Assignment No.

1 – Audit of Cash

Instruction: Write your solution in a piece of paper and write your name on top of it. Double rule your
answer. We will check your assignment on Wednesday, November 18, 2020.

1. You are conducting an audit of the Swerte Company for the year ended Dec. 31, 2019. The
internal control procedures surrounding cash transactions were not adequate. The bookkeeper-
cashier handles cash receipts, maintains accounting records, and prepares the monthly bank
reconciliations.

The bookkeeper-cashier prepared the following reconciliation at the end of the year.
Balance per bank statement P 350,000
Add: Deposit in transit P175,250
Note collected by bank 15,000 190,250
Total 540,250
Less: Outstanding checks 246,750
Balance as per general ledger P 293,500

In the process of your audit, you gathered the following:

 At December 31, 2019, the bank statement and general ledger showed balances of
P350,000 and P293,500, respectively.
 The cut-off bank statement showed a bank charge on January 2, 2020 for P30,000
representing correction of an erroneous bank credit.
 Included in the list of outstanding checks were the following:
a. A check payable to a supplier, dated December 29, 2019, in the amount of P14,750,
released on January 5, 2020.
b. A check representing advance payment to a supplier in the amount of P37,210, the
date of which is January 4, 2020, and released in December 2019
 On December 31, 2019, the company received and recorded customer’s postdated
check amounting to P50,000.

Compute the following:

A. Adjusted deposit in transit as at December 31, 2019. (5 points)

B. Adjusted outstanding checks as at December 31, 2019. (5 points)
C. The adjusted cash to be presented in the statement of financial position at December 31,
2019. (5 points)
D. The cash shortage as of December 31, 2019. (5 points)

2. In your year-end audit of J.P Rizal Corporation, the cashier showed a cash accountability of
P12,000 as at December 31, 2019. Selected transaction of the corporation for 2019, in summary
form, follows:

Accounts written off P5,000

Depreciation of fixed assets 30,000
Disbursements for cost and expenses 750,000
 Income tax accrued 10,000
Payment of bank loan 40,000
Subscription receivable 300,000
Subscribed share capital 900,000
Proceeds from short-term bank loan 100,000
Purchases of fixed assets 450,000
Sales (80% collected in 2019) 700,000

How much is the correct cash accountability at December 31, 2019? (5 points)

3. You were engaged to audit the books of Davao Company. From the records of the company, you
gathered the following information:

Davao Company started operations on October 2, 2019 with the owners investing P150,000
cash. Monthly bank reconciliation statements have not been prepared; however, bank
statements for October, November, and December were made available to you. Your analysis of
these bank statements showed total bank credits (deposits) of P575,000 including the owners’
initial investment and a bank loan, details of which are in additional date. The bank statement in
December, 2019 showed an ending balance of P91,500.

Examination of the paid checks disclosed that checks totalling P4,500 were issued by the
company in December, 2019, and were presented for payment only in January, 2020. Cash
count of the cashier’s accountability amounted to P5,000. You were told by the cashier that
these were collections from credit sales on December 30, 2019, deposited on January 2, 2020.

Additional information are as follows:

a. Accounts Receivable subsidiary ledgers had a total balance of P70,000 at December 31,
2019. P5,000 of this was ascertained to be uncollectible.
b. Suppliers’ unpaid invoices for merchandise totaled P15,000; while an account for store
fixtures bought for P50,000 had an unpaid balance of P5,000.
c. Merchandise inventory at December 31, 2019 amounted to P30,000 but P5,000 of these
were spoiled with no resale value.
d. The bank statement in October showed a bank credit for P98,000, dated October 2, 2019.
Inquiry from the cashier disclosed that the amount represents proceeds of a 90-day,
discounted bank not. P80,000 of this loan was paid by check in December, 2019.
e. Operating expenses paid during the period totalled P180,000; while merchandise purchases
amounted to P250,000.
f. The gross profit rate is 120% of cost.

Compute the following:

A. Total collections from sales for 2019. (5 points)

B. Cash balance per books as of December 31, 2019. (5 points)
C. The cash shortage as of December 31, 2019. (5 points)

4. Your audit assistant prepared the following bank reconciliation for a client:
 Balance Receipts Disbursements Balance
August 31 September 30 September 30 September 30
Per bank P 110,530 P 660,660 P 653,230 P 117,960
statement
Deposit in
transit:
August 31 2,050 (2,050)
September 30 3,220 3,220
Outstanding
checks:
August 31 (2,140) (2,140)
September 30 1,030 (1,030)
Customer’s
check returned
by bank,
September 29 (110) 110
Balance per
books P 110,400 P 661,830 P 652,010 P 120,260

How much is the adjusted balance of cash in bank, September 30? (5 points)

5. In your audit of cash account of Cebu Company, you were requested by the client to prepare a
four-column reconciliation of receipts, disbursements, and balances to reconstruct the balances
per books.
Nov. 30 Dec. 31

A) Balances per bank P14,010 P19,630

B) Deposit in transit 2,740 3,110

C) Outstanding checks 4,260 3,870

D) Bank collections not in books 1,200 1,600

E) Bank charges not in books 950 640

F) Of the checks outstanding on December 31, one check for P700 was certified at the request of
the payee.

G) Receipts for December, per bank statement – P281,070.

H) DAIF check from customer was charged by the bank on December 28, and has not been
recorded – P800.

I) DAIF check returned in November and recorded in December, P1,050

J) DAIF check returned and recorded in December, P900

K) Check for Cibo Company charged by the bank in error, P2,010

 L) Receipt on December 6 paid out in cash for travel expenses, P750. Recorded as receipts and
disbursements per books.

M) Error in recording customer’s check on December 20, P165 instead of P465.

N) Error in disbursements journal for December, P3,250 instead of P325.

You noted in your audit that the DAIF checks returned by the bank are recorded as a reduction
on the cash receipts journal instead of recording it at cash disbursements journal; redeposits are
recorded as regular cash receipts.

Compute the following:

A. Unadjusted cash balance per books as of November 30. (5 points)

B. Unadjusted book receipts for December. (5 points)
C. Unadjusted book disbursements for December. (5 points)
D. Unadjusted cash balance as of December 31. (5 points)

Solution Guide:

Balance Receipts Disbursements Balance

11/30 December December 12/31
Unadjusted bank
balance
DIT – 11/30
- 12/31
OC – 11/30
- 12/31
CM coll. – 11/30
- 12/31
DM-BSC – 11/30
- 12/31
DAIF checks: (H)
(I)
(J)
Bank error, Dr.
Receipts used for
payments
Book errors: (M)
(N)
Unadj. Book bal.

6. Mila Lim is the cashier of the Plaridel Glass Company. As a representative of your audit firm, you
were assigned to verify her cash on hand in the morning of January 4, 2020. You began to count
at 9:00 AM in the presence of Miss Lim. In the course of your counting you found currencies in
paper bills and coins together with checks vouchers and other items, which are mentioned
below:

Bills – 2 fifties, 9 twenties, 13 tens

Coins

P5.00 5 loose
P1.00 74 loose
P .25 5 rolls and 32 loose (50 pieces to a roll)
P .10 10 rolls and 15 loose (50 pieces to a roll)
P .05 16 rolls and 9 loose (40 pieces to a roll)

Checks

Maker Date Payee Amount

Jose Cruz, Asst. 12/23/2019 Plaridel Glass Co. P 60.00
Manager
Mila Lim, Cashier 12/23/2019 Plaridel Glass Co. P 40.00

I.O.Us
A. David, janitor 12/20/2019 P35.00
R. Tirao, clerk 12/22/2019 P25.00
Pedro Munar, bookkeeper 12/24/2019 P 15.00

Petty Cash Vouchers for replenishment

Payee Date Account Charged Amount

L. Bilbao, Messenger 12/16/19 Advances to P10.00
employees
Rosario & Co, 12/17/19 Supplies P14.50
Victory Liner 12/18/19 Freight-in P18.25
Bureau of Posts 12/18/19 Supplies P30.00
(stamps)
A. Vallo, carpenter 12/20/19 Repairs P45.00
B. Tello 12/21/19 Miscellaneous Exp. P15.40

Your investigation also disclosed the following:

1. The balance of petty cash fund per books is P900.
2. Cash sales of January 2, 2020 amounted to P865 per sales records, while Cash Receipts Book
and Deposit Slip showed that only P765 was deposited in the bank on January 3 2020.
3. The following employees’ pay envelopes had been opened and the money removed. Each
envelop was marked “unclaimed”.
N. Roy P33.24
G. Gloria P24.75

Required:
1. Prepare working papers showing your cash count and the amount of cash shortage or
overage. (15 points)
2. Prepare necessary adjusting journal entries without explanation in the books of the
company. (10 points)