The Reviar School of

tTel. No. 735-9807{

AUDITING PROBLEIIIS

I RET{EO/ ESPENI LLA I IA]II ES

CASH,AND RECEIVABLES

br(a

PROBLEM 1: You gathered the following information in relation to your audit of SAP CORP.for
the.year ended December31, 2008:

TaeA &A*

L Traveler's check
'/
l/ 2. Bank drafts and money orders
3. Unused postage stamps
4. Employeecheck dated 2009, recorded as 2008
. 5. I,OUfrom a key officer
/ 6. Current account at PNB Bank
7. Cuirent account at EquitableBank
r' B. .Curent account at BPI - fayroll Account
9. I,eFtrictedforeign bank qccount (in USD)*x
10. Credit memo from a vendor for a purchase return
^11. Customer'S check returned by the bank marked DAUD, return not
yet recorded in 2008
int 12. .Changefund
13. Bond sinking fund t6 be used to settle bonds payable due 2015
'( 14. Petty cash fund (P12,000 in currency and expense vouchers for

18,000)
fireasurybills, due 3l3Ll09 (purchasedtzl3Ll0e)
Treasury
16.
bifls; due tl3Ll0g (purchasedL/l/08)
a
L7. Other trade accountsreceivable- unassigned
-. r/ta. Trade accountsreceivable- factored in 20O8,amount received
from factorlngis 1,200,000,factoringnot recordedyet in 2OO8
19. Tradeaccountson whichpost-datedchecksar"eheld (no entries
were made on receiptsof checks)
20. Trade rceivablesfrom officers drc cr,rmtly
?r, #l*rce patgnftsto *lrfuson F rdre or-ebrs,M
22. Advancesto an associatedcompany
23. Credit balanceson customers'accountdue to salesreturn
24. Interest receivableon investmentin bonds
25. Interest payableon bonds
26. Subscriptlonsreceivablefrom ordinary shares due in 30 days -,i-r
27. Trade note receivables
f

{
(

\t

15.

P150,0001
90,00q
3,000
12,0O0
30,000
6,OO0,OOO,I
(300,000)
1,500,000r1
60,000
60,000
45,000
10,0004
1,OOO,0OO
30,o001
600,0001
900,o00
2,250,OAO
1,500,00O1
225,AOO
67,500
459-ago
7,125,offi
(675,OO0)
450"OOO
500,000
2,475,OOO
1,OOO,OOO

**current exchangerate as of December31, 2008 is at P50 for every USDI.

1. What is th tota! iash and cashequivalentto be reportedby the comparryas of -DBcember

31, 2008?

dw,W

2 . What is the total trade receivables

to be reportedas of December31, 20OB?
3. How much is the total other receivablesas of December31, 2008?

PRQBLEI'| 2: You were able to gather the following from the December 31, 2008 trial balance
of RHEAINC. in connectionwith your audit of the company:
t

Petty cash fund

Cash on hand
Cash in bank - Metrbbank current
Cash'in bank - BDO Acct No. 1
Cash in bank - BDO Acct No. 2
Cash in bank - Coco bank savings
Time deposits - BPI

50,000 w
1,500,00p IrTo@
4,000)0004lbo@

iit3r,3ts3!u'w

4,500,000'
2,ooo,00Q

fuSAr The Review Schoolof Amuntancy

The petty cash fund consisted of the iollowing items as of Decembei3l, 2008:
Currency and colns
P10,000q
/ Empfoyees'vales 10.t,vuivatdt
8,000.'
Currency in an envelope m6rked "collectionsfor charity"
, ,
with names attached
6,000
n Unreplenishedpetty cash vouchers
6,500
Check drawn by RHEA,payable to the petty cashier.
20,000{
v.d.\44 " "51'aialrat,ht,(_LrIQg_
' Unused Postage stamps tt1vrut, alttrraq
P52,000
Cash on hand represents undeposited collections as of December 31, ?008 and includes the
follbwing items:
a. Customer's check for P160,000 returned by bank on December 26,20O8 due to
insufficient fund but subsequently redeposited and cleared by the bank on January 3,

zoo9.

b. Customer's check for P80,000 dated January 2,2OgO, received on December 29,2008.
c. A customer check for P90,000 dated June 1, 2008 received on the same date and yet to
be deposited since the same has been missing.
d. Postal money orders received from customers, P100,0O0.
Included among the checks drawn by RHEA against the Metrobank current account and
recorded in December 2OO8are the following:
a. Check writteri'on Dilcember 29, 2OAA dated January 2, 2OOg, delivered to payee on
December 29, 2OO8,P160,000.
b. Check written and dated'December 29, 2008 and delivered to payee on January 2,
2OO9,P200,000.
The credit balance in the BDO Current Account No. 2 represents checks drawrt in excess of the
deposit bal4nce. These checks werb stilt outstanding at December 31, 2008.
The savings account deposit in Coco Bank has been set by the board of directors fior acquisition
of new computers. This account is expected to be disbursed in the next 3 months from the

balancesheet date,
The time depositwith BPI was purchasedon lrlorrember1, 2008 and shall rnatureon Noverfiber
1, 2OO9.
DeJermine
the audted balancesof the following:
A r. Petty cashfund
a. 30,000
b. 36,000
c, 10,000
d. 24FAO
2.
cash.shortage/ovrage
Petty
0
b. 5,5OOshort
a. 4,000 short
c. 2,0Ooover
d. 500 over
8 3 . Cashon hand
a. 1,070,000
c. 1,260,000
d. 1,500,000
. b. 1,170,000
9 4. CashIn bank - Metrobankcurrent
a. 4,000,000
b. 4,160,000
c. 4,200,000
d. 4,360,000
Cash
5.
and
cash
equivalents
to be reportedin the 2006 batancesheet
A
o. 8,560,000.
b. 8,566,000
c. 10,560,000
d, 15,060,000

,r
.i

A count of the Petty Cash Fund having an imprest balanceof P10,000of Reyes
eBAEliEE3i
Corp. showedits compositionas follows:
Coinsand currency................
'7 Paidvouchers:

P 2,g0q

3,000
11000

'

a#r:rnPettY

cash r-eceiPtvoucher

zlt'
/ The petty cash receipt voucher is for a return of travel expense advance.

?44c_lgqr

' 500,'.

' ". i

RgSA:T.heReview School'of Aaountancy

e Whatis the pettycashshortage?

d. 1,000

c. 9004

b. 50 0

a.O

Page3of6

Ad$usud
pttttyuh firilz .rt@
pROBLEM 4: A count of the undeposited receipts under the custody of U. Rita, cashier of Ube
A
S-ptember 30, 20OBshowed the following composition:
C*p-,
.\
""
<A.se e6?tsttgo eV.
/
P24,62O^ 1
currency and coins
/
Un'usedpostage and documentary stamps
W

Checks:
Date
8fr - 3-24-08
9-20-OB
9-27-O8
";-.9-30-08

DraWer
U. Rita
TamsCo.
JonliInc.
UbiCorp-

Payee
Cash
Ube Corp.
Ube Corp
MERALCO

2,000^
4,7OO\
3,%101.
1'.8OO1

r'
/
/

voucherspaidout of receipts
Cash'disbursements/dvance
Total per count
Assuming the caShier'sdccountabilityto be P36,940 per the clientrs record, what was the
arhountof shofta$e/overageon Septeinber3O,2OO8?
a.'P480 shortage

b. P3,22Oshortage c. P3,320overage d. .No sh6rtage/overage

pRo3liEil. 5:
The Victory lrft. had poor internal control over its cash transactions. Data
pertaining to its cash position at October 31, 2008 were as follows:
The casfi book showed a balance of P197,O54.64. This included undeposited receipts. A credit
of P3,624.00 on the bank records for a customer deposit made directly through the banks for
payment of account. A PL,224.O0 bank debit also appeared in the bank statement for service
charges for the month of October, TheCe wcre not yet recorded on the bsoks, .The b8I*
statement had a balance of P173,t{18.0O.
Fur.theraudit procedures revealed the followin$ outstanding checks:

No . 0 2 1 0
0218
0219
o223

oz25
4227

P1,418.40
1,560.00
3,039.00
2,?88.52
4,881.60
1,983.48

Cash on hand arnountedto P32,3IO.24which appearedto be the undepositedcollectionper

atl undepositedreceiptsin excessof
books. The client suspectsthat cashiermisappropriated
The
receipts.
cashier tried to conceal the
presefited
as
undeposited
the arnount
preparing
reconciliation:
following
the
by
misappropriation
PL97,O54.64

Balanceper books,Octobe131,2006
AdS: Outstandingchecks
No. 0223
0225
,
0227
debit
Uncrecorded

P2,288.52 '
'
4,881.60'
9 , 1 5 3 . 60
1.983.48
l;224.O4
P2O7,432.24
32,3LO.24

receipts
Less; UndeOosited
Balanceper bank,October31, 2006
Unrecordedcredit
Corr.ectcash balance, October 31, 2006
1. What is the correct cash balance?
b, PI79,498'24
a. P|75,L22.AO

P L 7 5 , t 2 2 . OC I
3.624.00

PIZl-s4a

cvPl9L,o37'24

2. How much did the cashiermisappropriate?

c! P8,417.40
b. P9,153.60
a. P15,171.00

d. Pt99,454.64

\
d. P2,400.00

QSA; The ReviewSciltool.ofAccountahcy

Page 4 of 6

PROBLEIL|
6: You obtainedthe followinginformation0n the currentaccountof BUGOYCORP.
Duringyour examinationof its financialstatementsfor the year endedDecember31, 2008.
The bank statementon November30, 2O08showeda balanceof P918,000. Amongthe bank
collected for the account of the
.credits in November was customer's note for P3OO,OOO
.companywhichthe companyrecognlzedin Decemberamongits receipts. Includedin the bank
debitswere cost of checkbooksamountingto P3,600and a P120,000checkwhichwas charged
by the bank in irror againstBugoy'saccount. Also in Novemberyou ascertainedthat there
were depositsintransit amountingto P240,0O0
and out$tandingcheckstotalingP510,000.
The bank statementfor the month of Detembershowedtotal creditsof Pt,248,000and total
chargesof P612,000',The company'sbooks for Decembershowedtotal debits of P2,2A6,800,
total credits of L.,221,600and a balanceof P1,456,800. Bank debit memos for December
were: No. 121 for servicecharges,P4,800and No. 722 on a custorner'sreturned check marked
"Referto Drawer"for P72,OOO
On December31, 20Q8ihe companyplacedwith the bank a cdstomer'spromissorynote with a
face value of P360,OOO
for collection. The cgFnany treated this note as part of its receipts
althoughthe b5nk was able to collecton the note only in Janua.ry,2009.
A check fcir P'11,880was recorded in the company cash payments books in December as
P1 1 8 ,800.
1. How mtJchis the undepositedcollectionsas of December31, 2OOg?
a. 1,018,800
2.

b. 538,800

c7 658,800

d. 418,800

How much is the outstanding checks as of December 31, ZOO8?

a. 575,880
b. 1,192,800
c, 1,085,880
d. 1,089,480

3. How much is the adjusted cash balance as of November 30, 2OO8?

a. 648,000
b, 768,000
c. 528,000
d. 47L,600

4, l'lowmuchis the adjustedcashbalanceas of December31, 2008?

a. t,876,92O
b. 585p3
c. 66O,OOO
d. L,L.26,92O
\
PRODtlttl7:
Folfowingthe information pertains to the Cash in Bank accoUntof l'tango
for
Company the month of April, 2O08;
a.. Bs*ancesper bank staternentMarch 3t, PZt,560, and April 30, p23,040.
b. Balancesof Cash in Bank accountin Company'sbooks::March31, P16,545,and April
30, P22,680.
c. Total receiptper books were F222,190of which P1.210was paid in cash to a creditor
on April 16.
d. Total chargesin the bank statementduring April were P2L8,97O.
e. Undepositedrecciptswere: March31, P9,06Oand April 30, P10,120.
' f. Outstandingcheckswere: March 3li P2$75 and April 30, P1,930,of which a check for
P500was certified by the bank on April22.
g. NSFchecksreturned, recorde_g!_ag
reductionsof cash receiptswere:
L1 ReturnedUy e
+O
.2. Returnedby.Bankin April but recorded.inMay, P860.
h. Collectionsby Bank not recordedby companywere P12,150in March,and P11,640in
April.
i. . Bank servicechargesnot enteredin company'sbookswere: March 3L, P75O,and April
30 P420.
J. A checkfor P950of MarangCompanywas chargedto MangoCompanyin error.
k. Acheck drawnfor P840was erroneouslyenteredin the.booksas P480.
Preparea four-columnreconciliation
of receipts,disbursements
and bank balancesfor April,
2008, usingthe form wherethe bank and book figuresare ,broughtto correctedbalances.
i
, :-''.
Preparethe journal entriesto adjustth.eCashin Bankaccountat April 30.
l

.:

RqSA; The Revierr School of AaountaQcy

Page 5 of 6

,i

PROBTEM 8l The following T-accotrntsummarizes.the transactionbaifecting the accounts

receivableof Grandia Company for 2008.

nts
7Jan. L balance(after deducting
credit baldnceof P3,000)

P53,000

,/Chargesales
Chargefor goodsout on
consignment
subscriptions
Shareholders
TAccountswritten off but recovered
ash paid on customerfor Jan. 1
credit balance
Depositon contract
Claimagainstcommoncarrierfor
shippingdamages
IOUs from employees
Cash advance to affiliate
Advanceto supplier'

625,000
5,000
3O,000
1,000

- Trade

from customers/
Collections
(includingoverpaymentof
P5,000)
Write offs
Merchandise
returns
Allowanceto customersfor
shippingdamages
Collections
on carrierclaims
Collectionon subscription

P620,000r.
3,500(2,500L
1,500r
1,000
15,000

2,500
15,000
x,500
500
10,000
5,000

1. Prepareadjusting entries to correct accounts receivable.

(, Z. Wh.atis the correct accounts receivable- trade balance?
b. 61,000
c. 59,500
a. 70,000

d. .55,500

for the year 2008, you concludedthat the

PROBI.EM9: In your audit of JAMESCOMPANY
for doubtful accountsshouldbe adJustedto equal the estimatedamount required
allowanc.e
basedon agingof the accountsas of December31. Duringyouqaudit,you were ableto gather
data:'
the'following

Zts" Allowancefor doubtfulaccounts,Jan 1, 2OO8

l(* '
fr'ndr*\ za( Provisionfor doubtful accountsduring (2008 (3a/oof 10M Sales)

P600,000
30O,OOft
375,009
100,bO0
400,000
2,375,OOO

Bad debts written-off in 2@8

+;Recoveryof bad debts written-off during 2O0b
Estimateddoubtfulaccountsper aging of accountson December31, 2008
Accountsreceivable,December3'1,2008

1. Basedon the result of your audit, what is the correctdoubtful accosntsexpensefor the
year 20O8?
75,000
b. 300,000
c. 175,O00
a. 375,O00

2. What is the correct net book value of the receivables?

c. 2,000,000
b. L,775,OOO
a. 2,375,OOO

? 75

,"

L,975,QOO

PBOQIEII l9: From inceptionof operationsto December31, 2008, PDACorporationprovided

receivableunder the allowancemethod: prwisions were made
for uncollectibfe'accounts
bad debts wriften off were charged to the allowanceaccount;
at
2o/o
of
credlt
sales;
monthly
recoveriesof bad debts previouslywritten off were creditedto the allowanceaqcounUand no
year-endadjustmentsto the allocationaccountwere made.PDA'susualcreditterms are net 30
days,
accountswas P1]$OO0at January1, 2008. During
dou
The balancein ther allowancefor doubtful
,2008, credit salds totaled.P9,000,000,iDterim provisionsfor doubtful accountswere made at
2o/oof credit sales; P90,000 of .bad debts were written off, and recoveries of accounts
. previouslywritten off amountedto P15,000.PDA installeda computerfaciltty in November,
')2008, and an aging of accountsreceivablewas preparedfor the first time as of December31,
2008.A summaryof the agihgis as follows:

co"ilis,g'
I
',,)&.
:*',-ffiVtn

Classificationby
Monthof sale
Nov-Dec2008
Jul-Oct
Jan-June
Priorto LlI/O8

Balancein
EachCategory
P1,140,000 ;-.
600,000
400,000" ,
ut0.000
__ PL279,AOA

Estimatedo/o
Uncollectibl
L.So/o
'8:0" 1 nn,

Q?to'tco

35.0

1*' '

fun '' "

--

..1
,

RsSA:Ihe Rwkw Sdtool of Aimuntancy

t,.

.,...

Pac6o f6

Further audit procedures revealed that a P16O,OO0customer Credit balance resulUng from
overpayment was included in the "Nov-Dec. 2008'receivables and that based on the review of
collectibility of the account balances in the "prior to t/LlO9" aging categorv, additional
receivablestotaling P60,000 were written off as of December 31, 2008.
Effectivewith the year ended December 31, 2005, PDA adopted the revised accounting
standards in recognizingbad debts.

J.. what is the correctbalanceof the allowancefor doubtfulaccountsat year end?

a. 254,100
b:256,5A0
c. 296,100^
d. 298,500

is the correct bad debt expense for the year?

4 2 . a.What
261,500b, 20 1 , 5 0 0
c. 81,500
d. 76,500
3.
What is the carryihg value of the accounts receivableat year end?
9, a. 2,013,500
b. 2,10 9 , 5 0 0
e 2,113,5OO,
d. 2,370,0O0

PBoq\Eil lli
The'balance sheet of DWARFCORP, reported the fotlowing long-term
receivables
as of December31, 2OO7:
i

Notereceivablefrom saleof plant

Note receivablefrom officer

P4,500,000
1,200,000

In connectionwtth your audit, you were abie to gather the followingtransactionsduring 2OOg
and other informationpertainingto the company'slong-termreceivables:
' a. The note receivableform sale of ptant bears interest at L2o/oper annum. Th-enote is
payable in 3 annual installmentsof P1,500,000
interest on the unpaid balanCe
ey,ggAoril 1. The initialpllcrpg_|gndinterest(FEyllE\was made_
on April 1, 2008.
_Adi-fq[r/i---T1c
-""..-'..._*-;='-,:
_
-Nur{il{Aev
i,lc .. rf
----:*---.-..._._.;=
rriq:ZnT--frrg {:.,
: dt*\^J .[r{ ltr*t'
,
b. The note receivable from officer is dated December 3!, 2OO7, earns interest at .l_o"oZj
per
annum,. and is due on December 31, zd}||.
The 2O08 interest .was received qr

becember31, 2008.

'

-w: c,"rr^t

,- - <=-.
* blofdt${0V
a4{Alr.fihJ .
- 1,\.6
c. The corporation sold a piece of eQuipmentto SNOW INC. (on April 1, 2008)in\exctrange
for an P6O0,000 non interest bearing note due on April 1, )Ot&--Th-note had no ready
market, and there was no establishedexchange price for the equiprnent. The prevailing
interest rate for a note of this type at April 1, 2006 was 12olo, The present value factor
of 1 for two periods.at LZo/ois O.797 while the present value factor of ordinary annuity
of 1 for two periods at 1.2016
is 1,690. _ eU hd 40.\^,rJ
d. A tract of land was sold by the corporation to WHITE CO. on July 1, 2008, for
P3,0O0,0O0,under an installment sale contract. White signed a 4-year 11olonote for
P2,100,000 on July-l, 200,-"1nadditjgn to the down payment of P900,000. The equal
anRual payments of'principql and interesf'on the note will be P676,875 payable on Jufy
t,'2009, 20LO,2011, aiid 2Ot2. fhe land had an establishedcash price ol P3,000,00O,
and lts cost to the corporation was'P2,25O,0OO. The collection of the installments on
ttris note is reasonabryassured.
tff -- ut_ 71-:;,,
W\

1. ,Howmuch is the totalnoncurrent

rlotesreceivables
as of Decemdi#n,2oo8?
a. 6,778,?:OO

b. 4,832,325

c. 5,278,2AO
,

t.

4,875,363

A 2. How much is the total current portion of long-term notes receivableas of December 31,

2008?
L,945,875

b. 2,L76,975

c. 1,5OO,OOO

d. O

A a. Wn'atis the accruedinterestreceivableas of 'December31, 20Og?

3gs,sao
b. 428 , s 3 8
c. 270,000
d. 505,500

/.

+. What is the correctinterestincomefor the year 20OB?

a. 640,500
b. 818,538"
c. 683,538
'\

{.
d. 756,000

RsSA: The Review School of Accountancy

_

1.

..,:,,.:,1,

FaOa 7 cf,f9

't

Which of the following cash fraud activities involves the postBonement of, the recording of receipts and can
be well perpetiated wfiere there is.lack of segregation of duties between recordkeeping and custodial ,
functions?

3: IitJls,g
t*r

c. Windowdressing
d. .Salamifraud
2.

'

An auditor susfects that a client's cashieris misappropriatingcash receiptsfor personaluse by lapplng

customerchecks receivedin the mail. In attempting to uncoverthis embezzlementscheme,the auditor
most likely would comparethe: :
a. Dates uncollectibleaccountsare authorizedto be written off with the dates the write-offs are
actually recorded.
b. Individualbank depositsstipswith the detailsof the m<inthlybank statements.
c. Daily cash summarieswith the sums of the cash receiptsjournal entries.
d. Datschecks.aredeBositedper bank statementswith the dates remittancecredits ale
recorded.(x)

3.

Which of the followingcontrolsrnost likely wqutd reducethe risk of diversionof customer receiptsby an
entity's employees?
a. Daily depositof cash receipds.
b. Monthlybank reconciliations.
remmitanceadvice
c. Prenumbered
d. A bank lockboxsystem(x)

4.

Soundinternalcontroldictatesthat, imrnediatelyupon receivingchecksfrom customersby mail, a

responsilleemployeeshould:
a. Add the checksto the daily cashsummary.
b. Verify that each check is supported.bya prenurnberedsales invoice.
c. necoid th checksin ttrb cash receiptsjournal.
'
d. Preparea duplicatelistingof checksreceived.(x)

5.

Whichof the fgllowingdescribesthe most effective preventivecontrol to bnsure proper handfingof cash
receipt
":*T*:T"nk
reconciriationspreparedby an employeenot involvedwith cash coltectbns and
then.havethen reviewedby a supervisQf'.
b. Use predeterminedtotals of cash receiptsto control,postingroutines.
c. Have the ernployeewho receivescustomer'mailprepaie daily bank deposit; have another
employeeactually make the deposit.
'
d. l-lave one employee lssue a prenuarbc{td,ilffaFtfor all cash collections; have another
employe match daity total of the prefium'btrd receipts to the bank deposits. (x)

6.

Upon receipt of customers'checksin the mailroom, a reEponsibleemployeeshould preparea remittance

listing that is forwardedtb the castfier. A copy of the listing should be sent to the:
a. .Internal auditor to investigatqthe listing for unusualtransactions.
b. Treasurerto comparethe Uttlng with the monthly bank statefnent.
c. Accd{.tntsreccivable hoi:kkeeper to update the subsidiary accounts receivry records. (x) '
d. Enlity's'b5nksto compere the listihg with the cashier'sdeposit slip.
,

7;

Checksfrom customersare receivedin the Companymaikoom each day. Whichof the followingcontrols

should
?""1"tJ:Fjti,$"J:t"?i'r:,$*

payments.
boxrorcustomer
orrice

b. . Forwarelall checks to th caghier upon receipt.

c. Prdvidt bondtng protection for"mail clerks.
d. Req$ffespecifi; mail clerk to list and restrictivelyendorseeach che_ck,(x)
8.

For the most effective internal control, monthly bank statements should be received directly from the banks
and reviewedby the
a. Controller,
b. Cash receiptsaccountant.
:
cash aisoir,sementaccountant.
c.
lnternal auditor' (x)
d.

As payments arc received,one maiiroornemployee is assignedthe responsibilityof prelistingreceipts and

preparihg the deposit slip prigr to forwaiding the receipts,-thedeposit sllp, and the rerhittanceadvices to
- accounts reiceivablefor posting. Accounts receivable pcrson$et refoot the depoit slip, stamp a restrictive
endorsementon the back M each check, and the'n forward the receiptsand the deposit slip to the treasury
d'epartment.Whichof the followingis a reasonableassessmentof internal control on this process?
a, Internal control is adequate.
b. Internafcontrolis inadequdtebecausemailroomemployeesshouldnot have accessto cash.
,
Internal control is inadequatebecausetreasury employeesshoufdpreparethe depositslip,
c,
d. 'Internal controlis inadequatebecaussof a lack of segregationof duties.(x)
,

9.

10. W

. of the followingassertionsdoes the auditor most likely would like to validate in decidingto render
r countS?
a. Completeness
b. Existence(x)
c. Valuation
d. Rightsand obligation

RgSA:The ReyiewSchoof,ofAccountancy

lrrp* ore

mostlikdly wouldbe indicativeof checkkiting?

11. Whichof the followingcharacteristics
a, High turnoverof employeeswho have accessto cash.
b. Manylargechecksthat are recordedon.Mondays.
c. FrequentATM checkingaccountwithdrawals.
- d. Low averagebalancdcomparedto high leveldeposits.(x)
12. Which of the followingaudit procedures'willlikely detect or uncoverkiting activitiesof the client?
a. Sendingconfirmationto banks.
to sourcedocuments.
b. Vouchcheckissuaniesrepresentingdisbursements
c. Rendercashcount on a surprisebasis.
valldate bank reconciliationssbtements. (x)
d. Simulteineously

13. The usefulneqsof the standardbank tonfirmation request may be timited becausethe bank ernployeewho
completesthe form may:
a. Not believe that the bank is obligatedto verify confldentialinformatiofrto a third Barity.
b. Sign ah retwn the form without inspectingthe accuracyof the client's bank reconciliation.
,
c. . Not have accesgto'the client's cutolTbank statement.
d. Be unawareof afl the fihancialrelationshipsthat the bank'haswith the client. (x)
,.
14. In validating bank reconciliationstatementsof the client, the-auditorshould trace back outstandingchecks
to the:
' a. Accountspayablevoucher.
b. iancelled-checksreturned by the bank.
.c. Bank statement of the current month.
d, Cut-offbank statementof the subsequentmonth. (1)
15. In validatingthe bank rconciliationstatementsof the client, the auditor should trace back the unrecorded
debits, like servicechargesto thl:'
a. Accountspayablevoucher.
b, Cancelledchecksreturned by the bank.
. c. Bank statementof the curent month. (x)
d. Cut-off bank statement of the subsequentmonth.
16, The proof of cash statementsis usually preparedby the auditor when:
a. - Internat control over.cashis strohg and control risk is placedat the maximum.
b. lnterhal control over cash is weak and control risk is place at the maxlmum. (x)
c. Cashbalanceis very significant.
d. Cash balanceis very insignificant. .
17. Which of the following proctdurcs concerning accounts rccelvable would an auditor niost'likely perform to
.obtain evidential mattdr in support of an assessedfevel of control risk below the maximum level?
i?. Obsirving an entlty's empbyec prepale tfie scheduleof past due accountsreceivable.(x)
b. Sendingconflrmationrequeststo ari entity's prlncipalcustomersto verify the exisfenceof accounts
receivable.
c.
Inspectingan entify's analysisof accountsreceivablefor unusual balances.
,ni6lrectiUre accounts payable to actual uncollecti.pJeaccounts receivable.
d. Comp;;i;n
"ni'tyi
18. Which of the followingproceduresmost tikely would n<itbe an internal control designedao ,iua* the risk of
errors in the billing process?
a. Companngcontrol totals for shippingdocumentswith corlespondingtotals for salEsinvoices.
b. Using com.puterprogrammd controls on the pricing and mathematical accuracy of sales invoices..
c. Matchingshippingdocumentswith approvedsalesorders before invoicepreparation
.
d. Reconcilingthe control.totalsfor sales invoiceswith tfie accounfsreceivablesubsidiaryledger. (x)
unc-ollectible
accountsshouJtt
accounts
write-offs of uncpllectible
shouJclbe approved in which of the following
19. Prop-erauthdrization
n of write-offs
departments?
a. Accounts receivable.
i b. Credit.
'
c. Accountspayable.
-'

d. rr*tur"rlii!-

20. An auditortests an entity's control of obtainingcreditapproval before shippinggoodsto customersin

support of panagemcnt's financial statement assertion of
a. Valuationor allocation.(x)
b. Completeness.
a- ixistence or occurrence
d. Rightsand obligations.
most likely would assurethat all billed salesare correctly posted to
21. Which of thefollowing internal_contrcils
the accountsreceivableledger?
a.-, Daily sales summariesare comparedto daily postingsto the agcoufiti receivableledger. (*)
b. Eachsales invoiceis supportedby a prenumberedshippingdocument.
c, The accountsreceivableledgeris reconcileddaily toe the controlaccountin the,generalledger.
d. Eachshipmenton credit is supportedby a prenumberedsalesinvoice.
f e fo fl o w i n g a u d i tp ro c e duresw oul d..anaudi tormostti kel yperformtotestcontrolsr elat ingt o
22. W h i c h ,oth
manageinent'sassertionconcerningthe completenessof salestransactions?
a. Verify that extensionsand footings on the entity's sales invDicesand monthly customer'statemenfs
have been recomouted.
b, Inspect the entity's reports of prenumberedshippingdocumentsthat have been recordedin the

RsSA: The Review School of Accountancy

?;

c.
d.

',.
r''

ft

Paqe 9 of 9

salesjournal. (x)
Comparethe invoicedpriceson prenumberedsales invoicesto the entity's authorizedprice'list.
of ciedit checks.
Inquireabout the entityr5creditgrantingpoliciesand-theconsistentapp,lication

23. An auditor's purposein reviewingcredit ratings of customerswith delinquentaccountsreceivablemost

likely is to obtainevidenceconcerningmanagement'sassertionsabout
(x)a. Valuationor alJocation.
b. Presentationand disclosure.
Existenceor occurrence
c.
d. Rightsand obligations.
24. 'loachievegood internalcontrol,whic.hdepartmentshouldperformthe activitiesof matchingshipping
documentswith salesordersand preparingdaitysalessummaries?
a.
B l l l i n g(x )
b.
Sh i p p i n g
c.
Credit
d.
Safesoroer
25. Whichof the followingwouldthe auditorconsiderto be an incompatibleoperationfor a cashierif the
cashierreceivesremittancesfrom the mailroom?
Postingthe receiptsto tlle accountsreceivablesubsidiaryledger cards. (x)
a.
Makingthe daily deppsitat the local bank.
b.
c.
Preparingthe daily deposit.
d.
Endorsingthe checks.
26. The most likelyresult of ineffectiveinternalcontrolsin the salescycleis that
a. Fiititiou. transactions could be recorded, causing an understatement of revenues and an
overstatementof receivables.
b. tregularities in recdrdingtransactionsin the subsidiaryaccountscould delay the shipmentof goods.
Omissionof shippingdocumentscould go undetected,causingan understatenlentof inventory.
c.
d. Final authorizationof credit memos by personnelin the sales department could permit an employee
defalcationscheme. (x)
27. fsr effectiveinternal control, employeesmaintainingthe accountsreceivablesubsidiaryledger should not
also approve
. a, Employeeovertimewages,
b. Credit granted to cuitomers.
c. Write-offsof custorneraccounts.(x)
.
d. eash disbursements.
28. During an audit of the accountsreceivablfunction, you found that the accountsreceivableturnover rate
had fallen from 7.3 to 4.3 over the last three y'ears.What is the most likely causeof the decrease?
a. An increasein th discountoffered for early payment
b, A more liberal credit policy (x)
A changeform net 30 net 25
c.
d. Greatercash Sales
29. Shippingdocumentsshould be traces to and comparedwith sales recordsor invoices6
. a, Determinewhether paymentsare properly appliedto customeraccounts.
b. Ensurethilt shipmentsare billed to customers.(x)
c.
Determinewhether unit pricesbilled are in accordancewith salescontrads.
d. Ascertainwhether afl salesare supportedby shippingdocuments.

30. An auditor noted that the accountCreceivabledepartment is separatefrom other accauntingactivities.

Credit is approved by a sparatecredit department.Control accountsand subsidiaryledgersare balanced
monthly: Similarly, accountsare aged monthly. The accountsreceivablemanagerwrites off delinquent
accountsafter one year or sooner, if a bankruptyor other unusualcircumstanceis involved.Credit
rnemorandaare prenumberedand must correlatewlth receivingreiDorts.Which of the following areas could
be viewed as an internal control weaknessof the above organization?
a. Write-cjffsof delinguentaccounts(x)
b. Credit approvals
Monthly aging of receivables
c.
d. Handlingof credit memos

31. Sendingaccountsreceivableconfirmationletters tij the client's customersis consistentwith the auditor's

objectiveof validatingclient'sreceivableassertionon:
a. ExisteFceand rights (x)
b: Completenessand valuition
and rights
Completeness
c.
d. Existenceand valuation

')

32. The auditors'analysisof the clientsaged accountsreceivablescheduleis consistentwith the auditor's

objective of validatingclient's receivableassertionon:
a. Existence
b. Completeness
Rightsand obligation
c.
d. Valuation(x)
/5!$.\

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