EX 2-1: The following are the findings from your audit of the cash and

bank accounts of your client Moneycome Company for the year ended 31 December
2017 (Sunday).
1. A check was received from a customer on 27 December 2017 (Wednesday).
The dispatch clerk forgot to bank in the check before the year-end close but banked
in on January 2018 (Wednesday).
2. Deposits for pre-orders of $2,000 were included as cash sales.
3. The clerk forgot to enter the cash till totals from two checkout aisles
amounting to $40,000. The cash till printouts show that the receipts are dated 31
December 2017.
4. The manager who is the wife of the managing director took out $5,000 from
the cash till to pay for her credit card on 28 December 2017. She returned the
money a week later.
5. A check to a supplier, issued on 27 December 2017, was only collected by their
salesman on 3 January 2018.
6. The bank was asked to prepare two checkbooks on 29 December 2017. The
dispatch collected the checks on 4 January 2018.
7. The dispatch clerk was asked to buy postage stamps worth $400 on 31
December
2017. When he arrived at the post office it was closed. He did not buy the stamps.
Required:
a. Assuming that each of the observations above is fraudulent, state the most
likely motivation of the person responsible.
b. Suggest an internal control procedure that can be instituted for each fraud to
reduce the likelihood of occurrence.
c. Provide an audit procedure that can be used to detect each fraud.
EX 2-2: The following audit procedures are concerned with tests of details of
general cash and financial instruments balances:
1. Obtain a standard bank confirmation from each bank with which the client
does
business.
2. Compare the balance on the bank reconciliation obtained from the client with
the
bank confirmation.
3. List the check number, payee, and amount of all material checks not returned
with
the cutoff bank statement.
4. Review minutes of the board of director meetings, loan agreements, and bank
confirmation for interest-bearing deposits, restrictions on the withdrawal of cash,
and compensating balance agreements.
5. Prepare a four-column proof of cash.
6. Compare the bank cancellation date with the date on the canceled check for
checks dated on or shortly before the balance sheet date.
7. Trace deposits in transit on the bank reconciliation to the cutoff bank
statement and the current year cash receipts journal.
8. Compare the price per share on an equity investment at year-end according to
the
schedule of investment activity to the quoted market price according to an outside
pricing source.
9. Confirm the balance of financial instruments at year-end with the broker-dealer
service organization used by the client to manage its investment portfolio.
Required: Explain the objective of each audit procedure.
EX 2-3: The Cairo Wheat Supply Company, a client of yours, informs you that they
recently lost several employees in their accounting department. They are struggling
to prepare for their yearly audit, so they have asked you to assist with their bank
reconciliation for the year ended December 31, 2010. You obtain the following
financial information from the company:
General ledger Bank Statement

Beginning balance 12/1/10 $8,178 $10,123

Deposits $30,012

Cash receipts journal $32,156

Checks cleared ($17,456)

Cash disbursements journal ($18,478)

July bank service charge ($30)

Note paid directly ($2,500)

NSF check ($125)

Ending balance 12/31/10 $21,856 $20,024

November 30 Bank reconciliation

 Information in the General ledger and Bank
Statement

Balance per bank $10,123

Deposits in transit $1,300

Outstanding checks ($3,245)

Balance per books $8,178

You also obtain some additional information, as follows:

1. Checks clearing that were outstanding as of November 30 totaled $3,000.
2. Checks clearing that were recorded in the December disbursements journal
totaled $13,956.
3. A check for $500 just cleared the bank but has not yet been recorded in the
cash disbursements journal. You learn that the expense is for several bushels of
wheat recently purchased by the company.
4. In December, a check for $405 was mistakenly charged to Cairo Wheat Supply
but was actually intended for a different company’s bank account. The bank has
agreed to credit Cairo Wheat Supply for the difference.
5. Deposits in December consist of $1,300 from November and $28,712 from
December.
6. Cairo Wheat Company signed a temporary loan agreement with the bank
earlier in the year, a payment for which is due in December for $2,500. This amount
has not yet been recorded on the books.
7. An expected payment from a customer of $125 did not clear the bank. The
credit manager investigated the matter and discovered that the account was closed
after its owner died. The amount is not expected to be paid from the estate.
Required:
a) Prepare a bank reconciliation that shows both the unadjusted and adjusted
balance per book.
b) Prepare all adjusting entries.
c) What audit procedures would you use to verify each item in the bank
reconciliation?
d) What is the cash balance that should appear on the December 31, 2010,
financial statements?
EX 2-4: Procedures for Auditing a Client’s Bank Reconciliation. Auditors typically will
find the items lettered A–F in a client-prepared bank reconciliation.
 GENERAL COMPANY
Bank Reconciliation: 1st National Bank
September 30

A Balance per bank $28,375

B Deposits in transit

29-Sep $4,500

30-Sep $1,525 $6,025

$34,400

C Outstanding checks:

988 Aug 31 $2,200

1281 Sept 26 $675

1285 Sept 27 $850

1289 Sept 29 $2,500

1292 Sept 30 $7,255 ($11,450)

$20,950

D Customer note collected by the bank: ($3,000)

E Error: Check #1282, written on Sept. 26 for $270, $450

was erroneously charged by the bank as $720;
the bank was notified on Oct. 2

F Balance per books $20,400

Required: Assume these facts: On October 11, the auditor received a cutoff bank
statement dated October 7. The September 30 deposit in transit; the outstanding
checks 1281, 1285, 1289, and 1292; and the correction of the bank error regarding
check 1282 appeared on the cutoff bank statement.
a. For each of the preceding lettered items A–F, select one or more of the
following procedures 1–10 that you believe the auditor should perform to obtain
evidence about the item. These procedures may be selected once, more than once,
or not at all. Be prepared to explain the reasons for your choices.
1. Trace to cash receipts journal.
2. Trace to cash disbursements journal.
3. Compare to the September 30 general ledger.
4. Confirm directly with the bank.
5. Inspect bank credit memo.
6. Inspect bank debit memo.
7. Ascertain the reason for the unusual delay, if any.
8. Inspect supporting documents for reconciling items that do not appear on the
cutoff bank statement.
9. Trace items on the bank reconciliation to the cutoff bank statement.
10.Trace items on the cutoff bank statement to the bank reconciliation.
b. Auditors ordinarily foot a client-prepared bank reconciliation. If the auditors
had performed this recalculation on the preceding bank reconciliation, what might
they have found? Be prepared to discuss any findings.
EX 2-5: You are auditing the financial statements of Emerald Company and doing a
four-column proof of cash for Dec 2015. As of December 31, you have obtained the
following information relative to the December cash operations:
(In US dollars) Nov 30 Dec 31

1. Cash account balance (per ledger) 175,130 217,710

2. Bank statement balance 214,164 253,354

3. Deposit in transit 16,402 25,760

4. Outstanding checks 55,436 60,224

The bank statements and the company's cash records show that:
5. Total cash receipts in December per Emerald's books: $488,994
6. Total receipts in December per bank statement: $498,216
7. Customer's check deposited on Dec 10, returned by the bank on Dec 15
marked NSF (not sufficient funds), and re-deposited immediately; no entry made on
books for return or redeposit: $16,500
8. December bank service charge was not recorded: $120
9. Interest charged by the bank for the month of December, but not recorded:
$780
10.Proceeds of a note of Golden Bears Company were collected by the bank
for Emerald on December 27 but not entered on the books: $2,080 including the
principal of $2,000 and the interest of $80
Required:
a. Prepare a bank reconciliation for the month ended Dec 31, 2015.
b. Prepare a four-column proof of cash for the month ending Dec 31, 2015.
c. Prepare all adjusting entries.
EX 2-6: The auditors of Steffey Ltd., decided to study the cash receipts and
disbursements for July of the current year under audit. They obtained the bank
reconciliations and the cash journals prepared by the company accountants, which
revealed the following:
§ June 30: Bank balance, $355,001; deposits in transit, $86,899; outstanding
checks, $42,690; general ledger cash balance, $399,210.
§ July 1: Cash receipts journal, $650,187; cash disbursements journal, $565,397.
§ July 31: Bank balance, $506,100; deposits in transit, $51,240; outstanding checks,
$73,340; general ledger cash balance, $484,000. Bank statement record of
deposits: $835,846; of payments: $684,747.
Required: Prepare a four-column proof of cash covering the month of July of the
current year. Identify problems, if any.