02audit of Cash
02audit of Cash
PROBLEM NO. 1:
The accountant of Santiago Company is in the process of preparing the company’s financial statements
for the year ended December 31, 2018. He is trying to determine the correct balance of cash and cash
equivalents to be reported as a current asset in the statement of financial position. The following items
are being considered:
Balances in the company’s accounts at the Metropolitan Bank:
Current account P81,000
Savings account P132,000
Undeposited customer checks of P22,200 (including a customer check dated January 2, 2019, for
P3,000).
Currency and coins on hand of P3,480.
Savings account at the Northern Philippines Bank with a balance of P2,400,000. This account is
being used to accumulate cash for future plant expansion (in 2019).
Petty cash of P4,000 (currency of P1,200 and unreplenished vouchers for P2,800).
P120,000 in a current account at the Northern Philippines Bank. This represents a 20%
compensating balance for P600,000 loan with the bank. Santiago Company is legally restricted to
withdraw the funds until the loan is due in 2021. (NCA)
Treasury bills:
Two-month maturity bills P90,000
Seven-month bills P120,000
Time deposit (placement term is 2 months) P100,000
What total amount of cash and cash equivalents should be reported under current assets?
A. P547,480
B. P427,480
C. P430,280
D. P327,480
SOLUTION 1:
Savings and current accounts - Metropolitan Bank
("132,000 + P81,OOO) P213,000
Undeposited customer checks (P22,200 — P3,OOO) 19,200
Currency and coins on hand 3,480
Petty cash 1,200
Two-month treasury bills 90,000
Time deposit 100,000
Total cash and cash equivalents P426.880
Notes:
1. The P3,000 postdated customer check will not be accepted by the bank when presented either for
encashment or deposit. This should be reverted to accounts receivable.
2. The P2,400,000 cash balance at Northern Philippines Bank is being maintained for future plant
expansion. Thus, it is unavailable for use in current operations or payment of current liabilities. The
amount should be shown as part of investments in the noncurrent assets section of the statement of
financial position.
3. The P120,000 in ä current account at the Northern Philippines Bank which represents a compensating
balance is legally restricted and is being held against a long-term borrowing. Hence, this Should be
classified as investment or other asset in the noncurrent assets section of the statement of financial
position.
4. The 7-month treasury bills are not cash equivalents and should be shown as part of short-term
investments in the current assets section of the statement of financial position.
PAS 7 defines "cash equivalents" as short-term, highly liquid investments that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of changes in value. These
normally include short-term investments with maturities of three months or less from the date of
acquisition.
PROBLEM NO. 2:
The following information has been extracted from the accounting records of the Ursula Company at
December 31, 2018:
a. Cash on hand (see note below) P230,000
b. Impukan bank savings account (the required minimum 9,500
Monthly Average Daily Balance is P10,000
c. 364-day treasury bill purchased March 1, 2018 400,000
d. Petty cash fund (see note below) 20,000
e. Tipid Bank current account (see note below) 160,000
f. Time deposit placements: Terms
December 15, 2018 30 days 30,000
October 31, 2018 90 days 40,000
November 30, 2018 180 days 25,000
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AUDIT OF CASH
g. Employee travel advances 7,000
h. Cash in bond sinking fund 500,000
i. Customer’s note receivable 45,000
j. Postage stamps 2,400
The following are included in cash on hand:
A customer check for P43,000 returned by the bank on December 28,2018. It was redeposited
and cleared the bank on January 2, 2019.
A customer check for P75,000 dated January 3, 2019, received December 27, 2018.
PHLPost money orders received from customers, P30,000.
What total amount should be recorded as cash and cash equivalents on December 31, 2018?
A. P383,000
B. P373,500
C. P378,000
D. P408,000
Solution 2:
Cash on hand (230,000-P43,000-P75,000) P112,OOO
Impukan Bank savings account 9,500
Petty cash fund 13,500
Bank current account (P160,OOO + P13,OOO + PS,OOO) 178,000
Time deposits:
30 days 30,000
90 days 40,000
Total cash and cash equivalents P383,000
PROBLEM NO. 3:
On January 1, Tanya Co. establishes a petty cash account and designates Orly Reyes as petty cash
custodian. The original amount included in the petty cash custodian. The original amount included in the
petty cash fund is P10,000. The following disbursement are made from the fund:
1. The person responsible, at all times, for the amount of the petty cash fund is the
A. Chairman of the Board of Directors
B. President of the company
C. Petty cash custodian
D. General cashier
2. The following are appropriate procedures for controlling the petty cash fund, except
A. To monitor variations in different types of expenditures, the petty cash custodian files petty
cash vouchers by category of expenditures after replenishing the fund.
B. To replenish the fund, the general cashier issues a company check to the petty cash
custodian, rather than cash.
C. To determine that the fund is being accounted for satisfactorily, surprise counts of the fund
are made from time to time by the internal auditor or other responsible official.
D. Each individual to whom petty cash is paid is required to present signed receipts to the petty
cash custodian.
3. The entry to replenish the fund is
A. Office supplies expense 3,460
Postage expense 2,240
Entertainment expense 840
Cash 6,540
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B. Office supplies expense 3,460
Postage expense 2,240
Entertainment expense 840
Cash over and short 260
Petty cash 6,800
C. Office supplies expense 3,460
Postage expense 2,240
Entertainment expense 840
Cash over and short 260
Cash 6,800
D. Office supplies expense 3,460
Postage expense 2,240
Entertainment expense 840
Petty cash 6,540
4. The objective of establishing a petty cash fund is to
A. Cash checks for employees
B. Account for all cash receipts and disbursements
C. Account for cash sales
D. Facilitate payment of small, miscellaneous items
5. What is the effect of not replenishing petty cash at year-end and not making the appropriate
adjusting entry?
A. A detailed audit is essential
B. The petty cash custodian should turn over the petty cash to general cashier.
C. Cash will be overstated and expenses understated.
D. Expenses will be overstated and cash will be understated.
SOLUTION 3:
1.One individual, the petty cash custodian, should be responsible for the petty cash fund.
Answer: C
2. The petty cashier should not have custody of paid petty cash vouchers to prevent their reuse.
Answer: A
3. Office supplies expense 3,460
Postage expense 2,240
Entertainment expense 840
Cash over and short 260
Cash 6,800
Conmputation Of cash shortage:
Curreny and coins P3,200
Petty cash vouchers (P3,460 + p2,240 + P840) 6,540
Petty cash accounted 9,740
Petty cash fund per ledger 10,000
Shortage (P 260)
Answer: C
4. Facilitate payment of small, miscellaneous items.
Answer: D
3. Cash will be overstated and expenses understated.
Answer: C
PROBLEM NO. 4:
The auditor of Raki Raki Inc examined the petty cash fund immediately after the close of business June
30, 2018, the end of the company’s fiscal year. The following fund composition was
Currency 1,272
Fund Vouchers
Office supplies expense 388
Travel expense 240
Office equipment repairs 170
Loans to officers and employees 400
A check drawn by Raki-raki, Inc., payable to the order of Jingle, fund 1,100
custodian
An employee’s check, returned by bank, stamped NSF 230
A sheet of paper bearing the signatures of several employees, together 200
with their contributions (Total P200) of a gift for a departing employee
attached to the paper is currency of
TOTAL 4,000
The petty cash fund balance ledger account has an imprest balance, P4,000.00
Required:
1. What audit adjustment should be reported as of June 30, 2018
2. At what amount should be the cash fund be shown in the balance sheet as of June 30, 2018?
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AUDIT OF CASH
PROBLEM NO. 5:
In connection with your audit of the financial statements of Benjamin Corp. for year ended December 31,
2018, you conducted surprise count of the company’s petty cash fund and undeposited collections at
8:20 am on January 3, 2019. Your count disclosed the following:
Checks
Date Payee Maker Amount
Dec. 30 Cash Custodian P 1,200
Dec. 30 Benjamin Corp. SLV, Inc. 14,000
Dec. 31 Benjamin Corp. Mario Lansang, sales manager 1,680
Dec. 31 Benjamin Corp. MSU Corp. 17,800
Dec. 31 Benjamin Corp. Ateneo Inc. 8,300
Dec. 31 Taiwan Corp. Benjamin Corp. 27,000
Unreimbursed vouchers
Date Payee Description Amount
Dec. 23 Mario Lansang Advance for trip to Tagaytay P 20,000
Dec. 28 Central Post Office Postage stamps 1,620
Dec. 29 Messengers Transportation 150
Dec. 29 Byte, Inc. Computer repair 800
Additional information:
1. The custodian is not authorized to cash checks.
2. The last official receipt included in the deposit on December 30 is No. 4351 and the last official
receipt issued for the current year is No. 4335. The following official receipts are all dated
December 31, 2018.
OR No. Amount Form of Payment
4352 P 13,600 Cash
4353 17,800 Check
4354 3,600 Cash
4355 8,300 Check
3. The petty cash balance per ledger is P25,000. The last replenishment of the fund was made on
December 22, 2018.
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4. The cash count should include total checks of
A. P 69,980
B. P 42,980
C. P 41,780
D. P 41,300
5. What is the total cash shortage?
A. P 22,166
B. P 8,166
C. P 22,406
D. P 20,846
SOLUTION 5:
1. Cash advance P20,OOO
Less: Actual cash disbursed Hotel, meals, etc. P16,OOO
Bus fare 1,200
Pablo (P1,OOO - P120) 880 18,080
Cash that should be returned 1,920
Cash actually returned (1,680)
Shortage due from the sales manager P 240
Answer: A
2. Collections per OR nos. 4352 – 4355 P 43,300
Unreceipted collections 14,000
Total undeposited collections P57.300
Answer: C
3. Travel expenses (P16,OOO + PI,200 + 880) P18,080
Answer: D
4. Total checks P42,980
Answer: B
PROBLEM NO. 6:
Presented below are a series of unrelated situations. Answer the question at the end of each situation.
1. The accountant of Narcisa Co. provided the following data in reconciling the April 30 cash in bank
balance:
Balance per bank, April 30 P 130,350
Balance per books, April 30 85,000
Bank service charge 2,000
Deposit in transit 49,000
Outstanding checks 17,650
Note collected by bank including p 11,200 interest (Narcisa Co. not yet 136,000
informed)
Check drawn by XYZ Co. erroneously charged by bank to Narcisa’s 54,600
account
A transportation error was made in recording a sale and deposit in the sales journal and cash
receipts journal in April.
Correct amount P 13,658
Recorded as P 16,358
What is the adjusted cash balance on April 30?
SOLUTION 6:1
Book Bank
1. Unadjusted balances P 85,000 P
130,350
Bank service charge (2,000)
Deposits in transit 49,000
Outstanding checks (17,650)
Collection of note 136,000
Erroneous bank debit 54,600
Transposition error (P16,358 - P13,658) (2,700)
_______
Adjusted balances P216,300 P216,300
2. The following information is included in Emil Corporation’s bank statement for the month of
March:
A customer’s check has been marked “NSF” by the bank and returned P 13,000
Bank service charge for March 1,200
In comparing the bank statement to the company’s cash records, you found:
Outstanding checks on March 31 P 184,000
Deposits made but are not yet shown in the April bank statement 14,000
The deposits in transit and outstanding checks have been correctly taken up in the company’s
books. You also found a customer’s check for P17,400 that had not yet been deposited and had
not been recorded in Emil’s books. Your client’s books show a cash balance of P36,420.
What is Emil Corporation’s correct cash balance at March 31?
3. The following information pertains to a checking account of a company at June 30, 2018.
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Balance per bank statement P 200,000
Interest earned for the second quarter 500
Outstanding checks 15,000
Customers’ checks returned for insufficient funds 5,000
Deposit in transit 25,000
What is the cash balance per books at June 30, 2018?
4. A company is reconciling its bank statement with internal records. The cash balance per the
company’s books is P 45,000. There are P 5,000 of bank charges not yet recorded, P 7,500 of
outstanding checks, P 12,500 of deposits in transit, and P 15,000 of bank credits and collections
not yet taken up in the company’s books.
What is the cash balance per bank?
A company shows a cash balance of P 175,000 on its bank statement dated June 30. As of June
30, there are P55,COO of outstanding checks and P37,500 of deposits in transit
5. The cash account shows a balance of P 225,000 before reconciliation. The bank statement does
not include a deposit of P 11,500 made on the last day of the month. The bank statement shows
a collection by the bank of P 4,700 and a customer’s check for P 1,600 was returned because it
was NSF. A customer’s check for P 2,250 was recorded on the books as P 2,700, and a check
written for P 395 was recorded as P 485.
What should be the correct cash balance?
7. On July 5, 2018, EMILIA CORP. received its bank statement for the month ending June 30. The
statement showed a P 209,500 balance while the cash account balance on June 30 was
P35,000. In reconciling the balances, the auditor discovered that:
1. The June 30 collections of P 176,000 were recorded on the books but were not deposited until
'July.
2. The bank service charges for the month of June totaled P3,000.
3. A paid check for P24,30() was entered incorrectly in the cash payments journal as P34,200.
What is the total outstanding checks at June 30, 2018?
PROBLEM NO. 7:
In connection with an audit, you are given the following bank reconciliation.
Bank Reconciliation
December 31, 2018
Deduct:
Outstanding check (see detailed list below) 55,875
Credit memo for proceeds of a note receivable which had been left at 24,800
the bank for collection but which has not been recorded as collected
Check for an account payable entered on books as P 38,675 but drawn 10,00 96,675
and paid by bank as P 48,675
Computed balance 43,350
Unlocated difference 111,400
Balance per bank (checked to confirmation) 154,750
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AUDIT OF CASH
D. 64,875
2. The correct amount of “unlocated difference” is
A. 99,400
B. 108,400
C. 111,400
D. 0
3. The Cash in Bank to be shown on the company’s December 31, 2018 statement of financial
position is:
A. 105,850
B. 113,850
C. 102,850
D. 114,850
PROBLEM NO. 8:
From the following information, prepare the following:
PROBLEM NO. 9:
You obtained the following information on the current account of BAHT COMPANY during your
examination of its financial statements for the year ended December 31, 2018.
The bank statement on November 30, 2018 showed a balance of P 76,500. Among the bank credits in
November was customer’s note for P 25,000 collected for the account of the company which the
company recognized in December among its receipts. Included in the bank debits were costs of
checkbooks amounting to P 300 and P 10,000 check was charged by the bank in error against BAHT
COMPANY account. Also in November, you ascertained that there were deposits in transit amounting to P
20,000 and outstanding checks totaling P 42,500.
The bank statement for the month of December showed total credits of P 104,000 and total charges of P
51,000. The company’s books for December showed total receipts of P 183,900. Disbursement of P
101,800, and a balance of P 121,400. Bank debit memos for December were: No. 143 for service
charges, P 400 and No. 145 on a customer’s returned check marked “DAIF” for P 6,000.
On December 31, 2018, the company place with the bank a customer’s promissory note with a face value
of P 30,000 for collection. The company treated this note as part of its receipts although the bank was
able to collect on the note only in January 2019.
A check for P 990 was recorded in the company cash payments books in December as P 9,900.
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B. 64,000
C. 44,000
D. 39,300
4. How much is adjusted bank receipts as of December 31, 2018?
A. 158,900
B. 128,900
C. 118,900
D. 108,900
5. How much is adjusted book disbursement as of December 31, 2018?
A. 56,490
B. 98,990
C. 107,900
D. 99,290
6. How much is adjusted bank balance as of December 31, 2018?
A. 156,410
A. 93,910 B. 55,000
C. 48,910
The bank erroneously charged the company’s account for a P 11,250 check of another depositor.
The bank error was corrected in January 2019.
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C. 130,500
D. 48,750
8. What is the total bank receipts in December?
A. 360,000
B. 420,000
C. 435,000
D. 450,000
9. What is the total bank disbursement in December?
A. 411,000
B. 463,500
C. 397,500
D. 388,500
10. What is the bank balance on December 31, 2018?
A. 64,500
B. 93,000
C. 99,750
D. 79,500
The Cash Receipts Journal shows total receipts for December of P 371,766. The Check Register reflects
total checks issued in December of P 377,632. A collection of P 5,912 was recorded on company books
on December 31 but was not deposited until January 2, 2019.
The balance per bank statement at December 31, 2018, is P 17,516. This statement shows total receipts
of P 373,502 and checks paid of P380,284.
2. Check no. 3417 was mutilated and returned by the payee. A replacement check (no. 3453) was
issued. Both checks were entered in the Check Register but no entry was made to cancel check
no. 3417.
4. On January 3, 2019, the bank informed your client that the December bank service charge of P
42 was omitted from the statement.
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5. Your examination of the bank credit memo accompanying the December statement discloses that
it represents proceeds from the note receivable collection in December for P 4,000.
QUESTIONS:
1. What is the total book disbursement for the month of December?
2. What is the book balance at December 31?
3. The outstanding checks at December 31, totaled…
4. What is the adjusted bank balance on November 30?
5. The adjusted book receipts for the month of December should be…
6. The adjusted book disbursement for the month of December should be…
7. What is the adjusted book balance on December 31?
The cash books showed a balance of P 94,508, which included undeposited receipts. A credit of P 500 on
the bank’s record did not appear on the books of the Company. The balance per bank statement was P
77,750. Outstanding checks were no. 8420 for P 581, no. 8422 for P 750, no. 8439 for P 1,266, no. 8621
for P 954, no. 8623 for P 1,034 and no. 8632 for P726.
The cashier stole all undeposited in excess of P 18,972 and prepared the following reconciliation:
1. What is the correct amount of cash that should be on hand for deposit on November 30, 2018?
A. 23,069
B. 18,972
C. 22,569
D. 22,069
2. How much was stolen by the cashier?
A. 3,597
B. 3,097
C. 4,097
D. 0
3. The cashier attempted to conceal his theft by:
I. Not listing all outstanding checks
II. Underfooting outstanding checks shown on the reconciliation
III. Adding and item to the bank balance that should be deducted from the bank balance.
A. I and II only
B. II and III only
C. I and III only
D. I, II and III
4. Taking only the information given, which of the following internal control deficiencies allowed the
cashier to steal cash and conceal his theft?
A. The cashier is also responsible for preparing the reconciliation.
B. No one other than the cashier is responsible for tracing cash receipts to the deposits in the
bank.
C. Both A and B
D. Neither A nor B.
5. What is the adjusted cash balance as of November 30, 2018?
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A. 95,008
B. 91,411
C. 94,008
D. 87,814
Number Amount
1428 5,200
1431 3,600
1445 4,080
1446 3,460
Additional information:
1. Bank balance, July 1, 2018 200,000
2. Bank balance, December 31, 2018 524,000
3. Outstanding checks, December 31, 2018 42,000
(No checks were outstanding on July 1)
4. Undeposited receipts, December 31, 2018 24,000
(Included in the December receipts)
5. Bank deposits, July 1 through December 31 914,000
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1. As one of the year-end audit procedures, the auditor instructed the client’s personnel to prepare
a standard bank confirmation request for a bank account that had been closed during the year.
After the client’s treasurer had signed the request, it was mailed by the assistant treasurer. What
is the major flaw in this audit procedure?
A. The confirmation request was signed by the treasurer.
B. Sending the request was meaningless because the account was closed before year-end
C. The request was mailed by the assistant treasurer.
D. The CPA did not sign the confirmation request before it was mailed.
2. On receiving the bank cutoff statement, the auditor should trace
A. Deposits in transit on the year-end bank reconciliation to deposits in the cash receipts journal
B. Checks dated prior to year-end to the outstanding checks listed on the year-end bank
reconciliation.
C. Deposits listed on the cutoff bank statement to deposits in the cash receipt journal.
D. Checks dated subsequent to year-end to the outstanding checks listed on the year-end bank
recon.
3. An unrecorded check issued during the last week of the year would most likely be discovered by
the auditor when
A. Check register for the last month is reviewed.
B. Cutoff bank statement is reconciled.
C. Bank confirmation is reviewed.
D. Search for unrecorded liabilities is performed.
4. To gather evidence regarding the balance per bank in a bank reconciliation, an auditor would
examine all of the following except
A. Cutoff bank statement
B. Year-end bank statement
C. Bank confirmation
D. General ledger
5. An auditor information on cancelled checks with information contained in the cash disbursement
journal. The objective of this test is to determine that
A. Recorded cash disbursement transactions are properly authorized.
B. Proper cash purchase discounts have been recorded.
C. Cash disbursements are for goods and services actually received.
D. No discrepancies exist between the date on the checks and the data in the journal.
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