Accounting Review 2 Auditing

Audit of Cash

PROBLEM 1
Your audit of the cash account of Albano Corporation reveals the following information:
1) Saving accounts of P1,500,000 and commercial checking account of P800,000 with Metropolitan Bank and Trust
Company. Balances were taken from Albano’s general ledger.
2) Three certificates of deposit with MetroBank, each totaling P1,000,000, with maturity dates of 90 days and less.
3) Money market placements with Axa Group of Companies, not intended to be terminated until 2016, P3,000,000 face
amount. Last value date was December 29, 2014; on which date, cumulative income earned on the instrument is
P200,000.
4) Checking account with Allied Bank for payroll fund, P1,200,00 and another checking account for tax fund, P500,000.
5) A check for P35,000 for salaries of an employee on leave was recorded as disbursement on December 15; the
employee has not claimed the check as of December 31.
6) Savings account with Allied Bank, P900,000 as equipment acquisition fund, P480,000 of which was earmarked for an
equipment to be delivered in March 2015. You were able to verify that this amount was actually disbursed in March
2015.
7) Petty cash fund with imprest balance of P20,000. Your count of the fund on January 4, 2015 revealed the following
fund composition: Bills and coins, P12,000; paid petty cash vouchers, all dated December 2014, P6,800; IOUs from
employees, with no supporting petty cash vouchers, P1,200; and a check drawn against MetroBank checking account
in the amount of P5,300 covering Meralco bill for the period November 29 to December 30, 2014.
8) Checks from customers in settlement of account, both on sales invoices for the month of December 2014, totaling
P85,000. The checks were verified to have been recorded in the December cash receipts journal, although one check
for P25,000 was dated January 8 ,2015.
9) All the checks proved to be good when subsequently deposited.

1. Prepare the entire necessary audit adjusting entries as a result of the foregoing.

2. Determine the amount that will be reported as Cash and Cash Equivalents on the December 31, 2014 Statement of Financial
Position.

PROBLEM 2
The “Cash” account in the ledger of Albano Jr. Company on December 31, 2014 had a balance of P1,640,000. An examination
of the account disclosed the following:

1. The sales book was left open up to January 10, 2015 and cash sales totaling P285,200 were considered as cash
sales in 2014.

2. Checks of P19,300 in payable of utilities were prepared before December 31, 2014 and recorded in the books on the
same date, but mailed or delivered only on January 5, 2015.

3. Customers’ checks with January 2015 dates totaling P57,800 are being held by the cashier and were included as part
of cash on December 31, 2014. The company’s experience shows that postdated checks are eventually realized.

4. Customer’s check for P32,500 deposited with the bank on December 15, 2014 was returned on December 18, 2014.
The return was not recorded in the book.

5. The cash account includes P230,000 set aside for payment of dividends.

6. The cash account includes a check received from a customer in May 2014 for P3,500, which the company failed to
deposit. Verification from customer reveals that the amount will eventually be realized.

7. The cash account includes change fund amounting to P5,000. When the fund was counted, only P4,450 was found.

8. The cash account includes P400,000 fund for payroll.

9. The cash account includes petty cash fund amounting to P20,000. The fund was replenished last December 24,
2014. When the fund was counted on January 3, 2015, the following were found:

Bills and coins P13,000

Vouchers with December 2014 dates 5,500
Vouchers with January 2015 dates 1,200

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 Accounting Review 2 Auditing
Audit of Cash

10. An examination of the company’s sales invoice revealed that P13,500 check was received on December 30, 2014
from sale of scrap materials. The amount cannot be traced from the cash receipts book but was verified to have been
deposited to the bank.

1. For each of the above items, prepare the necessary audit adjustment to bring the cash account to its correct balance as of
December 31, 2014.

2. Determine the correct amount of cash to be presented on December 31, 2014 Statement of Financial Position.

PROBLEM 3
You examined the petty cash fund of the Chico Company immediately after the close of business on June 30, 2014, the end of
the company’s fiscal year. Your audit showed the following fund composition:

Currencies P6,000
Coins 400
Petty cash vouchers:
Gasoline payments for delivery vehicle 250
Office supplies 160
Medicines for employees 240
Transportation 400
Office equipment repairs 400
Loans to employees 800
A check drawn by the company payable to the 3,800
order of the petty cash custodian, representing her
salary
An employee’s check returned by the bank 1,200
because of insufficient funds
A piece of paper with names of several employees 1,500
together with a contribution for a wedding gift for
an employee. Attached to the sheet of paper are
currencies amounting to

The petty cash general ledger account has an imprest balance of P10,000.

1. What amount of petty cash fund should included as part of Cash on June 30, 2014 Statement of Financial Position?

2. How much was the cash shortage or overage?

3. Prepare the necessary audit adjusting entries.

PROBLEM 4
You counted the petty cash fund balance of Chico Jr. Corporation at 11:00 o’clock in the morning of January 4, 2015, and you
obtained the following details:

Bills and coins P 2,500

Paid vouchers (all dated December 2014) for
Telephone 1,500
Water 1,600
Office supplies 3,700
Postage stamps 2,800
IOU’s signed by employees 3,900
Envelope containing contribution for a wedding gift to a
co-employee 1,000
Company check for fund replenishment 15,000
Unused postage stamps 1,800
Unused office supplies 1,200

You ascertained that Chico Jr. Corporation established a petty cash fund for P35,000.

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Audit of Cash

1. Compute the amount of the petty cash fund shortage as of January 4, 2015.

2. Prepared the necessary audit adjusting entries for December 31, 2014.

3. Compute the correct amount of petty cash fund to be shown as part of Cash in the Statement of Financial Position at
December 31, 2014.

PROBLEM 5
You are making an audit of the Dolz Industries for the year ended December 31, 2014. The balance of the petty cash account
on December 31, 2014 was P15,000. Your count of the imprest cash fund, made at 10:46 a.m. on January 5, 2015, in the
presence of Ms. C. Cabria revealed:

Bills and coins:

Denomination Quantity
1,000 2
500 4
100 14
50 16
20 10
10 19
5 17
1 25
0.50 21
0.25 28

Checks:

Date Maker Bank Amount

Dec. 28, 2014 Danes, employee Tiger P3,000.00
Dec. 29, 2014 Derick, employee UCPB 1,500.00
Dec. 31, 2014 Cham, customer BOC 2,500.00
Jan. 02, 2015 D. Buendia, customer RBC 3,200.00
Jan. 10, 2015 R. Chico, employee Standard Chartered 1,500.00
(Check received Dec. 28, 2014)
(These checks were all considered good when deposited after dates shown on the checks. The first four checks were
actually deposited January 3; The R. Chico check was deposited January 13; all five checks proved to be good.)

Vouchers:

Voucher Date Voucher Number Description Amount

Dec. 11, 2014 #151 Freight bill on merchandise sold P500.00
Dec. 28, 2014 #183 Supplies 300.00
Dec. 29, 2014 #184 Freight bill on merchandise purchased 394.00
Dec. 31, 2014 #189 Freight bill on cabinets purchased 741.00
Jan. 06, 2014 #001 Freight bill on merchandise purchased 244.00

IOU:

Date Issuer Amount

Dec. 21, 2014 Joanne Angela Belga, employee P300.00

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Sales Invoices (for cash sales collections handled by Ms. C. Cabria):

Invoice Number Date Amount

118 Dec. 30 P1,000.40
129 Dec. 31 2,500.00
133 Jan. 2 3,200.00
(As a general rule, the petty cashier endeavored to turn over the proceeds of cash sales to the general cashier on the
10th, 20th, and last day of each month. Proceeds on these sales were recorded and deposited by the general cashier.)

Unused office supplies:

Office supplies.................................... P 40.00
(These supplies represent the unused portion of those purchased on Voucher #183.)

1. Prepare a cash count sheet on January 5, 2015.

2. Prepare the necessary audit adjusting entries as at December 31, 2014.

PROBLEM 6
You are making an audit of the Dolz Jr. Company for the year ended December 31, 2014. The balance of the petty cash fund
account on December 31, 2014 was P10,000. Your count of the imprest cash fund, made at 10:32 am on January 6, 2015 in
the presence of Ms. Mary Rose Antonis, the petty cash custodian disclosed the following fund composition:

Bills and Coins:

Denomination Quantity
500 1
100 8
50 3
10 4
5 2
1 3

Checks:

Date Maker Amount

Dec. 29, 2014 R.J. Redoblado, employee P2,000
Dec. 30, 2014 S. Ramos Group of Companies 1,500
Jan. 02, 2015 TQG Junk Shop 2,450
Jan. 15, 2015 M.F. Ng, employee 1,800
(Check received Dec. 27, 2014)
(These checks were considered good when deposited after dates shown on the checks.)

Voucher:

Date Voucher No. Particulars Amount

Dec. 16, 2014 145 Freight on merchandise bought P 500
Dec. 26, 2014 164 Postage 200
Dec. 29, 2014 165 Transportation of messenger 50
Jan. 05, 2015 166 Cost of labor cost for repairs done on 1,500
office cabinets. Repair was
completed Dec. 29, 2014

IOU:

Issuer Amount
Joanne Angela Belga, employee P1,200.00

Postage stamps:

Ten pieces of P12 stamps purchased on Voucher Number 164........................ P120

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Audit of Cash

Duplicate copies of provisional receipt:

Date Number Issued to Particular Amount

Dec. 30, 2014 2204 S. Ramos GOC Refund for merchandise returned P1,500
Jan. 06, 2015 2205 TQG Junk Shop Sale of Junk and scrap items 2.450

You verified that Ms. Antonis handled miscellaneous receipt and issues provisional receipt. These miscellaneous
collections are periodically turned over to the general cashier who issues official receipts.

1. A cash count sheet.

2. Audit adjusting entries as a result of the foregoing.

PROBLEM 7
The bank statement for the checking account of Eco, Inc. showed a December 31, 2014 balance of P1,463,212. Information
that might be useful in preparing a bank reconciliation are as follow:

1) Outstanding check were P140,000.

2) The December 31, 2014 cash receipt of P59,500 were not deposited in the bank until January 2, 2015.
3) One check written in payment of rent for P24,600 was correctly recorded by the bank but was recorded by Eco as a
P26,400 disbursement.
4) In accordance with prior authorization, the bank withdrew P45,000 directly from the checking account as payment on
a mortgage note payable. The interest portion of that payment was P5,000. Eco has made no entry to record the
automatic payment.
5) Bank service charges of P1,400 were listed on the bank statement.
6) A deposit of P87,500 was recorded by the bank on December 13, but it did not belong to Eco. Further verification with
the bank indicates that the deposit should have been credited to the checking account of Eoc, Inc.
7) The bank statement included a charge of P121,500 for a customer’s DAIF check. The check was returned with the
bank statement and the company will seek payment from the customer.
8) Eco maintains a P20,000 petty cash fund that was appropriately reimbursed at the end of December.
9) According to instruction from Eco on December 30, the bank withdrew P1,000,000 from the account and purchased
Philippine Treasury bills for Eco. Eco recorded the transaction in its books on December 31 when it received notice
from the bank. Half of the treasury bills mature in two months and the other half in six months.

1. Prepare bank reconciliation for the Eco checking account at December 31, 2014. You have to compute the balance per book.

2. Prepare any necessary adjusting journal entries indicated.

3. What amount would Eco report as Cash and Cash Equivalents in the current asset section of the December 31, 2014
Statement of Financial Position?

PROBLEM 8
The Eco Jr. Corporation engaged your services to audit its accounts. In your examination of cash, you find that the Cash
account represents both Cash on Hand and Cash in Bank. You further noted that there is very poor internal control over cash.

Your audit covers the period ended December 31, 2014. You made a cash count on January 15, 2015, and cash on hand on
this date was determined to be P52,000. Examination of the cash books and other evidences of transaction disclosed the
following:

1) January 01-15, 2015 collections per duplicate receipt, P119,000.

2) Total of duplicate deposit slips, all dated January 02-15, P110,000, includes deposit representing collections of
December 31.
3) Cash book balance on December 31, 2014 is P465,000, representing both cash on hand and cash in bank.
4) Bank statement for December shows a balance of P424,000.

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Audit of Cash

5) Outstanding checks at December 31:

November checks: Number 183 P 4,500
198 12,500
December checks: Number 252 6,000
254 4,000
280 52,000
301 9,000
319 25,000
6) Undeposited collections at December 31, P48,000.
7) An amount of P19,000 representing proceeds of a customer’s note was credited by bank, but is not yet taken up in
the company’s books.
8) Bank service charge for December, P1,500.

The company cashier presented to you the following reconciliation statement at December 2014, which she prepared:

Balance per books, P456,000

December 31,2014
Add: Outstanding checks
No. 252 P 6,000
254 4,000
280 25,000
301 900
319 15,000 50,900
Total P506,900
Bank charges (1,500)
Undeposited collection (51,000)
Balance per bank P454,400

1. Determine the amount of cash shortage as of December 31, 2014.

2. Prepare a schedule showing how the cashier attempted to conceal his storage.

2. Determine the amount of additional shortage in January 2015.

4. Prepare the necessary audit adjusting entries at December 31, 2014.

PROBLEM 9
You are to audit the cash in bank account of Lanac Corp. as of December 31, 2014.

Your examination revealed the following:

Balance, December 1,2014 P 876,750

Deposits (20) 9,153,760
Checks (64) plus debit memos (8,524,300)
Service charges for new checks (2,250)
Balance, December 31, 2014 P1,503, 960

From the company’s record:

CASH
Nov. 1 652,070 Nov. 31 CD 6,654,410
Nov. 30 CR 6,824,290 Dec. 1- Bank reconciliation 38,400
Dec. 31 CR 9,198,720 Dec. 31 CD 8,574,610
CD- Cash disbursement
CR- Cash receipts

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 Accounting Review 2 Auditing
Audit of Cash

Your review of last month’s bank reconciliation and the current bank statement reveals the following:
1. Outstanding checks: November 30, 2014 P254,720
December 31, 2014 335,610
2. Deposits in Transit: November 30, 2014 164,220
December 31, 2014 209,180
3. Check no. 359 for Office Furniture was written for P6,950 but recorded in the cash disbursement journal as P9,650.
The bank deducted the check as P6,950. The error happened in November and is not yet corrected as of December
31.
4. A check written on the account of the Lanao Corp. for P5,830 was deducted by the bank from the Lanac’s account.
5. Included with the bank statement was a debit memorandum dated December 31 for P24,750 for interest on a note
taken out by the Lanac Corp. on November 30.
6. The service charge for the new checks has not been recorded.
7. The November 30 bank reconciliation showed as reconciling items a service charge of P3,500 and a customer’s DAIF
check for P34,900.

1. Prepare a four-column proof of cash reconciling bank balance and balance per book to the correct balance.

2. Prepare the necessary audit adjusting entries.

PROBLEM 10
Your client, Lanac Jr., presented you with the following data:

Bank balances
September 30 P2,500,000
October 31 3,100,000

Bank receipt in December 2,300,000

Deposits transit
September 30 58,000
October 31 47,000

Outstanding checks
September 30 97,000
October 31 46,000

NSF checks returned by bank

(recorded by client in the month
following return)
September 30 15,000
October 31 25,000

Bank service charges (recorded by

client in the month following the
month the charge)
September 10,000
October 18,000

Note collected by bank (recorded

by the client in the following month)
September 76,000
October 84,000

Erroneous bank charges (corrected

by the bank in the following month)
September 25,000
October 37,000

Erroneous bank credits (corrected

by the bank in the following month)
September 45,000
October 50,000

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 Accounting Review 2 Auditing
Audit of Cash

1. Prepare a four-column proof of cash reconciling bank balance and balance per books to the correct balance.

2. Prepare the necessary audit adjusting entries.

PROBLEM 11
The treasurer of Mendaza Company prepared the following correct bank reconciliation as of April 30, 2014.

Balance per bank statement, April 30 P470,360

Add: Deposit in Transit 29,360
499,720
Deduct: Outstanding checks 144,880
Adjusted balance P354,920

Balance per ledger, April 30 P363,040

Less: customer’s DAIF check P 8,000
Service Charges 120 8,120
Adjusted balance P354,920

The bank statement for May shows:

Balance, May 1, 2014 P 470,360
Deposits 883,200
P1,353,560
Checks cleared P1,320,320
Service charges 280 1,320,600
Balance, May 31, 2014 P 32,960

Mendaza Company deposits shown on the bank statement include the proceeds of a P240,000 note payable drawn by the
treasurer for Mendaza Company payable to the bank in 60 days. No entry was made for the note in the company’s books. The
total cash receipts as shown by Mendaza Company records amount to P654,400, and the total checks recorded amount to
P613,120. This latter total does not include one check drawn and signed by the treasure payable to himself. The treasurer has
disappeared. No record of this check appears anywhere in the company’s records. Checks outstanding on May 31, 2014, total
P133,600.The DAIF check and the service charge for April were recorded by the company in May.

1. By preparing a proof of cash, determine the following:

a) The unadjusted cash balance as of May 31 in the company’s records;
b) The undeposited receipts, if any, as of May 31;
c) The amount of the check drawn payable to the cashier; and
d) The adjusted cash balance as of May 31.

2. Prepare the necessary audit adjusting entries.

PROBLEM 12
In relation to your audit of the financial statements of the Medaza II for the fiscal year ended November 30, 2014, you decided
to prepare cutoff bank reconciliation as of December 6, 2014. The cashbook contained the following:

Dec. 1 balance P 921,500

Receipts Checks Drawn

Dec. 3 85,800 P320,000
4 134,600 84,400
5 186,200 62,000
6 102,000 105,000

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 Accounting Review 2 Auditing
Audit of Cash

The bank statement dated at the close of business on January 6, 2015 showed:

Balance, December 1, 2013 .............. P888,800

Deposits ........................................ 555,500
Checks and other charges ................ 666,600

The bank checks and other charges includes a P200,000 charge made by the bank on December 4, 2014 plus interest of
P28,000 as payment of bank loan and all checks issued prior to December 5, except checks for P30,000 and P40,000 dated
December 3 and 4, respectively.

The daily cash receipts were deposited in the first banking hour of the following day.

All disbursement were made by checks except that a payment of P12,000 representing advance to a hotel for Christmas
launching of a new product was paid out of undeposited collections in the afternoon of December 6.

1. Prepare a proof of cash and compute the following:

a) Deposits in transit as of November 30
b) Outstanding checks as November 30
c) Adjusted Cash in Bank balance as of November 30
d) Cash in Bank balance as of December 6

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Accounting Review 2 Auditing
Audit of Cash

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