchart of the revenue-receipt cycle should be complete and up to date. o All documents must be pre-numbered and shall contain proper fields sufficient to support proper documentation. o All documents should be properly disposed following prescribed procedures. o Credit and Debit Memoranda shall be maintained in written forms and shall not be honored without proper approvals. o Changes in policies concerning approval of credit, account write-off should be properly documented. o Changes in the system should properly be reflected in the appropriate flowcharts, narratives and other affected reports and other documents.

Data Center Operation Controls Personnel engaged in systems development and maintenance will not be allowed to be involved in operating the system. A Quality Assurance Personnel should supervise the work of the different IT staff. Food and drinks shall not be allowed inside the workstation and any violations shall be reported directly to the IT Manager.

Safety precautions shall be imposed and accidents shall be reported directly to the IT Manager.

Schedules for processing should be clearly set and rigorously followed.

Management Practice Controls Improvements, modifications and new system development should undergo careful deliberations, follow clearly defined procedures and obtain proper approvals.

Department heads should review periodic analyses and summary reports.

An independent audit committee should review transactions to check for completeness, authorization and proper segregation of duties. The committee should make appropriate suggestions and initiate corrective measures.

Trainings and seminars should be provided to employees.

Personnel having access to collections and funds should be bonded.

Application Controls
Application controls include policies and procedures associated with user activities and the automated controls designed into applications. The following controls include all categories of controls namely: preventative, detective and corrective.

Input Controls Source documents and the application itself shall be reviewed periodically to ensure that only authorized personnel can input, validate and approve transactions.

Use pre-numbered documents in sequence.

Data encoded are to be subject to review for transposition and transcription errors before processing.

Check digits shall be used to confirm the accuracy of input by verifying the calculated number against other data in the input data.

All records in a batch should be processed together only once.

Validity Controls should be in place to detect errors in different levels (i.e. field, record and file). The following Validity Controls shall be put into place:

o Missing data checks- confirm that electronic forms with blank fields are not saved. This checks that an entry has been made for the field. For example, the Surname field in an order form cannot be left blank. is a required field. The system will automatically send a notification on screen if it detects fields with missing data.

o Numeric-alphabetic data checks- the program checks if the data entered are in correct form. For instance, an invoice total should not contain alphabetic data likewise the customer name should not include numeric data.

o Zero-value checks- certain fields require non-zero values such as the price field or the units field. The system will not allow saving of files where a zero value has been keyed for fields with this checking mechanism.

o Limit checks- Limit checks confirm that a value does not exceed predefined limits. o Field Limit Checks- ensures that an item of data has the correct number of characters. It determines the minimum and maximum length of the field. It can make sure the minimum has been entered - for example a date must have at least 6 numbers in it e.g. 29/01/11. If only 5 numbers have been entered, it will generate an error. It can also check the maximum length, for example a phone number cannot have more than 12 numbers.

o Range checks- Range checks confirm that a value is within a predefined range of parameters. o Validity checks- entered customer accounts and product numbers and transaction codes are checked against lists of valid numbers and codes that are stored within the system. If they do not match, the system will send an error notification on screen and the record cannot be saved. o Reasonableness checks- confirm that a value meets predefined criteria (i.e. by reference to other fields within a record). o Sequence checks- Sequence checks confirm that a value is sequentially inputted or processed. o Uniqueness Checks- Checks that each value is unique. This can be applied to several fields (i.e. Address, First Name, Last Name).

Processing Controls A log of all transactions is maintained in the system. An Error File will be produced. Such file shall be used to reverse the effects of partially processed data from batches containing errors. After reversals, corrected records shall be resubmitted. Automatically created master-file backups should be used and will be reverted to by the system operator if transaction processing corrupts the master file.

Perform Sequence Checks and recalculate Control Totals after every run.

The total number of records in the batch should be calculated by the computer and compared with the figure on the batch header. The control totals and hash totals are also calculated and compared.

Output Controls A Report Distribution List should be given in hard copy to personnel assigned to distribution of reports and documents for reference.

Proper access restrictions to output spooled to printers should also be observed to maintain confidentiality of information.

Unacceptable printed documents and reports should be shredded or kept intact for review and verification (for pre-numbered documents) as may be necessary depending on the nature of the information therein. Proper disposal of aborted copies and carbon copies should also be put in place. Copies should be retained to fulfill statutory requirement and some to serve as backup copies.

Credit Application System

Sales and Marketing Department Sales Clerk 1. Gives a Credit Application (CA) Form to the prospective client and subsequently collects it. 2. Forwards Credit Application to the Credit Officer.

Finance and Accounting Department Credit Officer 3. Receives CA from Sales Clerk. 4. Investigates on the credit standing of the prospective client. 5. Prepares the Credit Report (CR) and hands it over to the Finance Manager. 6. Files CA chronologically. Finance Manager 7. Reviews the credit investigation results through the Credit Report (CR) and decides whether to approve or reject the credit application. If approved, sets credit limit and forwards Approved CR to Credit Officer

If not approved, advices the Sales Clerk to notify the credit applicant of the disapproval and files the disapproved CR chronologically.

* For huge amounts of credit exceeding the threshold of P 100,000 the CR is first forwarded to the Board of Directors for approval. Credit Officer 8. Receives Approved CR from Finance Manager. 9. Advices the Sales Clerk to notify the credit applicant of the approval. 10. Logs-in to the system. 11. Accesses the Add New Customer Menu. 12. Encodes the new customer data. System automatically updates Customer Master File.

13. Files the CR chronologically.

Sales and Marketing Department Sales Clerk 14. Calls the customer about the approval or rejection of his/her CA.

Walk-in Sales
Finance and Accounting Department Sales Clerk 1. At the start of the day, logs-in to the system by entering username and password. 2. Receives and enters the customer order. System checks availability of items o If goods ordered are unavailable or insufficient, the sales clerk notifies the customer and asks if the latter is willing to wait for production of such If the customer agrees, negotiates delivery terms with the customer (for delivery or pick-up) Otherwise, cancels the customer order via terminal and system updates

3. Notifies the Warehouse Supervisor to prepare the order.

Logistics Department

Warehouse Supervisor 4. Facilitates preparation of goods upon notice from the Sales Clerk. If goods requested include unavailable items or insufficient quantities, notifies the production department to commence production by issuing a request for production slip 5. Notifies the Warehouseman to prepare the orders. Cashier 6. Receives customer payment. 7. Inputs customer payment via terminal System automatically updates the Cash Receipts Transaction File and Sales Transaction File. 8. Issues Official Receipt in two copies. Gives the first copy to the customer and keeps the other copy numerically.

Warehouseman 9. Prepares the ordered products upon the notification by the Warehouse Supervisor.

10. Notifies the Deliveryman if the goods are to be delivered

Warehouse Supervisor 11. Examines the authenticity of the customers Official Receipt when customer picks up the goods

12. Checks the items before they leave the Warehouse. 13. Updates Inventory Log File via terminal

Deliveryman 14. Loads goods to the delivery truck and delivers customer order

15. Validates and examines the OR from the customer

16. Issues two copies of delivery receipts with customers signature on the RECEIVED BY column One copy will be given to the customer The other copy will be filed chronologically

Order Entry System

Sales and Marketing Department Sales Clerk 1. Receives customer order (usually embodied in a Purchase Order). 2. Logs in to the system and opens the Enter Order Menu. Enters order data into the system via terminal. System updates the Sales Order Register. System checks the Materials Inventory File to determine materials availability.

 Computer automatically computes the price of the order from a set of predetermined standard prices. The computer system checks whether the order is from an existing customer or not. o If the order is from an existing customer, looks up the customers outstanding balance in the Customer Master File. o Proceed to Credit Application System, if the order is from a new customer. 3. Updates the status of the order. 4. Prints two copies of the Sales Order. Sends one copy to the Warehouse Supervisor (as Picking Ticket). Sends one copy to the Shipping Clerk (as Packing Slip). System automatically sends notification to Production Manager of a Sales Order.

Logistics Department Warehouse Supervisor 1. Receives the Picking Ticket from the Sales Clerk.

2. Uses the ticket

As authority to retrieve items from the warehouse.

 To locate goods to be picked.

3. Prepares the items ordered.

4. Forwards the goods together with the Picking Ticket to Shipping.

Logistics Department Shipping Clerk 1. Receives the Packing Slip from the Sales Clerk.

2. Receives goods together with the Picking Ticket from the Warehouse Supervisor.

3. Reconciles the Packing Slip, Picking Ticket and the goods.

4. Logs in to the system and accesses the Enter Shipment Menu.

5. Enters the shipment data into the computer system.

The computer automatically records the shipment in the Shipment Details Register.

The computer updates the Quantity on Hand field of the Finished Goods Inventory Transaction File.

System automatically sends shipping details to the Accounts Receivable Clerk.

Proceed to Billing System

6. Receives Sales Invoice from Accounts Receivable Clerk.

7. Prepares the necessary document

If the goods are to be shipped outside Negros, prints the Bill of Lading and forwards it together with the Sales Invoice and Packing Slip to the carrier.

If the goods are to be delivered within Negros, prepares the Delivery Report and forwards it together with the Sales Invoice and the Packing Slip to the Deliveryman.

Deliveryman 8. Receives the Delivery Report, Sales Invoice and Packing Slip from the Shipping Clerk. 9. Lets the customer sign the Received By column of the Delivery Report upon receipt of goods with the Sales Invoice and Packing Slip.

Billing System
Finance and Accounting Department

Accounts Receivable Clerk 1. Logs in to the system. Automatically receives shipping details.

2. Compares the shipping details with Sales Order Register. 3. Accesses the Enter Sales Invoice Menu. 4. Prints the Sales Invoice in two copies. System automatically updates Sales Transaction File.

5. Forwards a copy of the Sales Invoice to the Shipping Clerk and keeps the other in file numerically.

Back to Picking and Shipping System

Cash Receipts System

Finance and Accounting Department Accounts Receivable Clerk 1. Opens the mail daily and takes out the check together with the Remittance Advice (the stub to the right of the Invoice). 2. Endorses the checks by printing on the back of each check, <For Deposit Only>, <Bank Name>, <Account #>, GH Corporation.

3. Prints two copies of the Remittance List and signs it. Forwards one copy to the Cashier with the checks. Files the other copy chronologically.

4. Compares the Remittance List with the Remittance Advices. 5. Files Remittance Advices and Remittance List chronologically. Cashier 6. Receives checks and Remittance List from the Accounts Receivable Clerk. 7. Totals the checks and compares it with the Remittance List. 8. Logs-in to the system and enters collection via terminal; then, enters the batch of customer payment, by indicating the accounts affected by the receipt of cash. The system will automatically print the Official Receipts (OR) in two copies. The system automatically updates the Cash Receipts Transaction File. 9. Forwards a copy of the OR to the customer and file the other copy chronologically. 10. Accesses and browses through the Cash Receipts Table on the Enter Deposit Menu.

11. Selects each cash receipt on the table for deposit.

12. Prints a Deposit Slip in two copies.

13. Takes the checks and a copy of the Deposit Slip to the bank.

14. Makes the deposit.

15. Files the other copy of the Deposit Slip numerically.

Write-off System
Finance and Accounting Department Accounts Receivable Clerk 1. Logs in to the system.

2. Prints the Accounts Receivable Aging Report showing customer balances and details of invoices that have not yet been paid. 3. Highlights slow moving and overdue accounts which are candidates for possible write-off. 4. Makes final list of suggested write-offs and submits it together with the Accounts Receivable Aging Report to the Credit Officer. Credit Officer 5. Reviews the Accounts Receivable Aging Report. 6. Proposes the accounts to be written off and prepares the Write-off Memo and forwards this to the Treasurer. Treasurer 7. Receives the Write-off Memo from the Credit Officer. 8. Approves the Write-off Memo. 9. Forwards the Approved Write-off Memo to the General Accountant. For write-offs exceeding P 50,000, present the Write-off Memo with the Board of Directors for approval. General Accountant 10. Receives the Write-off Memo from the Treasurer. 11. Enters write-off data via terminal. System automatically updates the Accounts Receivable Master File.

12. Stamps and signs the Write-off Memo and files it chronologically.

Sales Returns and Allowances System

Logistics Department Receiving Clerk 1. Receives the returned items. 2. Conducts independent count and checks for the condition of the merchandise. 3. Prepare Sales Return Memo in two copies and forwards this to Credit Officer.

Finance and Accounting Department Credit Officer 4. Reviews Sales Return Memo received from the Receiving Clerk. 5. Approves or disproves the Sales Return or Allowance. Notifies customer in customer in case of disapproval.

6. Forwards approved Sales Return Memo to Accounts Receivable Clerk. Accounts Receivable Clerk 7. Receives the approved Sales Return Memo. 8. Enter write-off data via terminal. System automatically updates the Sales Transaction File.

9. Stamps and signs the Sales Returns and Allowance Memos. Forwards a copy to the customer. Files the other copy chronologically.

Issuance of Statement of Accounts

Finance and Accounting Department Accounts Receivable Clerk 1. Logs-in to the system. 2. Adjusts all sales returns and allowances and other necessary adjustments regarding each customers account. 3. Prints Statement of Accounts for each customer with unpaid invoices. 4. Submits the Statement of Accounts to Credit Officer for approval. Credit Officer 5. Receives and approves the Statement of Accounts. 6. Forwards the Statement of Accounts to the Accounts Receivable Clerk. Accounts Receivable Clerk 7. Receives Statement of Accounts from Credit Officer. 8. Sends Statement of Accounts to customers.

The Expenditure Cycle

Overview
The expenditure cycle of Green Harvest, Inc. is particularly relevant to the occurrence of cash outflows, which counters the inflows of cash provided by the

Revenue Cycle. Its primary focus is on the acquisition of production resources which comprise raw materials, fixed assets and supplies for the company. Moreover, it also involves other activities which are prerequisite to these purchases. Secondarily, the cycle also involves the utilization and replenishment of petty cash fund and other activities relevant thereto. However, this cycle excludes payment of salaries to its employees which is a concern of the payroll cycle. These are the business activities covered in this cycle: (1) purchases of production resources, which encompass the preparation of list of suppliers, supplier selection, requisition and actual purchase of goods; (2) employment of petty cash fund system, which pertains to an imprest fund system ; (3) cash and check disbursement system, and; (4) the proper documentation of transactions in the books of accounts to reflect the different expenditure transactions in the financial statements of the company. Within this cycle are internal control procedures such as proper documentation and authorization which are placed to ensure that the system is operating the way it should be. These controls also ensure that the figures presented in the financial statements of the company are reliable and objective. Implementation of these controls aims to mitigate or even eliminate the risks of errors and irregularities that may occur in the company, operating in two levels: preventive and detective.

Internal Control
Control Objectives Suppliers for resources are accredited and regulated. All purchases are properly authorized. All available Purchase Discounts are identified so that they may be taken if economical to do so. All purchase returns and allowances are properly authorized and accurately recorded. All credit purchases and cash disbursement transactions are posted to proper suppliers accounts in the account payable ledger. All received goods are verified to determine that the quantities agree with those ordered and that they are in good condition. All vendors invoices are verified and conformed to the goods received. Segregation of duties and responsibilities is properly observed for authorization, management of files, check preparation and voucher preparation. System accounting for currently due accounts is properly established. All Cash and Check Disbursements are properly authorized, accurately recorded and supported by the necessary documents. All Cash and Checks are not misappropriated.

All accounting records and company assets such as merchandise inventory, petty cash and checks are safeguarded.

Procedures to ensure that cash and cash equivalents are accurately stated are performed.

Imprest petty cash fund system is cautiously employed. The system is able to produce accounting records that reflects the appropriate expenditure transaction.

An audit trail is properly recorded in the transaction log and will be accessed anytime by the authorized personnel.

General Controls
Transaction Authorization Cash disbursements must be approved by the Disbursing Officer and Checks must be signed by the Treasurer and countersigned by the Finance Manager and supported by adequate documents. All accredited suppliers must have their data recorded on the Vendor Master File. All purchases must be approved by general accountant if amount is below P50, 000 and by finance manager if P50, 000 and above.

Transaction Execution The Disbursing Officer shall only render payment to authorized suppliers only. Payments should be recorded in a disbursement voucher/ voucher package. Payments should be made against expenses with supporting bills and original invoices. Quality and quantity of goods should be inspected in order to ensure that they correspond with the companys standards. Agreements with supplier should be reviewed regularly. Vendor Invoice received should be referred to purchase order made.

Organizational Controls Purchasing System, Receiving System, Voucher System and Cash Disbursements System shall be performed by separate individuals. Supporting documents shall be reconciled by the General Accountant. Transaction logs/registers regarding transactions that occur shall be maintained by each system. Creditors List for long outstanding liabilities shall be reviewed regularly. Regular spot checks of the petty cash fund should be made by an authorized person independent of the Petty Cash Custodian. All internal controls shall be periodically reviewed by the audit committee for compliance. If management has a suspicion regarding non-compliance with internal control directives, audit committee shall be notified.

Management Practice Controls Employees must be properly oriented and trained concerning company policies especially those governing company expenditures.

Managers, supervisors and their staff must be provided with the necessary user documentation concerning the expenditure system and must be constantly trained to improve operations.

Managers, supervisors and their staff must be knowledgeable of the standard operating procedures in preparing and processing documents involved in the expenditure cycle.

System Development and changes should undergo a clear procedure involving prior approvals, testing and sign-offs.

Audits of the purchases and cash disbursement policies and procedures should be performed.

Managers should review periodic analyses, control summaries, and reports concerning account activity and computer approved transactions.

Information Technology Operations Controls System Development and System Maintenance Supervisors are not allowed to operate the system. Safety measures are to be observed inside the workplace and any incident shall be reported directly to the IT Manager. Problems regarding database should be directed to the Database Administrator. Function of the Database Administrator must be properly segregated from all other IT functions.

Documentation policies and procedures regarding payment of expenses are put in hard copy and are kept properly.

Documents should be correctly and completely prepared and should be regularly updated.

Data librarian should keep offline IT files such as original copy of the system software in a safe storage.

Data librarian must not be authorized to perform functions of a computer operator.

Documents must be pre-numbered. Transaction Files should be maintained and reconciled regularly with the different registers and source documents before updating the General Ledger Master File.

Authorization Contracts with suppliers are subject to full review and authorization prior to approval. Purchase Returns should be properly authorized by an officer not involved in the processing of purchases or of Accounts Payable. Fixed Asset acquisition should be properly authorized under the Investing Cycle. Check disbursements must be properly authorized as well as the cash advances, the authorization of which is under the Payroll Cycle.

Access Instruments of payment need to be kept in safe custody, with access limited to authorized persons. Log-in procedures must be applied whenever a user accesses the expenditure system. Valid users of the expenditure system must maintain and safeguard their respective IDs and passwords to safeguard sensitive information. An access control list that contains information defining access privileges for all valid users of the expenditure system must be maintained. Cash must be placed in a secure cash vault. Back-ups of files should be properly maintained and safeguarded from unauthorized access.

Accountability The Cashier is the only person allowed to make disbursements out of the Petty Cash Fund. He shall be charged with any losses arising from the fund. The Inventory Clerk sees to it that goods received are in accordance with the quantity ordered.

The Receiving Clerk verifies that goods received are of the quality ordered and meet the companys standard of good quality.

Application Controls
Input Controls Pre-numbered and well designed manual and electronic documents relating to purchases, receiving, payables and cash disbursements with each documents being approved by an authorized persons should be prepared. These documents should be used in sequence and audited regularly. Authorized personnel shall periodically review source documents, application information, and inputs to ensure that unauthorized employees cannot input, validate and approve information without management oversight. Edit checks are to be done whenever data is entered into the systems. Field interrogation such as Missing data checks, Numeric-alphabetic data checks, Zero-

value checks, Limit checks, Range checks, Validity checks and Check digit are done to ensure that input are within the valid criteria. Documents with missing data such as blank spaces, incomplete payment terms, and lacking information shall be returned to the previous officer handling such document. Record Interrogation such as Reasonableness checks, Sign checks and Sequence checks should be done regularly.

Processing Controls All information is verified based on relevant and updated transaction files. To ensure that pre-numbered documents are used, a sequence check must be performed by the system. A transaction log/register is maintained in the system to ensure that all transactions are documented. The payee of check for payment of invoice should be validated against vendor master file. Any record that does not match should be rejected and investigated by management.

Output Controls A completeness check is done by randomly reconciling computer generated files with original documents to ensure that all transactions are properly accounted for. Every transaction successfully processed by the expenditure system should be recorded on the appropriate transaction file. Each transaction processed within the expenditure system must be uniquely identified with a transaction number. This feature will aid in tracing a particular transaction through a database of thousands or even millions of records. File copies of all documents pertaining to purchase and cash disbursements by date/number.

Narrative Procedures Furnishing List of Valid Suppliers for Raw Materials and Supplies
Finance and Accounting Department Purchasing Clerk 1. Upon receipt of request for materials/supplies, prepares a list of suppliers, at least three (3), who can provide such materials/supplies with the same specifications requested by respective department. 2. Writes a Request for Proposal and Request for Quotation to the vendors on the list prepared. These should contain Detailed Specifications, Terms and Conditions, Selection Criteria and Submission Details. 3. Upon receipt of Proposals and Quotations from the vendors, conduct a preliminary review for each vendor. 4. Perform performance analysis. This step includes recording vendor

requirements, assigning importance and performance value for each requirement and calculating the total performance score. 5. Selects vendor with the highest performance score. 6. Produce a list of accredited suppliers. 7. Forward list and other documents to the finance manager for approval. Finance Manager

8. Receives list from the purchasing officer together with the supporting documents. 9. Reviews documents and approves the list. If approved, updates the Vendor Master File If not approved, notifies the purchasing clerk.

10. Forwards the approved list of accredited suppliers to the purchasing clerk. Purchasing clerk 11. Receives the approved list of regular suppliers from the finance manager. 12. Files the approved list of regular suppliers according to materials supplied and in alphabetical order. 13. Key in the appropriate details about each approved vendor and file them in the vendor master file.

Purchasing of Raw Materials

Finance and Accounting Department Purchasing Officer 1. Logs in the system. 2. Receives a notification of purchase requisition from the purchasing application as indicated by the inventory master file that an item held in inventory has reached its reorder point. 3. Keys in the data for the purchase requisition which will later be used for creating the purchase order. 4. Selects supplier that meets the price and quality standards based in the data in the purchase requisition register and the vendor master file. Computer automatically creates the purchase order and updates the purchase order register and sends the documents to the General Accountants terminal if amount is not more than P50, 000 or to the Finance Officers terminal if amount is P50, 000 or more. General Accountant/Finance Officer 5. Logs in the system. 6. Receives a notification of a purchase order to be approved.

7. Reviews validity of the purchase order by accessing the purchase order register. If valid, clicks approve command button and digitally signs the Purchase Order. Computer automatically notifies the purchasing officers terminal. Upon approval, the purchase order is converted into a read-only file to prevent any changes from the Purchasing Clerk prior to the printing of the document. If invalid, clicks the reject button. Computer automatically notifies the purchasing officer, who will in turn notify the production department regarding such rejection. The computer will also cancel the disapproved purchase order from the purchase register automatically. Purchasing Clerk 8. Receives from the general accountant/finance officer that the purchase order has been approved. 9. Prints the purchase order by accessing the purchase order register and sends purchase order to the supplier. Computer automatically notifies the general accountants/finance officers terminal that the purchase order has been sent. 10. Follows up the supplier for the delivery of raw materials.

Purchasing of Supplies and Fixed Assets

Finance and Accounting Department Purchasing Officer 1. Receives approval document such as fixed asset request form (FAR) and letter of fixed asset purchase proposal (FAPP) see investing cycle from general manager or board of directors. 2. Prepares purchase requisition. Input purchase data in his terminal by assessing the fixed assets register. Computer automatically updates requisition register and sends notification to the general accountants terminal if amount is more than P50, 000 or to finance managers terminal is the amount is P50, 000 or more. Forwards approval documents to warehouse supervisor. General Accountant/Finance Manager 3. Logs into the system. 4. Receives notification that there is a purchase requisition to be approved. 5. Verify the validity of the purchase requisition filed by requesting party by assessing the requisition register and fixed assets register. If valid, click approve button in the purchase requisition and sends notification to the purchasing clerk.

If not, clicks reject button. Computer automatically cancels purchase requisition in the requisition register. Notification is also sent to the purchasing clerk.

Purchasing Clerk 6. Receives notification that purchase requisition has been approved. Note: For supplies, see steps 3-10 in the purchase of raw materials. For fixed assets, see bidding procedures.

Bidding procedures
Finance and Accounting Department Purchasing Clerk 1. Print purchase requisition for the bidding committee by assessing the requisition register. 2. Forwards purchase requisition to bidding committee. Bidding Committee 3. Receives purchase requisition for the new fixed assets from the purchasing clerk. Requesting Department Department Managers 4. Prepares and sends invitations to bid to suppliers. Request for bid which contain details of the bidding together with the application forms and other necessary requirements are sent to the selected supplier. It must indicate that the bidding documents should be sent to the Bidding Committee. Finance and Accounting Department Bidding Committee

5. Receives application form and other bidding documents from suppliers. Bidding documents must be received within the specified due date and time. 6. Receives bidding documents. When choosing a supplier, the bidding committee considers factors such as price, types of goods that can be supplied, the particular needs of the requesting department, the date of delivery and the reliability, quality and experience of the supplier. 7. Chooses the supplier who is the lowest, responsive bidder and who meets the specifications and requirements. 8. Notifies the chosen supplier. 9. Prepares 2 copies of the bidding report together with a copy of the chosen suppliers bidding documents (photocopy) and signs them. Forwards copy 1 of the bidding report together with a copy of the chosen suppliers bidding documents (photocopy) and the purchase requisition form earlier considered for the bidding to the finance manager. Files the original copies of the bidding report together with the corresponding bidding documents by vendor. After two years, these files will be subjects for disposal.

Finance Manager 10. Receives bidding report together with a copy of the chosen suppliers bidding documents (photocopy) and the corresponding approved purchase requisition. 11. Reconciles documents. If there is no discrepancy, proceed to the next step. If there is, settles discrepancy with the bidding committee.

12. Reviews validity of the bidding report. If valid, forwards approved purchase requisition and approved bidding report together with a copy of the chosen suppliers bidding documents (photocopy) to the purchasing clerk. If not, notifies the bidding committee.

Purchasing Officer 13. Receives approved bidding report together with a copy of the chosen suppliers bidding documents (photocopy) and purchase requisition. Note: See steps 4-10 in the purchase of raw materials.

Receiving system
Logistics department Warehouse supervisor 1. Receives delivery slip from the supplier. 2. Refers the goods to the receiving clerk for counting. Receiving clerk 3. Upon the receipt of the good from the supplier/vendor, counts and conducts inspection if goods comply with the companys quality standards. 4. Prepares receiving report. Input data if the goods received including the quantity and received data in the receiving report form. 5. Forwards receiving report to warehouse supervisor. Warehouse supervisor 6. Receives receiving report from receiving clerk. 7. Accesses purchase order register. 8. Compares receiving report with the delivery slip and purchase order. If corresponds, stores goods in the warehouse and approves receiving report.

If not, settle discrepancy with vendor and receiving clerk.

9. Forwards receiving report to the accounts payable clerk. However, in case of fixed assets to the general accountant. Files delivery receipt chronologically. 10. For supplies and fixed assets, sends notification to the requesting department.

Finance and Accounting Department Accounts payable clerk 11. Receives the vendors invoice and receiving report from warehouse supervisor. 12. Accesses the purchase order register. 13. Compares vendors invoice with receiving report and purchase order file and updates the purchase transaction file, materials inventory master file/supplies inventory master file. 14. Files receiving report and vendors invoice by due date.

Voucher System for Accounts Payable

Finance and accounting department Accounts payable clerk 1. Manually check the due date of the invoices. 2. Upon due date, enters data for the preparation of the disbursement voucher basing on the Vendors invoice and receiving report. System updates the voucher register with a pending status. Notification is sent to the general accountants terminal that a disbursement voucher waits approval. 3. Forwards vendors invoice and receiving report to the general accountant. General accountant 4. Receives notification, vendors invoice and receiving report from accounts payable clerk. Files vendors invoice and receiving report by date. 5. Accesses the purchase order register. 6. Verify validity of the disbursement voucher by assessing voucher register. If valid, approves disbursement voucher by signing it digitally. System updates the status of the disbursement voucher into approved in the voucher register. If not, settles discrepancy with the accounts payable clerk.

Voucher System for Various Payments

Finance and accounting department Accounts payable clerk 1. Receives requests for payments or bills for consumption of utilities, repairs, maintenance, and other payments or cash advance forms (for above P3000). 2. Enters data of the expenses for the disbursement voucher. System automatically updates the voucher register with a pending status. Notification is sent to the general accountants terminal. 3. Forwards requests/bills/forms to the general accountant. General accountant 4. Receives notification and requests/bills/forms from the accounts payable clerk. After which, requests/bills/forms are filed by date while cash advance forms are forwarded to the payroll clerk. 5. Checks if the amount in the voucher corresponds with the requests/bills/forms by assessing the voucher register. If corresponds, signs the voucher digitally. If not, settles discrepancy with the accounts payable clerk.

Check disbursement system

Finance and accounting department Disbursing officer 1. Approves the amount to be paid to be printed in the check with reference to the disbursement voucher due by assessing the voucher register. System automatically prints pre-numbered digital checks and updates check register 2. Forwards notification in the terminal of the treasurer. 3. Forwards the checks to the treasurer. Treasurer 4. Receives checks from the disbursing officer and notifications is displayed in the screen. 5. Reconciles the documents by assessing the voucher register and check register and signs the check. 6. Approves that the voucher is to be paid. System sends notification to the finance manager. Upon approval, the data is converted to a read-only, file subject only to the changes to be made by the finance manager. 7. Forwards the checks to finance manager.

Finance manager 8. Receives checks from the treasurer and notifications n is displayed in the screen. 9. Reconciles documents by assessing the Voucher Register and Check Register. 10. Approves that the Voucher is to be paid and countersigns the Check. System updates the status of the Voucher in the Voucher Register and Sends notification to the Disbursing Officer. Upon approval, the data is converted to a read-only file.

11. Forwards the Checks to Disbursing Officer. Disbursing Officer 12. Receives all signed Checks and notification is displayed in his terminal. 13. Before releasing the Checks to suppliers collector, validates for proper identification and supporting documents. 14. Prints Check Register. 15. Upon claiming of the check by the payee or authorized representative, instructs the person to sign the Check Register. 16. Approves the data for the update of the Cash Disbursements Transaction File.

Petty Cash Fund System Set up of Petty Cash Fund

Finance and Accounting Department Cashier 1. Prepares request for set up of Petty Cash Fund. 2. Forwards to the Finance Manager for approval. Finance Manager 3. Receives request from the Cashier. 4. Reviews request such as the purpose to set up the amount of the Petty Cash Fund. If valid, approves request and forwards approved request to the Disbursing Officer. If not, returns request to the Cashier.

Disbursing Officer 5. Receives approved request from the Finance Manager. Proceed to Voucher System for Various Payments and Check Disbursement Procedure Cashier

6. Receives Check for Petty Cash Fund. 7. Upon receipt, updates Petty Cash Fund Transaction File.

Utilization of Petty Cash Fund

Requesting Department Requesting Party 1. Fills up the Petty Cash Request Form. 2. Forwards the Petty Cash Request Form to the Department Head for approval. Department Manager 3. Receives the Petty Cash Request Form from the Requesting Party. 4. Reviews the Petty Cash Request Form. If valid, affixes signature on it and forwards to Cashier. If not, returns it to the Requesting Party. Requesting Party is given two weeks to justify the request or validate the expenses incurred. If there is no response from the Requesting Party, he will be charged with the expenses.

Finance and Accounting Department Cashier 5. Receives the approved Petty Cash Request Form/Cash Advance Form from the Department Head. 6. Prepares Petty Cash Voucher and Cash needed from the fund. 7. Gives the Cash to the Requesting Party with a corresponding Petty Cash Voucher. For employee advances, the Petty Cash Voucher is forwarded to the Payroll Clerk. 8. Asks the Requesting Party to sign on the Petty Cash Voucher acknowledging that the Requesting Party is accountable for the amount requested until Supporting Documents (Receipts) are surrendered. Requesting Party 9. Receives the Cash and Petty Cash Voucher from the Cashier. 10. Fills up the Petty Cash Voucher after having incurred the expenses. 11. Attaches the Supporting Documents to the Petty Cash Voucher and forms a Petty Cash Voucher Package. 12. Affixes his signature on the Petty Cash Voucher. 13. Forwards the Petty Cash Voucher Package to the Cashier.

Finance and Accounting Department Cashier 14. Receives the Petty Cash Voucher Package from the Requesting Party/ Payroll Clerk in case of Employee Advances. For Employee Advances, only the Petty Cash Voucher is needed as a supporting document. 15. Verifies completeness of the package. If complete, it is stamped as Paid. If not, requires the Requesting Party to submit the missing documents.

16. Records expenses incurred in the Petty Cash Fund Transaction File. 17. Files Petty Cash Voucher Package including the Petty Cash Request Form in numerical order.

Replenishment of Petty Cash Fund

Finance and Accounting Department Cashier 1. Logs-in to the system. 2. Monitors the level of Petty Cash from the file in his terminal. 3. If Petty Cash goes below P 2,000, fills up Request for Replenishment of Petty Cash Fund with the total amount of replenishment. 4. Retrieves the Petty Cash Voucher Package from file. 5. Submits the Petty Cash Voucher Package and Request for replenishment to the Treasurer. Treasurer 6. Receives the Petty Cash Voucher Package and Request for replenishment from the Cashier. 7. Validates whether the Petty Cash Voucher Package corresponds with the amount in the Request Form. If corresponds, signs the Request Form and forwards the Request Form and Petty Cash Voucher Package to the Disbursing Officer.

If not, returns Petty Cash Voucher Package to Cashier for appropriate changes.

Disbursing Officer 8. Receives the approved Request for Replenishment and Petty Cash Voucher Package from the Treasurer. 9. Reviews documents and files them by date. Proceed to Voucher System for Various Payments and Check Disbursements Procedure 10. Approves the data for the update of the Expense Transaction File. Cashier 11. Receives the Replenishment Check. 12. Records the receipt of the replenishment in Petty Cash Fund Transaction File. 13. Proceeds to check encashment. 14. Secures the Petty Cash Fund in a separate safe cash box.

Purchase Returns System

Logistics Department Receiving Clerk 1. Checks goods received. 2. If there are defective goods, logs-in to the system. Enter Purchase Return data such as containing the quantities, description, and vendor for each return transaction Computer automatically updates Purchase Transaction File and notification is then sent to the Warehouse Supervisors terminal. 3. Forwards the defective goods to the Warehouse Supervisor for verification. Warehouse Supervisor 4. Receives notification in his terminal and accesses the Purchase Return Transaction File. 5. Physically counts the defective goods received to verify the quantity. 6. Forwards the defective goods to the Logistics Manager for verification and notifies him for further approval. Logistics Manager

7. Receives notification in his terminal and accesses the Purchase Transaction File. 8. Physically counts the defective goods received to verify the quantity. 9. Approves the Purchase Return. System automatically updates the Supplies Master File, Materials Inventory Master File and Fixed Assets Master File. Notification is sent to the Accounts Payable Clerks terminal and the computer automatically prints Debit Memo in two copies. 10. Sends the defective items and one copy of Debit Memo to the Supplier. 11. Files another copy of Debit Memo chronologically.

The Payroll Cycle

Overview

Payroll is the distribution of compensation to the employees of a firm. Without it, employees would not have a reason to work in a firm, and thus the company would find itself at a big lossits operations discontinued because of lack of manpower. The Payroll Cycle includes the acquisition of human resources in exchange of obligations to pay, and the settlement of these obligations. It makes sure that the payroll for

employees is properly and efficiently computed and payments to all employees for salaries and wages and to government agencies for amounts withheld are disbursed in a complete manner. Payroll involves a major cash outlay since manpower is one of a firms largest resources. Cash is one of the assets that are most susceptible to frauds; thus, controls should be in place. Control can be achieved through placing the proper personnel in charge, designing and using efficient documents and reports, establishing and exercising the internal controls over the cycle, and ensuring the correctness and efficiency of the overall flow of information through the cycle. The objectives of this cycle are to ensure that the status, pay rates, employer/employee contributions, deduction and amounts actually paid to employees are properly accounted for and authorized, that payments are made for actual services

rendered by the employees, and that efficient classification, summarization and recording of accounting records are maintained. Satisfying obligations to employees is only one major aspect of the Payroll Cycle. Another aspect is the non-financial transactions that also have a major impact on the cycle. These are the hiring, promotion and termination of employees, the evaluation of their performance, and establishing policies for pay rates and overtime, as well as complying with government The business processes of GH Foods Inc. mostly require manual labor. Its units of production depend on the number of pieces of finished goods the production employees could make. Thus, it classifies its employees pay schemes into three

categories. The first category, which is often used for managers and supervisors, pays a fixed monthly salary. This category is often used for employees of the firm with specialization of duties and those who hold high positions. This includes, but is not limited to: clerical employees, supervisory postions, managerial positions, and

administrative positions. The second category is used for those with labor-intensive jobs, and involves payment on per-piece basis as well as a fixed daily wage. This scheme includes but is not limited to: pickle processing employees and packaging and labelling employees. The third and last category applies to blue-collar workers and involves computing payroll daily. These include but are not limited to Deliverymen and Security Guards. The frequency of the update processes as well as computations for net pay depends on the frequency of payroll distribution in a month. For administrative

employees with fixed monthly salary, theirs are distributed every 15 days. For the laborintensive employees (Production Labor Employees) and the blue-collar workers, pay is distributed every week.

Internal Control
Control Objectives The Payroll Cycle of GH Foods Inc., which focuses on the compensation of employees, may easily be susceptible to manipulation in the absence of preventive controls. By the proper implementation of these controls, the firm aims to ensure that: All payments made by the firm are for actual services rendered. Proper recording of services performed by the various employees are made, accurately and in a timely manner. Employees are justly paid according to company policies. Employee records for payroll are properly maintained to facilitate the smooth and timely disbursement of compensation to its employees. Deductions, allowances and advances made to employees are properly recorded and calculated accurately. Sufficient segregation of duties between the preparation, distribution and recording of pay are observed.

All costs for employee services should be distributed to the right accounts in accordance with clearly established accounting policies.

All required reports should be accurately and completely prepared in accordance with prescribed laws and regulations and submitted within their scheduled dates.

Narrative

Hiring New Personnel

Requesting Department Department Manager 1. Fills up a Personnel Requisition (PR) Form. 2. Forwards a duly accomplished PR Form to the Human Resource Department.

Human Resource Department Human Resource Manager 3. Receives PR from Department Manager. 4. Validates PR. 5. Forwards validated PR Form to General Manager.

General Manager 6. Receives validated PR Form from General Manager.

7. Approves or rejects PR. 8. Forwards approved or rejected PR Form to HR Manager.

Human Resource Department Human Resources Manager 9. Files rejected PRs and gives a notice of rejection to Department Manager. 10. Files approved PRs and gives a notice of approval to Department Manager.

Requesting Department Department Manager 11. Receives notice of rejection or approval. 12. After receipt of notice of approval, seeks applicants through media and promotions to affiliated communities such as schools 13. Accepts application letters and selects applicants to be interviewed 14. Forwards list of applicants to be interviewed to HR Department

Human Resource Department Human Resource Manager

15. Receives list of applicants to be interviewed from the Department Manager 16. Sets up interviews 17. Conducts interviews 18. Selects who passed for testing 19. Conducts test 20. Releases communications to those who passed 21. Updates Employee Master File 22. Produces Employee Master File Amendments List and forwards to Payroll Clerk Employee Master File Amendments List automatically updates Payroll Master File Amendments List

Finance Department Payroll Clerk 23. Receives Employee Master File Amendments List from HR Manager 24. Accesses Payroll Master File and produces the Payroll Master File Amendments List 25. Compare the Employee Master File Amendments List and Payroll Master File Amendments List If the two lists do not match, the Employee Master File Amendments List is returned to the HR Manager for reprocessing

If the two lists match, the Payroll Master File Amendments List updates the Payroll Master File. Payroll clerk signs the Employee Master File Amendments List and returns it to HR Manager for filing.

Human Resource Department Human Resource Manager 26. Receives signed/validated Employee Master File Amendments List. 27. Files the Employee Master File Amendments List chronologically.

General Payroll for Employees Payroll Data Accumulation and Computation

A. Production Labor Employees Production Department Production Supervisor 1. Forwards a duly approved copy of the Daily Employee Accomplishment Summary to the Payroll Clerk. The Daily Employee Accomplishment Report states the number of pieces accomplished per employee and the number of hours they worked. 2. Signs Daily Employee Accomplishment Report. 3. Forwards Daily Employee Accomplishment Summary to the Payroll Clerk.

Finance Department Payroll Clerk 4. Receives the duly approved copy of Daily Employee Accomplishment Summary from Production Department. 5. Verifies the validity of the summary by checking for the appropriate signatures. 6. Accesses the Barcode Time Recording Software and prints Daily Employee Time Sheets. 7. Reconciles data in the Daily Employee Time Sheets with the data in the Daily Employee Accomplishment Summary. If records match, payroll clerk signs the Daily Employee Time Sheets. If records do not match, the Daily Employee Time Sheets are returned to the Production Supervisor for reprocessing. 8. Accesses the Payroll Software and inputs necessary employee time and accomplishment data. The Employee Payroll Software stores a file containing the names of the employees and other basic information, their positions or job titles, their respective rates and payroll computation scheme, as well as data for deductions and other data necessary for payroll computation. The software automatically computes for deductions for SSS, Philhealth, withholding tax and other benefits with reference to the Tax and Contributions Reference File. Employers share in contributions can also be provided by the software.

The software also takes into account cash advances granted to employees.

Absences are also automatically deducted from gross pay. 13th Month Pay, overtime wages and other bonuses are also automatically processed.

The software updates the Employee Earnings Record File. The software updates the Payroll Master File.

9. Produces and prints Payroll Register. 10. Signs and forwards Payroll Register to the General Accountant for approval.

B. Administrative Employees and Blue-Collar Workers Finance Department Payroll Clerk 1. Accesses the Barcode Time Recording Software and prints Daily Employee Time Sheets. 2. Accesses the Payroll Software and inputs necessary employee time and accomplishment data. 3. Produces and prints Payroll Register. 4. Signs and forwards Payroll Register to the General Accountant for approval.

Payroll Check Processing

General Accountant 1. Receives Payroll Register from Payroll Clerk. 2. Verifies accuracy of the document by referencing to data in the Barcode Time Recording Software, the Employee Accomplishment Reports and the Tax and Contributions Reference File. If the data do not reconcile, the Payroll Register is returned to the Payroll Clerk for reprocessing. If they reconcile, the Payroll Register is approved and signed.

3. Forwards approved Payroll Register to Disbursing Clerk. Disbursing Clerk 4. Prepares a Disbursement Voucher (DV) for processing the payroll check. 5. from the DV. 6. Transfers the payroll data on a storage device for crediting the administrative officers bank accounts. 7. Forwards Payroll Register and storage device to the Treasurer for approval. Logs on to the Voucher Register File and updates it with the data

Treasurer 8. Receives storage device and Payroll Register from Disbursing Clerk. 9. Accesses the Voucher Register File and compares it to the Payroll Register and storage device.

If data from the payroll register and storage device do not match with the voucher register, the register and storage device are returned to Disbursing Clerk for reprocessing.

If data match, the Treasurer signs the payroll register and forwards it with the storage device to the Finance Manager.

Finance Manager 10. Receives storage device and Payroll Register from Disbursing Clerk. 11. Accesses the Voucher Register File and compares it to the Payroll Register and storage device. If data from the payroll register and storage device do not match with the voucher register, the register and storage device are returned to the Treasurer for reprocessing. If data match, the Finance Manager countersigns the payroll register and forwards the register to the Treasurer and the storage device to the Disbursing clerk. Treasurer 12. Prepares the payroll checks based on approved payroll register for the production labor employees. (See other steps in check preparationExpenditure Cycle) 13. Forwards prepared checks to Finance Manager. 14. Forwards the payroll register to the General Accountant.

Finance Manager 15. Receives checks from Treasurer. 16. Signs checks and forwards them to Disbursing Clerk.

Payroll Distribution
Finance Department Disbursing Clerk 17. Receives payroll checks from Finance Manager. 18. Distributes them to the employees. 19. Makes an entry in the Payroll Checks Log to reflect claimed and unclaimed payroll checks. 20. Forwards a copy of the log at the end of the payroll payment period to the Payroll Clerk. 21. Sends the storage device to the bank for automatic credit to the administrative employees bank accounts. 22. Obtains Bank Statement of Account to determine if the credit has taken place. 23. Forwards Statement of Account to the Payroll Clerk.

Payroll Clerk 24. Receives Bank Statement of Account and Payroll Checks Log from Disbursing 25. Updates Payroll Master File.

General Accountant 26. Receives Payroll Register from Treasurer. 27. Files Payroll Register chronologically.

Payment of Contributions and Withholding Taxes

Finance Department Payroll Clerk 1. Accesses the Payroll Master File and obtains data for deductions for Contributions and Withholding Taxes both for employer and employee share. 2. Fills up the necessary forms. 3. Forwards the forms to the General Accountant. General Accountant 4. Receives forms from Payroll Clerk. 5. Compares data in the filed payroll register and the Payroll Master File with the data in the forms. If the amounts do not match, the forms will be returned to the Payroll Clerk for reprocessing. If the amounts match, the General Accountant signs the forms and forwards them to the Disbursing Officer.

Disbursing Clerk 6. Receives signed forms from the General Accountant.

7. Updates Voucher Register File. 8. Prepares checks for payment. 9. Forwards checks and signed forms to the Treasurer.

Treasurer 10. Receives checks and signed forms from the Disbursing Officer. 11. Logs on to the Payroll Program and accesses the Payroll Master File. 12. Compares the data in the Voucher Register File with the data in the forms and checks. If data are the same, checks and forms are signed and forwarded to the Finance Manager. If data do not coincide, the documents are returned to the Disbursing Officer for reprocessing.

Finance Manager 13. Receives signed checks and forms from the Treasurer. 14. Verifies consistency of data in the checks and forms. If data coincide, they are countersigned and returned to the disbursing clerk. If data do not coincide, they are returned to the Treasurer for reprocessing.

Disbursing Clerk 15. Receives signed checks and forms from Finance Manager.

16. Submits the forms and checks to the appropriate private or government agency. 17. Obtains official receipts after payment. 18. Updates Voucher Register File. 19. Forwards official receipts (original) to the General Accountant. 20. Forwards copies of official receipts to the Payroll Clerk.

Payroll Clerk 21. Receives copies of official receipts from Disbursing Officer. 22. Compares data in the official receipt to the Payroll Master File. If data coincide, updates Payroll Master File. If data do not coincide, makes a query to Disbursing Clerk.

General Accountant 23. Receives official receipts (original) from Disbursing Clerk. 24. Files receipts chronologically.

Increasing Personnel Pay Rates

Department Manager 1. Makes a Performance Evaluation Report (PER) for each employee. 2. Decides whether to give an increase in the pay rate of such employee/s. If he/she decides to give a pay rate increase, makes a Request for Employee Pay Rate Change (REPRC) from the Human Resource Department.

If he/she decides not to give a pay rate increase, the PER will be filed by date.

3. Signs completed REPRC (2 copies) together with a copy of the PER and forwards them to the Human Resource Department.

Human Resource Department Human Resource Manager 4. Receives the REPRC and PER from the Department Manager. 5. Evaluates the REPRC. If he/she approves of the pay rate increase, the REPRC (2 copies) will be signed. Otherwise, the unapproved REPRC will be marked not approved.

6. Sends unapproved REPRC copy and the PER back to the Department Manager. 7. Files the other copy of the unapproved REPRC chronologically. 8. Sends the approved REPRC (2 copies) and the PER to the General Manager.

General Manager 9. Receives the approved (2 copies) and the PER from the HR Manager. 10. Evaluates the documents for approval. If approved, signs the documents and returns them to the Human Resource Department. If not, marks the REPRC copies as not approved and returned to the Human Resource Department.

Human Resource Department Personnel Clerk 11. Receives approved REPRC copies and the corresponding PER from the General Manager. 12. Updates pay rate of particular employee/s in the Employee Master File, which will also update the Payroll Master File. 13. Files a copy of the approved REPRC. 14. Returns the other copy and the PER to the Department Manager. 15. Receives unapproved REPRC copies and the corresponding PER from the General Manager. 16. Files a copy of the unapproved REPRC. 17. Returns the other copy and the PER to the Department Manager.

Department Manager 18. Receives approved or unapproved REPRC copy and the PER from the Personnel Clerk. 19. Files the REPRC copy and the PER chronologically.

Cash Advances to Employees (2500 Php or less)

Employee 1. Fills out a Request for Cash Advance Slip and forwards to Payroll Clerk.

Payroll Clerk 2. Receives filled out Request for Cash Advance Slip (RCAS) form employee. 3. Accesses Employee Master File to check for outstanding balances. If there is an outstanding balance, Payroll Clerk marks the RCAS as not approved and files it in the Unapproved File. If there is no outstanding balance, the RCAS is forwarded to the Department Manager concerned for approval.

Department Manager 4. Receives RCAS from Payroll Clerk. 5. Evaluates RCAS If approved, marks the RCAS as approved and signs it and forwards the RCAS to the Cashier. Otherwise, marks the RCAS as unapproved and returns it to the Payroll Clerk.

Payroll Clerk 6. Receives unapproved RCAS from Department Manager. 7. Files unapproved RCAS in the Unapproved File.

Cashier 8. Receives approved RCAS from Department Manager.

Proceed to Petty Cash Utilization Process in the Expenditure Cycle

9. Returns approved RCAS to Payroll Clerk marked approved and a copy of the duly signed Petty Cash Voucher (PCV).

Payroll Clerk 10. Receives approved RCAS and a copy of the corresponding PCV. 11. Updates the Payroll Transaction File with the details of the cash advance as stated in the approved RCAS and the corresponding PCV. 12. Files approved RCAS and attached PCV by date.

Cash Advance (more than 2500 Php)

Employee 1. Fills out a Request for Cash Advance Slip and forwards to Payroll Clerk.

Payroll Clerk 2. Receives filled out Request for Cash Advance Slip (RCAS) form employee. 3. Accesses Employee Master File to check for outstanding balances. If there is an outstanding balance, Payroll Clerk marks the RCAS as not approved and files it in the Unapproved File. If there is no outstanding balance, the RCAS is forwarded to the Department Manager concerned for approval.

Department Manager 4. Receives RCAS from Payroll Clerk. 5. Evaluates RCAS If approved, marks the RCAS as approved and signs it and forwards the RCAS to the Finance Manager. Otherwise, marks the RCAS as unapproved and returns it to the Payroll Clerk.

Finance Manager 6. Receives approved RCAS from Department Manager. 7. Evaluates RCAS If approved, marks the RCAS as approved and signs it and forwards the RCAS to the Disbursing Officer. Otherwise, marks the RCAS as unapproved and returns it to the Payroll Clerk.

Disbursing Clerk 8. Receives approved RCAS from Finance Manager. 9. Prepares Disbursement Voucher Proceed to Voucher Processing Procedures in the Expenditure Cycle.

Payroll Clerk 10. Receives approved RCAS. 11. Compares data in RCAS with data in the Voucher Register.

12. Updates Payroll Master File with amounts in RCAS. 13. Files RCAS by date.

The Financing Cycle

Overview

The time capital sources are procured through debt or equity to the moment such capital is repaid defines the whole scope of the financing cycle. In this transaction cycle, two economic events are of great importance: the raising of capital from owners and creditors and the entitys use of such capital to acquire productive assets that raise revenue. The company utilizes both debt and equity financing to generate necessary funds. Its debt financing involves mostly long-term transactions like loan applications and subsequent settlements and bond issuances. In contrast, its equity financing involves issuance of shares and declaration and payment of dividends. The cycle begins with the assessment of the companys financial condition and leverage. Procurement of additional funds is then the next activity put into action after assessments support the need of additional funding either through debt or equity. Subsequently, this cycle involves the settlement of debts incurred and paybacks on issued equity.

Internal Control
Control Objectives Numerous crucial controls are effected to ensure that debts incurred and stocks issued for the procurement of additional funds are approved by the Board of Directors in compliance with the companys legal requirements. Accounts involved should be properly recorded, classified and regularly updated. Principal and interest repayments should all be authorized and documented. Other significant matters should regarding equity and debt should be properly disclosed

Controls Over Debt Loan applications should be authorized by the executive management Duties of bank loan authorization and recordkeeping should be segregated Formal authorization procedures should be in writing Loans with larger amounts and longer terms should be approved by the Board of Directors Bond issuances should be authorized by the Board of Directors An independent trustee would be tasked to keep bond certificates Interest to be paid should first be approved by the Board of Directors All certificates shall be prenumbered for easy tracking and avoiding pilferages

Controls Over Equity The board of directors will authorize stock issuances for stockholders to approve Certificates shall be kept by designated stock agents Safe custody of certificates is well implemented by an independent agent All dividend payments should be approved by the Board of Directors All certificates shall be prenumbered for easy tracking and avoiding pilferages

Narrative Procedures

Loan Applications
Finance/Accounting Department Finance Manager 1. Evaluates the companys financial leverage and condition through the use of financial ratios and the examination of the annual budget 2. Determines if there is a need for a loan to adequately fund operations 3. If assessment supports the need for a loan, confirm if such loan can be availed from current creditors. If not, search for new qualified lenders 4. Establishes amount of loan needed and subsequently prepares a preliminary loan application, status report and a cash budget 5. Prepares a list of collateral if necessary 6. Forwards loan application, status report , cash budget and list of collateral to the general manager General Manager 7. Receives preliminary loan application, status report and cash budget forwarded by the finance manager 8. Reviews proposal and supporting documents for approval. If proved acceptable, signs the documents and recommends proposal. If not, returns proposal and

documents to the finance manager with accompanying notes and comments for reevaluation 9. Forwards preliminary loan application, status report, cash budget and list of collateral to board of directors Board of Directors 10. Receives preliminary loan application, status report, cash budget and list of collateral forwarded by the general manager 11. Conducts a deliberation to arrive at a consensus to approve the loan. If approved, chooses assets to be used as collateral and prepare a board resolution. If rejected, return documents to the treasurer for filing 12. Forwards preliminary loan application, status report, cash budget and list of collateral to treasurer Treasurer 13. Receives preliminary loan application, status report, cash budget and list of collateral forwarded by the Board of Directors 14. Prepares a final loan application 15. Submits a such loan application and other requirements to the designated financial institution 16. Obtain loan and sign a loan contract with the financial institution 17. Files loan application and other documents chronologically 18. Sends a copy of loan application and other documents to the general accountant

Cashier 19. Receives loan in cash or check 20. Prepares official receipt in two copies Gives one copy of official receipt to the lenders messenger Files the other copy

21. Keeps cash or check in a secured vault

Loan Settlement
General Accountant 1. Receives a copy of the loan contract and computes for principal and interest payments 2. Makes a list of principal and interest payments 3. Forwards list of principal and interest payments to the Finance Manager Finance Manager 4. Receives list of principal and interest payments forwarded by the general accountant 5. Rechecks computations for approval If approved, recommend to the Board of Directors

If not, resend to the General Accountant for revisions

6. Forwards recommended list of principal and interest payments to the Board of Directors

Board of Directors 7. Receives recommended list of principal and interest payments forwarded by the Finance Manager 8. Deliberates if list should be approved. If approved, gives list to treasurer for subsequent payments. If not, returns list to finance manager for changes Treasurer 9. Receives list approved by the Board of Directors 10. Proceeds to Cash Disbursement Procedures 11. Files principal and interests paid

Stocks Issuance
Finance Manager 1. Evaluates the companys financial leverage and condition through the use of financial ratios and the examination of the annual budget 2. Determines if there is a need for a stocks issuance to adequately fund operations

If assessment supports the need for a stocks issuance, prepares Share Issuance Proposal, Equity Status Report and Projected Cash Flow Report.

3. Forwards stock issuance proposal, equity status report and projected cash flow report to the general manager General Manager 4. Receives stock issuance proposal, equity status report and projected cash flow report forwarded by the finance manager 5. Evaluates such documents to prove acceptable. If accepted, forwards documents to be approved by the Board of Directors. If not, returns documents to finance manager for changes Board of Directors 6. Receives, stock issuance proposal, equity status report and projected cash flow report forwarded by the General Manager 7. Deliberates if proposal should be approved. If yes, Chairperson signs the proposal. If not, returns document to finance manager 8. Prepares a board resolution 9. Forwards, stock issuance proposal, equity status report, projected cash flow and board resolution to the treasurer Treasurer

10. Receives stocks issuance proposal, equity status report, projected cash flow and board resolution forwarded by the Board of Directors 11. Finds an underwriter 12. Prepares copies of stock issuance schedule Forwards a copy to the underwriter and the Securities and Exchange Schedule 13. Receives transaction slip from underwriter 14. Files all documents chronologically 15. Forwards board resolution to Executive Secretary for filing Cashier 16. Receives cash from underwriter 17. Prepares copies of official receipt Forwards a copy to underwriter and files another

18. Keeps cash in a secured box Executive Secretary 19. Receives Board Resolution forwarded by the Treasurer 20. Files Board Resolution chronologically

Dividend Declaration and Payment

Treasurer 1. Evaluates cash availability and retained earnings 2. Checks if dividend could be declared and paid. If yes, makes dividend declaration proposal, retained earnings status report, and cash budget 3. Forwards documents to Finance Manager Finance Manager 4. Receives dividend declaration proposal, retained earnings status report, and cash budget forwarded by the treasurer 5. Evaluates documents for approval. If approved, signs documents If not, returns documents to treasurer

6. Forwards dividend declaration proposal, retained earnings status report, and cash budget to the general manager General Manager 7. Receives dividend declaration proposal, retained earnings status report, and cash budget forwarded by the finance manager 8. Reviews documents for approval. If approved, signs documents If not, returns to finance manager for changes

9. Forwards dividend declaration proposal, retained earnings status report and cash budget to the Board of directors Board of Directors 10. Receives dividend declaration proposal, retained earnings status report and cash budget forwarded by the general manager

11. Deliberates if documents should be approved. If yes, signs documents If no, returns documents to treasurer

12. Decides dividend amounts and record and payment dates 13. Prepares board resolution 14. Forwards dividend declaration proposal, retained earnings status report, cash budget and board resolution to the treasurer Treasurer 15. Receives dividend declaration proposal, retained earnings status report, cash budget and board resolution forwarded by the Board of directors 16. Prepares a dividend declaration schedule, and a disbursement voucher 17. Proceeds to the cash disbursement procedures 18. Forwards board resolution to executive secretary 19. Files dividends paid and dividend declaration schedule chronologically

Executive Secretary 20. Receives board resolution forwarded by the treasurer 21. Files board resolution chronologically

The Investing Cycle

Overview
The time when the investment is made until the time such investment ceases to give the company economic returns, defines the scope of the investing cycle. In this transaction cycle, the main activities involved are the acquisition and disposal of fixed assets in accordance with the companys investment policies The company due to its nature relies heavily upon the use of fixed assets to produce inventories which will then be sold for the generation of its revenues. Consequently, fixed assets are often evaluated and acquisition and disposal transactions are planned by designated personnel and the executive management. This cycle starts with assessments of the performance of fixed assets whether such assets are still in good condition or need to be disposed of or additional assets need to be purchased to sustain the desired level of productivity. The transaction flow

then involves a series of upward authorization until the company finalizes its acquisition or disposal decisions.

Internal Control
Control Objectives All acquisitions and disposals should be in accordance with the companys investment policies All transactions regarding fixed assets should be approved and authorized by designated personnel and executive management Fixed assets are periodically evaluated for their performance All transactions regarding fixed assets shall be adequately recorded and accounted for Access to property and equipment are restricted to authorized personnel

Controls on Fixed Assets Approval, authorization, execution and recording of all transactions regarding fixed assets shall be performed by personnel with duties which are appropriately independent with each other The company employs investment policies that govern acquisition and disposal of fixed assets. Such policy would: distinguish between capitalizable costs and revenue expenditures, particularly repairs and maintenance expenses, such as by determining a cutoff amount below which items are expensed and a depreciation policy which provide for the estimate of the depreciable lives and methods as well as the salvage values of fixed assets. A responsible person reviews reconciliations between detailed property and equipment ledgers and the control account Small and theft-prone tools are appropriately safeguarded and kept in secure locations. Fully depreciated assets still in use should be properly classified. Only management-authorized personnel have access to fixed assets. The capitalized costs and the related accumulated depreciation associated with all sold, abandoned, damaged, or obsolete property and equipment are removed from the accounts.

Narrative Procedures

Fixed Asset Acquisition

Department Head 1. Checks the operational capacity of currently used fixed assets 2. Evaluates the need for additional assets. If needed, updates the Fixed Assets Register with asset description, costs, where needed and reasons for acquisition General Accountant 3. Accesses the fixed assets register for the list of proposed acquisitions 4. Performs analysis on cash flows that proposed assets will produce

5. Updates the Fixed Assets Register with computations on discounted net cash flows that the assets may make 6. Evaluates proposal to find reasonable purchases. 7. Prepares a fixed asset requisition form by printing details on proposed assets. If approved, signs fixed asset requisition form to show approval If not, updates the Fixed Assets Register by stating the particular request to be denied 8. Forwards fixed asset requisition form to Finance Manager Finance Manager 9. Receives fixed asset requisition form forwarded by the General Accountant 10. Evaluates form for approval If approved, signs the documents If not, returns the documents to the department heads

11. Forwards fixed asset requisition form to General Manager General Manager 12. Receives fixed asset requisition form forwarded by the Finance Manager 13. Reviews documents for approval If not approved, returns fixed asset requisition form to department heads If yes, then proceeds with the following: o If purchase is above P100,000, prepares a letter of fixed asset purchase proposal for the Board of Directors and forwards

both fixed asset requisition form and fixed asset purchase proposal to Board of Directors o If purchase is below P100,000, signs documents and makes a proposal letter and forwards fixed asset requisition form to purchasing officer and proposal letter to department heads 14. Indicates approved purchases in fixed assets register Board of Directors 15. Receives fixed asset requisition form and fixed asset purchase proposal forwarded by the general manager 16. Deliberates if proposal should be approved If approved, makes copies of board resolution o Forwards a copy of the board resolution to the executive secretary to be filed o Another copy of the board resolution to the department heads o Fixed asset requisition form and fixed assets purchase proposal to the purchasing officer If not, returns documents to the department heads

Executive Secretary 17. Receives a copy of the Board resolution forwarded by the board of directors and files them chronologically

Department Heads 18. Receives approval letter for purchases below P100,000 forwarded by the general manager or board resolution forwarded by the Board of Directors if purchase was above P100,000 General Accountant 19. Receives the Fixed Assets Requisition Form, Fixed Assets Purchase Proposal, and Receiving Report from the Warehouse Supervisor and updates the Fixed Asset Master File for the purchase of fixed asset/s. 20. Files the Fixed Assets Requisition Form and Fixed Assets Purchase Proposal chronologically 21. Forwards the Receiving Report to the Accounts Payable Clerk.

Asset Disposal
Department Heads 1. Evaluate the state of fixed assets and determine if some need to be disposed 2. Updates the fixed asset register for requests of disposal General Accountant 3. Accesses the Fixed Assets Register and determines the net book values of the assets and the proceeds if disposed

4. Updates the Fixed Assets Register by entering the detailed computation of the proceeds of the assets to be disposed Finance Manager 5. Accesses the Fixed Assets register for approval of the proposed assets to be disposed If approved, makes a fixed asset disposal request form If not, updates the fixed asset register that the request was denied

6. Forwards fixed asset disposal request form to the general manager General Manager 7. Receives fixed asset disposal request form forwarded by the Finance Manager 8. Evaluates documents for approval If not approved, returns documents to department heads If yes, signs the documents and proceeds with the following: o If assets are above P100,000, makes a proposal for fixed asset disposal and forwards fixed asset disposal request form and proposal for fixed asset disposal to Board of Directors o If assets are below P100,000, makes an approval letter and forwards the fixed assets disposal request form to sales manager and the approval letter to the department heads Board of Directors

9. Receives fixed asset disposal request form and proposal for fixed asset disposal forwarded by the general manager 10. Deliberates whether to approve disposal or not If approved, signs fixed assets disposal request form and creates copies of board resolution o Forwards fixed assets disposal request form and proposal for fixed asset disposal to the sales manager o Forwards a copy of board resolution to the department heads o Forwards another copy to the executive secretary for filing If not, returns document to department heads

Executive Secretary 11. Receives a copy of the board resolution forwarded by the board of directors and files it chronologically Department Heads 12. Receives approval letter for disposals below P100,000 forwarded by the general manager or board resolution forwarded by the Board of Directors if disposal was above P100,000 Sales Manager 13. Receives Fixed Assets Disposal Request Form and Proposal for Fixed Asset Disposal and initiates the appropriate procedure to dispose the asset.

14. Coordinates with the Cashier and after disposing of the asset/s, forwards the Fixed Assets Disposal Request Form and the Proposal for Fixed Asset Disposal to the General Accountant for recording. General Accountant 15. Receives Fixed Assets Disposal Request Form and the Proposal for Fixed Asset Disposal from the Sales Manager 16. Accesses the Cash Receipts Transaction File to verify, and then records the disposal by updating Fixed Assets Master File. 17. Files the Fixed Assets Disposal Request Form and the Proposal for Fixed Asset Disposal chronologically.

General Ledger Cycle

Overview
The General Ledger Cycles main usage is for the company to be able to produce financial statements that would be relied upon by management and looked into by external users. It therefore encompasses all other cycles: Revenue Cycle, Expenditure Cycle, Production Cycle, Payroll Cycle, Investing Cycle, and Financing Cycle.

The General Ledger System inputs recurring and nonrecurring transactions or routine and non-routine transactions, adjusting entries, reversing entries, and closing entries. All of which are used for the formulation of accurate and complete financial statements. Controls both general and specific are employed for the assurance that inputs are complete and valid and information subsequently generated is accurate and reliable. Other controls employed are for safeguarding assets, segregation of duties and maintaining the operating capacity of fixed assets to ensure that optimal operations are running.

Internal Control
Control Objectives All updates to the general ledger are accurate and valid. General ledger data are backed up. Updates to General Ledger data are authorized.

General Controls
Organizational Controls The following functions shall be separated: Processing of transactions Record-keeping for handling and processing transactions Custody over physical assets Computer data processing function

Documentation Controls Up-to-date documentation should be available concerning the General Ledger Cycle. The following shall be included in the documentation needed for this cycle: o A fully descriptive Chart of Accounts

o A manual of the procedures concerning the application used for the General Ledger Cycle o Copies of source documents o Flowcharts o End of week record Backup copies for documents and data should be kept daily

Asset Accountability There should be periodic reconciliation of the total balances in all authorized and established master files with the General Ledger Control Account balances.

Management Practice Control Procedures regarding any change or development in the General Ledger Cycle Application should be well documented. Proper audit procedures should be done if there are changes and concerns regarding the integrity of information in the General Ledger Cycle. Data Center Operations Control Schedules with regard to the input of data relating to end-of-week or end-ofperiod procedures should be clearly established.

A hard copy of operational reports and listings concerning the General Ledger processing should be generated for review by the General Accountant.

Computer data processing function should be centralized. Computer data processing should have neither custody nor authority over any other assets other than the data processing assets.

Authorization Journal entries posted in the General Ledger Master File should have undergone end of the month procedures. The General Accountant, after proper review, shall authorize corrections to transactions, adjusting entries, as well as closing entries.

Access Access logs should be maintained by the system to monitor all access and entries.

Transactions involving journal entries should be logged upon entry. All General Ledger records should be dumped into one magnetic tape for backup.

Access to blank documents should be restricted to authorized personnel. Physical controls should be employed to restrict access to physical assets. Specific user views for particular personnel are properly designated.

Application Controls

Input Controls Edit checks are done to ensure that all journal entries posted to the General Ledger are free from errors and omissions. The following edit checks should be done, and must be repeated if necessary: o Field checks- checks if the entered data corresponds with the field o Validity Check the codes entered are checked against a list of valid numbers and codes stored within the computer system. o Zero-balance Checks the entered transaction debit amounts are netted against the entered transaction credit amounts and the resulting net amount is compared to zero. o Completeness Check the entered transaction is checked to see if all required data have been entered (e.g. debit and credit amounts, account name, amount, etc.) o Sequence Check checks if the transaction is out of sequence based on the document number. o Relationship Check the balance is checked after the transaction has been posted to see that the balance has a normal relationship to the account. o Posting Check the balance before and after posting is compared to see if the difference equals the transaction amount. All errors must be properly corrected before posting to the journal entry. Standardized adjusting journal entries must be compiled in magnetic disk file.

 A hash total must be produced weekly. The data must be properly dated for purposes of comparison or expiration testing.

Processing Controls Adequate audit trial runs must be performed before summarizing the accounts posted. All posted totals must be reconciled with the different subsidiary ledgers. Items or data received from independent sources must be matched to control the processing of transactions.

Output Controls Trial Balance should be regularly prepared and any differences between total debits and total credits shall be investigated. Accountants should first check period-end listings before Financial Statements are printed. Final print out of the Financial Statements shall be furnished to all department managers for review. Internal Audit on General Ledger procedures should be performed. A suspense file must be checked before printing the financial statements.

A periodic verification of a file or process must be employed to detect control problems.

Items that have violated some detective controls must be investigated.

Objectives of the General Ledger System

All accounting transactions are accurately recorded and made on a timely basis. The true nature of each transaction is properly recognized. Transactions are posted to the proper accounts. Equal balances of the debit and credit in all accounts are maintained. Necessary adjusting entries are accommodated. Financial statements for each accounting period are relevant and reliable.

Functions of the General Ledger System

1. Collect transaction data Transactions in ______________ are accumulated and processed in batch. High-volume types of transactions are handled by the operational processing systems that interface with the General Ledger System in order to accommodate daily transactions. 2. Classify and code transaction data and accounts Daily summaries of transactions, as well as individual transactions, are classified and coded according to a prescribed Chart of Accounts. 3. Validate collected transactions The collected transactions are validated by various control procedures in the General Ledger System to make sure that the data entered are accurate. Each transaction is subjected to checks on amounts, account names, authorization codes, and so on. Batch transactions are totaled and compared to pre-determined batch totals. 4. Update General Ledger accounts and transaction files An essential process in this subsystem is the updating of ledger account balances through the posting of transaction data. These updated account

balances are supported by the details of the transactions, which are kept in the transaction files. All period transactions should be posted at the end of each month. The ending General Ledger account balances should equal the beginning balances plus all transaction amounts increasing the balance, and minus all transaction amounts reducing the balance. An Unadjusted Trial Balance is prepared to check that the total of accounts having debit balances equals the total of accounts having credit balances. 5. Record adjustments to accounts Financial Statements are prepared at the end of each accounting period. Accrual accounting is employed by GH so that adjustments are made to recognize revenues and expenses as they are earned and incurred rather than when they are actually received and paid. As a result, an Adjusted Trial Balance is then prepared. 6. Prepare Financial Reports The five primary financial statements of __________ are Income Statement, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows, and Notes to the Financial Statements. Income Statement data are drawn from the adjusted revenue and expense account balances in the general ledger. After closing the nominal accounts to Retained

Earnings, the Balance Sheet showing assets, liabilities and equity can now be made. The Statement of Changes in Equity and Statement of Cash Flows are then prepared from the balance sheet accounts, along with other cash-related transactions. Finally, the Notes to the Financial Statements showing supporting computations and disclosures are made in connection with the Income Statement and Balance Sheet accounts. Operating budgets and responsibility reports comprise the financial reports for _________s Managers. Financial information for stockholders, on the other hand, includes descriptions of future undertakings, dividend rates and ultimately, the financial statements. These are usually provided in annual reports which are reviewed by the Audit Committee before their release. 7. Updating the General Ledger The daily business transactions of GH are stored in a temporary data file. After a month, these transaction files are reconciled by the General Accountant with the source documents. If the data do not reconcile, an error listing is being produced. Based on the error listing, an adjustment memo is being made to adjust the erroneous accounts. When all the adjustments have been made, the General Ledger Master File is updated.

Narrative Procedures

End of the Month Procedures

Depreciation of Fixed Assets The Accounting Information System used by the company in its accounting systems has been programmed to compute the depreciation of the fixed assets using the appropriate depreciation method. Whenever the asset is fully depreciated, a notification is being sent to the General Accountant.

Aging and Write-off of Receivables Accounts Receivable of _____________ is assessed every month to determine doubtful and uncollectible accounts. An Accounts Receivable Aging Schedule is being produced by the computer to serve as reference for the Credit Officer in determining which accounts are doubtful of collection. Further assessment of doubtful accounts is made and accounts proven to be uncollectible are noted. After which, a Write-Off Notice is prepared. The Treasurer approves the notice and such is given to the Billing Clerk for the proper write-off of accounts.

Reconciliation System for Revenue-Receipt Cycle

Walk-in Sales Finance and Accounting Department General Accountant 1. Obtains official receipts from the Cashier. 2. Views the Cash Receipts Details Transaction File via terminal. 3. Reconciles the official receipts with the Cash Receipts Details Transaction File. 4. Prepares an error listing for any differences. 5. Produces an Adjustment Memo based on the Error List. 6. Updates the General Ledger Master File.

Regular Sales General Accountant 1. Obtains Sales Invoice from the Accounts Receivable Clerk. 2. Views the Sales Transaction File via terminal. 3. Reconciles the Sales Invoice with the Sales Transaction File. 4. Prepares an error listing for any differences.

5. Produces an Adjustment Memo based on the Error List. 6. Updates the General Ledger Master File. Worthless Accounts General Accountant 1. Obtains signed Write-off Memo from the Accounts Receivable Clerk. 2. Accesses the Accounts Receivable Master File via terminal. 3. Reconciles the Write-off Memo with the difference between the ending balance of the accounts receivable last month and the current balance of the accounts receivable. 4. Prepares an error listing for any differences. 5. Produces an Adjustment Memo based on the Error List. 6. Updates the General Ledger Master File.

Sales Returns General Accountant 1. Obtains signed Sales Return & Allowance Memo from the Accounts Receivable Clerk. 2. Views the Sales Transaction File via terminal. 3. Reconciles the signed Sales Return & Allowance Memo with the difference between the ending balance of sales last month and the current balance of sales.

4. Prepares an error listing for any differences. 5. Produces an Adjustment Memo based on the Error List. 6. Updates the General Ledger Master File.

Cash Receipts General Accountant 1. Receives Remittance List from the Accounts Receivable Clerk. 2. Receives Deposit Slips from the Bank. 3. Accesses the Cash Receipts Transaction File via terminal. 4. Reconciles the Remittance List and Deposit Slips with the Cash Receipts Transaction File. 5. Prepares an error listing any differences. 6. Produces an Adjustment Memo based on the Error List. 7. Updates the General Ledger Master File.

Reconciliation System for Expenditure Cycle

Accounts Payable General Accountant 1. Accesses Vendors Invoice. 2. Views the Purchases Transaction File via terminal. 3. Obtains Debit Memos. 4. Reconciles the Vendors Invoice and Debit Memos with Purchases Transaction File. 5. Prepares an error listing for any differences. 6. Produces an Adjustment Memo based on the Error List. 7. Updates the General Ledger Master File.

Purchase Returns General Accountant 1. Retrieves issued Debit Memorandum for the month. 2. Accesses Purchase Transaction File via terminal. 3. Reconciles the Debit Memorandum with Purchase Transaction File. 4. Prepares an error listing for any differences.

5. Produces an Adjustment Memo based on the Error List. 6. Updates the General Ledger Master File. Petty Cash Fund General Accountant 1. Accesses Petty Cash Fund Transaction File. 2. Obtains Petty Cash Voucher Package from the Cashier. 3. Retrieves Request for Set-up/Replenishment of Petty Cash Fund from file. 4. Reconciles the Petty Cash Voucher Package and Request for Set-

up/Replenishment of Petty Cash Fund with Petty Cash Fund Transaction File. 5. Prepares an error listing for any differences. 6. Produces an Adjustment Memo based on the Error List. 7. Updates the General Ledger Master File.

Purchases General Accountant 1. Accesses the Purchase Transaction File via terminal. 2. Views the Purchase Order Register via terminal. 3. Reconciles Purchase Transaction File with the Purchase Order Register. 4. Prepares an error listing for any differences. 5. Produces an Adjustment Memo based on the Error List.

6. Updates the General Ledger Master File.

Receipt of Goods General Accountant 1. Obtains the Receiving Report. 2. Accesses the Materials Inventory Master File, Supplies Master File and Fixed Assets Master File via terminal. 3. Reconciles Receiving Report with the Materials Inventory Master File, Supplies Master File and Fixed Assets Master File. 4. Prepares an error listing for any differences. 5. Produces an Adjustment Memo based on the Error List. 6. Updates the General Ledger Master File.

Check Disbursement General Accountant 1. Accesses the Cash Disbursements Transaction File via terminal. 2. Retrieves the Check Register. 3. Reconciles Cash Disbursements Transaction File with the Check Register. 4. Prepares an error listing for any differences. 5. Produces an Adjustment Memo based on the Error List. 6. Updates the General Ledger Master File.

Reconciliation System for Payroll Cycle

Payroll Salary General Accountant 1. Retrieves the Payroll Register. 2. Obtains the Time Sheet. 3. Accesses the Employee Payroll Master File, Contributions Reference and Tax Rate Master File. 4. Reconciles the Payroll Register with the Employee Payroll Master File and Contributions Reference and Tax Rate Master File. 5. Prepares an error listing for any differences. 6. Produces an Adjustment Memo based on the Error List. 7. Updates the General Ledger Master File.

Payroll Expenditures General Accountant 1. Retrieves the Payroll Register. 2. Obtains Cash Advance Form. 3. Obtains Official Receipt from payment of Government contributions.

4. Accesses the Employee Payroll Master File via terminal. 5. Reconciles Employee Master File with Payroll Register, Cash Advance Form and Official Receipts from Government Agencies. 6. Prepares an error listing for any differences. 7. Produces an Adjustment Memo based on the Error List. 8. Updates the General Ledger Master File.

Reconciliation System for Conversion Cycle

Cost of Production General Accountant 1. Retrieves Cost of Production Report. 2. Obtains Monthly Bills, Time Summary from Payroll Clerk, and Materials Requisition Form from Warehouse Supervisor. 3. Reconciles the Job Time Summary, Monthly Bills and Materials Requisition Form with Cost of Production Report. 4. Prepares an error listing for any differences. 5. Produces an Adjustment Memo based on the Error List. 6. Updates the General Ledger Master File.

Reconciliation System for Dividend Declaration and Payment

General Accountant 1. Retrieves Board Resolution from the Board of Directors. 2. Retrieves the Dividend Distribution Schedule from Treasurer. 3. Reconciles the Dividend Distribution Schedule with the Board Resolution. 4. Prepares an error listing for any difference. 5. Prepares an Adjustment Memo based on the error list. 6. Updates the General Ledger Master File.

Reconciliation System for Capital Stock Issuance

General Accountant 1. Retrieves a copy of Stockholders ledger from the Share Transfer Agent. 2. Receives a copy of the Board Resolution on share issuance from Board of Directors. 3. Reconciles the Board Resolution and the copy of Shareholders ledger. 4. Prepares an error listing for any difference. 5. Prepares an Adjustment Memo based on the error list. 6. Updates the General Ledger Master File.

Bank Reconciliation General Accountant 1. Receives validated Deposit Slips, Bank Statement and Cancelled Checks from the Bank. 2. Opens the Cash Receipts Transaction File through the terminal. 3. Compares Deposit Slips and Cash Receipts Transaction File with Bank Statement and identify Deposits in Transit. 4. Compares Check Register with Bank Statement and Cancelled Checks and identify Outstanding Checks. 5. Notes any Debit and Credit Memo in the Bank Statement. 6. Prepares Bank Reconciliation. 7. Makes adjusting entries for any differences. 8. Updates the General Ledger Master File.

Preparation of Financial Statements Finance and Accounting Department General Accountant 1. Accesses the General Ledger Master File. 2. Signals the system to produce Adjusted Trial Balance and Financial Statements. 3. Files Adjusted Trial Balance by date. 4. Forwards Financial Statements to Audit Committee. Audit Committee 5. Receives Financial Statements from General Accountant. 6. Certifies Financial Statements. 7. Forwards Financial Statements to the External Auditor. External Auditor 8. Receives Financial Statements from Audit Committee. 9. Certifies Financial Statements. 10. Forwards Financial Statements to the Board of Directors. Board of Directors

11. Receives Financial Statements from External Auditor. 12. Certifies Financial Statements. 13. Forwards final Financial Statements to the General Accountant. Finance and Accounting Department General Accountant 14. Receives final Financial Statements from the Board of Directors. 15. Produces copies of Financial Statements for distribution. Copies are distributed to the Secretary and Users. A copy is then filed by date.