The problem was solved by using recalculation which one of the procedures in obtaining audit

evidence. It can be noted that there are no book reconciling items given on the problem and
that is why the unadjusted book balance is deemed equal to the adjusted balance – P696,499.
The same balance is treated as the adjusted balance for the bank side. From there, the correct
deposit in transit should there be no misappropriation of assets was computed (squeezed). This
“should be” amount was then compared to the reported amount to compute the cash
shortage.