Auditing Problems – Audit of Cash and Cash Equivalents Cleavon P.

Tenorio, CPA

CASH AND CASH EQUIVALENTS 3. What is the total amount of cash disbursement from January 1-April 1, 2018?
PROBLEM 1 A. P 5,524,090 B. P 5,202,070 C. P 5,431,510 D. P 5,432,510
The bookkeeper-cashier of the SM COMPANY absconded on the evening of April 16, 2018, 4. What is the cashier’s accountability (correct cash balance before shortage) on April 15,
apparently with a large portion of the company’s cash. He had taken with him certain 2018?
accounting records, including the cash journals and the general ledger. You are called upon A. P 242,680 B. P 90,830 C. P 143,850 D. P 43,850
to ascertain, if possible, the shortage with which the missing employee may be charged. 5. What is the amount of cash shortage?
A. P 100,000 B. P 43,850 C. P 143,850 D. P 242,680
A statement of financial position prepared from the books and other files follows:
SM Company PROBLEM 2
Statement of Financial Position The following facts apply to ONE COMPANY during 2016:
December 31, 2017
ASSETS 1. Savings account of P900,000 and a checking account balance of P1,200,000 are held at
Cash P 32,670 Manila Bank.
Accounts receivable 226,230 2. Money market placement with maturity of 3 months, P7,500,000.
Inventory (at cost) 440,350 3. Currency and coins on hand amounted to P11,550.
Furniture P 74,560 4. Travel advances of P270,000 for the first quarter of next year (employee reimbursement will
Less: Accumulated depreciation 31,800 42,760 be through salary deduction).
Total assets P 742,010 5. ONE COMPANY has purchased P3,150,000 of commercial paper of Mendez Corp. which is
due in 60 days.
LIABILITIES AND SHAREHOLDER’S EQUITY 6. A separate cash fund amounting to P2,250,000 is restricted for the retirement of long-term
Accounts payable P 114,720 debt.
Share capital 500,000 7. Petty cash fund of P1,500.
Retained earnings 127,290 8. An IOU from an employee of ONE COMPANY in the amount of P2,000.
Total liabilities and shareholder’s equity P 742,010 9. Two certificates of deposit, each totalling P500,000. These CDs have a maturity of 120
days.
You obtain the following information from the available subsidiary journals, ledgers, and 10. ONE COMPANY has received a check from a customer in the amount of P187,500 dated
other data. January 15, 2017.
Balances at close of business, April 16, 2018 11. On January 1, 2016, ONE COMPANY purchased marketable equity securities to be held
Account receivable P 442,550 as “trading” for P3,000,000. On December 31, 2016, its market value is P4,300,000.
Accounts payable 207,300
Cash in bank, less checks outstanding 98,830 What amount should be reported as cash and cash equivalents on December 31, 2016?
A. P13,763,050 C. P12,751,500
Transactions, January 1 - April 16, 2018 B. P12,575,550 D. P12,763,050
Sales, per receivable clerk P 5,876,170
Sales allowances in customer’s accounts 18,330 PROBLEM 3
Cash purchase of furniture , per dealer’s invoice 3,000 In connection with your audit of the financial statements of TWO COMPANY for the year
Total merchandise purchase 3,615,260 ended December 31, 2016, you gathered the following information:
Expenses paid, supported by paid invoices and payrolls 1,865,830
Cash dividend declared, P 50,000 (of which P 10,000 1. The company maintains its current account with Tsunami Bank. The bank statement on
remains unpaid) 40,000 December 31, 2016, showed a balance of P638,340.

Requirements: Your audit of the company’s account with Tsunami Bank disclosed the following:
1. What is the total amount pad for merchandise purchase?  A check for P22,500 received from a customer whose account is current had been
A. P 3,615,260 B. P 3,293,240 C. P 3,522,680 D. P 3,707,840 deposited and then returned by the bank on December 28, 2016. No entry was made
2. What is the total amount of collections from sales? for the return of this check. The customer replaced the check on January 15, 2017.
A. P 5,641,520 B. P 5,659,850 C. P 6,074,160 D. P 6,092,490
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Auditing Problems – Audit of Cash and Cash Equivalents Cleavon P. Tenorio, CPA

 A check for P5,720 was cleared by the bank as P7,520. The bank made the correction A. Accounts receivable for P89,800.
on January 2, 2017. B. Accounts receivable for P86,300.
 A check for P3,500 representing payment of an employee advance was received and C. Accounts payable for P228,200.
deposited on December 27, 2016, but was not recorded until January 3, 2017.
D. Interest expense for P1,950.
 Postdated checks totalling P67,300 were included in the deposits in transit. These
represent collections of current accounts receivable from customers. The checks were
actually deposited on January 5, 2017. 5. The December 31, 2016, statement of financial position should show “Cash and Cash
 Various debit memos for drafts purchased for payment of importation of equipment Equivalents” at
totalling P230,000 were not yet recorded. These purchases were previously set up as A. P6,142,960 C. P4,442,960
accounts payable. Said equipment arrived in December 2016. B. P5,439,360 D. P5,442,960
 Interest earned on the bank balance for the 4 th quarter of 2016, amounting to P1,950
was not recorded. PROBLEM 4
 Bank service charges totalling P1,260 were not recorded. The auditor for Sunflower Corp. examined the petty cash fund immediately after the close of
 Deposit in transit and outstanding checks at December 31,2016, totalled P136,250 business, July 31, 2017 the end the company’s natural business year. The petty cash
and P276,380, respectively.
custodian presented the following during the count:
2. Various expenses from the company’s imprest petty cash fund dated December 2016,
totalled P16,250, while those dated January 2017, amounted to P5,903. Another Currency P 1,650
disbursement from the fund dated December 2016 was a cash advance to an employee Petty cash voucher:
amounting to P3,500. A replenishment of the petty cash fund was made on January 8, 2017. Postage 420
Office supplies expense 900
The company’s trial balance on December 31, 2016, includes the following accounts: Transportation expense 340
Cash in Bank – Tsunami Bank P 748,320 Computer repairs 800
Cash in Bank – Earthquake Bank 700,000
Advances to office staff 1,500
(restricted account for plant
expansion, expected to be disbursed A check drawn by Sunflower Corp. payable to
in 2017) the petty cash custodian 7,200
Petty Cash Fund 30,000 Postage stamps An 300
Time deposit, placed December 20, 1,000,000 employee’s check returned by bank, marked NSF 1,000
2016, and due March 20, 2017 An envelope containing currency of P 1,890 for
Money Market Placement – 4,000,000 a gift for a retiring employee 1,890
Prudential Bank
P 16,000
Requirements: The general ledger shows an imprest petty cash fund balance of P 16,000
1. What is the adjusted petty cash fund ba lance on December 31, 2016? 1. How much is the petty cash shortage or overage?
A. P4,347 C. P30,000 A. P 2,190 overage C. P 1,890 shortage
B. P10,250 D. P24,097 B. P 2,190 shortage D. P 1,890 overage
2. The petty cash shortage on December 31, 2016, is 2. What is the adjusted balance of the petty cash fund at July 31, 2017
A. P0 C. P3,500 A. P 10,740 C. P 3,540 C. P 7,200 D. P8,850
B. P5,903 D. P4,347
PROBLEM 5
3. What is the adjusted Cash in Bank – Tsunami Bank balance on December 31, 2016? In connection with your audit of the financial statements of THREE CORP, for the year ended
A. P500,010 C. P432,710 December 31, 2016, you conducted a surprise count of the company’s petty cash fund and
B. P748,320 D. P429,110 undeposited collections at 8:20 a.m. on January 3, 2017. Your count disclosed the following:
4. The entry to adjust the Cash in Bank – Tsunami Bank account should include a debit to

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Auditing Problems – Audit of Cash and Cash Equivalents Cleavon P. Tenorio, CPA

Bills and Coins OR No. Amount Form of Payment

Bills Coins 4352 P 13,600 Cash
P100.0 5 pieces 5.00 18 pieces 4353 17,800 Check
0 4354 3,600 Cash
50.00 40 pieces 1.00 206 pieces 4355 8,300 Check
20.00 48 pieces 0.25 32 pieces 3. The petty cash balance per general ledger is P25,000. The last replenishment of the fund
was made on December 22, 2016.
Postage Stamps (unused) – P365
Requirements:
Checks 1. What is the amount of shortage due from the sales manager?
Date Payee Maker Amount A. P240 C. P120
Dec. 30 Cash Custodian P 1,200 B. P1,800 D. P0
Dec. 30 Three Corp SLV, Inc 14,000
2. What is the amount of undeposited collections on December 31, 2016?
Dec. 31 Three Corp Mario Lansang, Sales Manager 1,680
A. P44,300 C. P57,300
Dec. 31 Three Corp MSU Corp 17,800
Dec. 31 Three Corp Ateneo, Inc 8,300 B. P84,300 D. P41,000
Dec. 31 Taiwan Corp Three Corp 27,000 3. The adjusting entries on December 31, 2016, should include a net debit to Travel Expenses
of
Unreimbursed Vouchers A. P17,320 C. 18,200
Date Payee Description Amount B. P18,320 D. P18,080
Dec. 23 Mario Lansang, Sales Manager Advance for trip to Tagaytay City P 20,000 4. The cash count should include total checks of
Dec. 28 Central Post Office Postage Stamps 1,620 A. P69,980 C. P41,780
Dec. 29 Messengers Transportation 150
B. P42,980 D. P41,300
Dec. 29 Byte, Inc. Computer repair 800
5. What is the total cash shortage?
Other items found inside the cash box: A. P22,166 C. P22,406
1. Unclaimed pay envelope of Juan MacDonut. Indicated on the pay slip is his net salary of B. P8,166 D. P20,486
P7,500. Your inquiry revealed that Juan’s salary is mingled with the petty cash fund.

2. The sales manager’s liquidation report for his Tagaytay City trip. PROBLEM 6
Anying Velasco is reviewing the cash accounting for FOUR Inc. Anying’s review will focus on
Cash Advance received on Dec.23 P 20,000 the petty cash fund account and the bank reconciliation for the month ended May 31, 2016.
Less: Hotel accommodation, meals, etc. P 16,000 She has collected the following information from FOUR’s bookkeeper for this task.
Bus fare for two 1,200
Cash given to Pablo, salesman 1,000 18,200 Petty Cash Fund
Balance 1,800 1. The petty cash fund was established on May 2, 2016, in the amount of P10,000.
Accounted for as follows: 2. Expenditures
Cash returned by Pablo to the sales manager P 120 from the fund
Personal check of the sales manager 1,680 by the custodian
Total 1,800 as of May 31,
2016, were
Additional Information: evidenced by approved petty cash vouchers for the following:
1. The custodian is not authorized to cash checks. Various office Supplies P 3,920
2. The last official receipt included in the deposit on December 30 is No. 4351 and the last IOU from employees 1,200
official receipt issued for the current year is No. 4355. The following official receipts are all Shipping charges 2,298
dated December 31, 2016. Miscellaneous Expense 1,526
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Auditing Problems – Audit of Cash and Cash Equivalents Cleavon P. Tenorio, CPA

b) The December 31, 2016, cash receipts of P23,000 were not deposited in the bank until
On May 31, 2016, the petty cash fund was replenished and increased to P12,000; currency January 2, 2017.
and coins in the fund at that time totalled P756. c) One check written in payment of rent P8,940 was correctly recorded by the bank but was
Bank Reconciliation recorded by FIVE Co. as P9,840 disbursement.
Shore Bank d) In accordance with prior authorization, the bank withdraw P18,000 directly from the
Bank Statement current account as payment on a mortgage note payable. The interest portion of that payment
Disbursements Receipts Balance was P14,000. FIVE Co. has made no entry to record the automatic payment.
Balance, May 1, 2016 P 350,760 e) Bank Service Charges of P740 were listed on the bank statement.
Deposits P 1,120,000 f) A deposit of P35,000 was recorded by the bank on December 12, but it did not belong to
Note payment direct from customer 37,200 FIVE Co.
(Interest of P1,200) g) The bank statement included a charge of P3,400 for a not-sufficient-fund check. The
Checks cleared during May P 1,246,000 company will seek payment from the customer.
Bank Service Charges 1,080 h) FIVE Co. maintains an P8,000 petty cash fund that was appropriately reimbursed at the
Balance, May 31, 2016 260,880 end of December.
i) According to instructions from FIVE Co. on December 30, the bank withdrew P40,000 from
FOUR, Inc’s Cash Account the account and purchased treasury bills for FIVE Co. The company recorded the transaction
Balance, May 1, 2016 P 354,000 in its books on December 31 when it received notice from the bank. Half of the treasury bills
Deposits during May 2016 1,240,000 mature in three months and the other half in six months.
Checks written during May 2016 1,273,400
Requirements:
Deposits in transit are determined to be P120,000, and checks outstanding at May 31 total 1. What is the cash in bank balance per books on December 31, 2016?
P34,000. Cash on hand (besides petty cash) at May 31, 2016, is P9,840. A. P549,714 C. P534,914
B. P543,514 D. P541,714
Requirements:
2. What is the adjusted cash in bank balance on December 31,2016?
1. What is the amount of petty cash shortage?
A. P520,474 C. P518,674
A. P2,300 C. P300
B. P527,274 D. P520,154
B. P11,244 D. P0
3. What amount would FIVE Co. report as cash and cash equivalents in the current assets
2. The journal entry to record the replenishment of, and increase in the petty cash fund
section of the December 31, 2016, statement of financial position?
includes a credit to
A. P928,474 C. P720,474
A. Cash of P10,944
B. P728,474 D. P735,274
B. Cash of P11,244
C. Petty cash fund of P10,944 PROBLEM 8
D. Petty cash fund of P11,244 In connection with your audit of the cash account of SIX CORP., you gathered the following
3. What amount of cash should be reported in the May 31, 2016, statement of financial information.
position?
A. P368,720 C. P368,420 a. Balance per bank, December 1, 2016 P 145,000
b. Total bank receipts (credits) in December 346,000
B. P356,720 D. P358,880
c. Balance per bank, December 31, 2016 114,500

PROBLEM 7 d. Outstanding checks, Nov. 30, 2016 (including P12,000 paid by bank in
The bank statement for the current account of FIVE Co. showed a December 31, 2016, December) 67,000
balance of P585,284. Information that might be useful in preparing a bank reconciliation is e. Outstanding checks, December 31, 2016 (including checks issued in
as follows: November) 94,162
f. Deposit in transit, November 30, 2016 39,458
a) Outstanding checks were P52,810. g. A customer’s check received on December 4, 2016, was returned by bank on
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Auditing Problems – Audit of Cash and Cash Equivalents Cleavon P. Tenorio, CPA

December 7 marked “NSF.” It was redeposited on December 8, 2016. The only

entry made was to take up the collection on December 4, 2016 11,143 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
Requirements: check no. 3417.
1. What is the total book receipts in December?
A. P295,399 C. P334,857 3) The December bank statement includes an erroneous charge of P480.
B. P306,542 D. P346,000
4) On January 3, 2017, the bank informed your client that a December bank service charge
2. What is the total bank disbursements in December?
of P42 was omitted from the statement.
A. P315,500 C. P231,500
B. P376,500 D. P201,000 5) Your examination of the bank credit memo accompanying the December bank statement
3. What is the total book disbursements in December? discloses that it represents proceeds from the note receivable collection in December for
A. P447,519 C. P403,662 P4,000.
B. P331,519 D. P392,519
6) The outstanding checks at December 31, 2016, are as follows:
PROBLEM 9 No. 3408 P 440 No. 3418 P 2,814
In your audit of SEVEN INC.’s cash account as of December 31,2016, you ascertain the No. 3417 800 No. 3419 5,788
following information:
Requirements:
The bookkeeper’s bank reconciliation on November 30, 2016, is as follows:
1. What is the total book disbursements for the month of December?
Balance per bank statement, November 30 P 24,298
A. P377,668 C. P377,632
Add: Deposits in transit 3,648
Total P 27,946 B. P377,710 D. P377,596
Less: Outstanding checks 2. What is the book balance at December 31?
No. 3408 P 440 A. P9,832 C. P9,754
No. 3413 300 B. P9,868 D. P9,796
No. 3414 6,820
3. The outstanding checks at December 31 totaled?
No. 3416 3,924
A. P8,602 C. P9,042
No. 3417 800 12,284
Balance P 15,662 B. P9,072 D. P9,842
Add: Bank service charge for November 36* 4. What is the adjusted bank balance on November 30?
Balance per general ledger, November 30 P 15,698 A. P16,690 C. P16,804
*Entered in Check Register in December B. P16,732 D. P16,774
5. What is the adjusted book balance on December 31?
The Cash Receipts Journal shows total receipts for December of P371,766. The Check A. P14,824 C. P14,908
Register reflects total checks issued in December of P377,632. A collection of P5,912 was B. P14,866 D. P14,782
recorded on company books on December 31 but was not deposited until January 2, 2017.
6. A proof of cash used by an auditor
The balance per bank statement at December 31, 2016, is P17,516. This statement shows A. Provides that the client’s year-end balance of cash is fairly stated.
total receipts of P373,502 and checks paid of P380,284. B. Confirms that the client has properly separated the custody function from the
recording function with respect to cash.
Your examination reveals the following additional information: C. Validates that the client’s bank did not make an error during the period being
examined.
1) Check no. 3413 dated November 24, 2016, was entered in the Check Register as P300. D. Determines whether any unauthorized disbursements or unrecorded deposits
Your examination of the paid checks returned with the December bank statement reveals that were made for the given time period.
the amount of this check is P30.

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Auditing Problems – Audit of Cash and Cash Equivalents Cleavon P. Tenorio, CPA

PROBLEM 10
Mr. Mando Rukot, the accountant of Square Room Corporation, who was hired on June 5,
2016, absconded on June 30 2016; apparently with a huge amount of cash. You were
engaged on July 1, 2016 to ascertain the amount of money taken by the accountant.

To aid you in your examination, you obtained the May bank reconciliation prepared by the
previous accountant, Mr. Sipi Ey; acquired the bank statement for June; and conducted a
cash count on the undeposited collections for June.

May bank reconciliation

Cash in bank balance per book, May 31 505,000
Add: Proceeds of bank loan 100,000
Outstanding checks 65,000 165,000
Total   670,000
Less: Undeposited collections 23,000
May bank service charge 2,000 25,000
Cash in bank balance per bank, May 31   645,000

Based on your cash count, cash totalling to P15,600 were still undeposited. June book debits
total to P348,000, while book credits total to P240,000. The book debits only include cash
collections for June, which is ascertained to be correct; and it does not include the bank loan
credited by the bank in May. The book credits include the May bank service charge; the rest
pertains to cash disbursements.

Based on the June bank statement, June bank credits total to P268,000, including the
deposit in transit in May; while June bank debits total to P305,000, including the June bank
service charge for P2,000. The rest of the bank debits pertain to cleared checks. All May
outstanding checks cleared the bank in June.

Requirements:
1. How much is the outstanding checks as of June 30, 2016?
A. 238,000 B. 65,000 C. 2,000 D. – 0 –
2. How much is the correct undeposited collections before the theft?
A. 103,000 B. 348,000 C. 80,000 D. 87,400
3. How much was taken by Mr. Mando Rukot?
A. 103,000 B. 348,000 C. 80,000 D. 87,400
4. At what amount shall the cash in bank be presented as of June 30, 2016?
A. 711,000 B. 623,600 C. 603,000 D. 613,000