APPLIED AUDITING

Class Discussion Problems on Audit of Cash

January 2019

Problem 1 b. Check written on December 27, 2012, dated January 2, 2013,

delivered to the payee on December 29, 2012, ₱86,000.
The following data are to be used in reconciling the May 31, 2013
bank balance of MARY JULIET Company: The credit balance in the Security Bank current account No. 2
represents checks drawn in excess of the deposit balance. These
2013 checks were still outstanding at December 31, 2012.
April May
Cash in bank balance – at the end of The savings account deposit in PNB has been set aside by the board of
month ₱3,561.00 ₱4,629.72 directors for acquisition of new equipment. This account is expected
Bank statement balance – end of month 7,403.50 3,862.20 to be disbursed in the next 3 months from the balance sheet date.
Bank service charges for the month 6.00 6.80
Checks marked NSF 815.00 118.00 QUESTIONS:
Deposits in transit – end of month 950.00 925.40
Drafts collected by the bank (unrecorded Based on the above and the result of your audit, compute for the
by the company until the month adjusted balances of the following:
following collection) 1,500.00 202.00
Outstanding checks at end of month 4,463.00 149.68 1. Cash on hand
Checks of MARIE JULIETTE Corporation a. ₱282,000 c. ₱408,000
charged to the company’s account in b. ₱246,000 d. ₱342,000
error 349.50 60.00
Check number 6129 erroneously recorded 2. Petty cash fund
in the check register as ₱78; the correct a. ₱6,700 c. ₱2,100
amount is 87.00 b. ₱9,100 d. ₱10,000
Receipts during the month 42,700.17
Total credits to cash in bank 41,631.45 3. BPI current account
Total charges on bank statement 45,317.57 a. ₱1,086,000 c. ₱1,000,000
b. ₱914,000 d. ₱ 950,000
Required: Prepare proof of cash.
4. Cash and cash equivalents
Problem 2 a. ₱2,914,700 c. ₱2,614,700
b. ₱2,954,700 d. ₱3,414,700
You were able to gather the following from the December 31, 2012
trial balance of MELIZA GRACE Corporation in connection with your Problem 3
audit of the company:
Shown below is the bank reconciliation for JENNILYN Company for
Cash on hand ₱372,000 November 2013:
Petty cash fund 10,000
BPI current account 950,000 Balance per bank, Nov. 30, 2013 ₱150,000
Security Bank current account No. 01 1,280,000 Add: Deposits in transit 24,000
Security bank current account No. 02 (40,000) Total 174,000
PNB savings account 500,000 Less: Outstanding checks ₱28,000
PNB time deposit 300,000 Bank credit recorded in error 10,000 38,000
Cash balance per books, Nov. 30, 2013 ₱136,000
Cash on hand includes the following items:
The bank statement for December 2013 contains the following data:
a. Customer’s check for ₱60,000 returned by bank on December 26,
2012 due to insufficient fund but subsequently redeposited and Total deposits ₱110,000
cleared by the bank on January 8, 2013. Total charges, including an NSF check of P8,000 and a
b. Customer’s check for ₱30,000 dated January 2, 2013, received on service charge of ₱400 96,000
December 29, 2012.
c. Postal money orders received from customers, ₱36,000. All outstanding checks on November 30, 2013, including the bank
credit, were cleared in the bank in December 2013.
The petty cash fund consisted of the following items as of December
31, 2012. There were outstanding checks of ₱30,000 and deposits in transit of
₱38,000 on December 31, 2010.
Currency and coins ₱2,100
Employees’ vales 1,600 QUESTIONS:
Currency in an envelope marked “collections
for charity” with names attached Based on the above and the result of your audit, answer the
Unreplenished petty cash vouchers 1,200 following:
Check drawn by MELIZA GRACE Corporation, 800
payable to the petty cashier 1. How much is the cash balance per bank on December 31, 2013?
4,600 a. ₱154,000 c. ₱164,000
₱10,300 b. ₱150,000 d. ₱172,400

Included among the checks drawn by MELIZA GRACE Corporation 2. How much is the December receipts per books?
again the BPI current account and recorded in December 2012 are the a. ₱124,000 c. ₱110,000
following: b. ₱ 96,000 d. ₱148,000

a. Check written and dated December 29, 2012 and delivered to 3. How much is the December disbursements per books?
payee on January 2, 2013, ₱50,000. a. ₱96,000 c. ₱89,600
b. ₱79,600 d. ₱98,000
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 2. What is the total book disbursement in December?
4. How much is the cash balance per books on December 31, 2013? a. ₱211,900 c. ₱211,180
a. ₱150,000 c. ₱180,400 b. ₱216,200 d. ₱216,920
b. ₱170,400 d. ₱162,000
3. What is the adjusted cash balance on November 30?
5. The adjusted cash in bank balance as of December 31, 2013 is a. ₱89,000 c. ₱71,160
a. ₱141,600 c. ₱172,000 b. ₱87,560 d. ₱96,160
b. ₱162,000 d. ₱196,000

Problem 4 4. What is the adjusted cash balance on December 31?

a. ₱120,600 c. ₱137,080
You were able to obtain the following information during your audit of b. ₱94,840 d. ₱155,040
MARJORIE Company:
5. What is the adjusted book receipts in December?
Reconciling items: a. ₱253,780 c. ₱244,420
b. ₱236,460 d. ₱270,180
Nov. 30 Dec. 31
Undeposited collections ₱200,000 ₱120,000 6. What is the adjusted bank disbursements in December?
Outstanding checks 80,000 60,000 a. ₱215,940 c. ₱248,440
Customer’s notes collected by bank 100,000 120,000 b. ₱220,740 d. ₱204,260
Bank service charges 2,000 3,000
Erroneous bank debits 10,000 20,000 Problem 6
Erroneous bank credits 40,000 30,000
NSF check not redeposited 5,000 7,000 RICHELLE LOU Co. has a current account in Pinoy Bank. Your Audit of
Cutomer’s check deposited December 10, the company’s cash account reveals the following:
returned by bank on December 16
marked NSF, and redeposited 1. Balances taken from the company’s general ledger:
immediately; no entry made on books Cash balance, Nov. 30, 2011 ₱637,860
for return or redeposit 10,000 Cash balance, Dec. 31, 2011 576,420
Receipts, Dec. 1-31, 2011 306,220
Unadjusted balances:
2. Balances taken from the December bank statement:
Books ? 90,000 Bank balance, Nov. 30, 2011 ₱685,180
Bank 230,000 ? Bank balance, Dec. 31, 2011 637,220
Disbursement (debits) 356,080
December Transactions: Bank Books
3. Outstanding checks, Nov. 30, 2011 (₱26,140 was paid by bank in
Receipts ₱420,000 ₱270,000 December) 64,140
Disbursements 500,000 407,000
4. Checks written and recorded in December; not included in the
REQUIRED: checks returned with the December bank statement 36,080

1. Prepare proof of cash. 5. Deposit in transit, Nov. 30, 2011 15,260

2. Adjusting entries as of December 31, 2013.
6. Deposit in transit, Dec. 31, 2011 16,140
Problem 5 Proof of cash
7. A bank credit memo was issued in December to correct an
Data for the JOAN, Inc. are shown below: erroneous charge made in November 1,500

Nov. 30 Dec. 31 8. Note collected by bank in December (company was not informed
Cash account balance ₱20,340 ₱48,540 of the collection) 2,060
Bank statement balance 107,060 137,820
Deposits in transit 8,200 12,880 9. A check for P2,020 (payable to a supplier) was recorded by in the
Outstanding checks 27,700 30,100 Check Register in December as P3,000 980
Bank service charges for the month, not
shown on company books 720 600 10. A check for P2,240 was charged by the bank as P2,420 in
NSF checks returned by bank, not shown on December 180
company books 4,300 8,240
Bank collections from company customers, 11. RICHELLE LOU Co. issued a stop payment order to the bank in
not shown on company books December. This pertains to a check written in December which
72,240 80,900 was not received by the payee. A new check was written and
recorded in the Check Register in December. The old check was
Additional information: written off by a journal entry also in December. 780

a) Deposits and credit memos per bank statement ₱249,100 12. Bank service charge, Nov. 30, 2011 60
b) Cancelled checks and debit memos per bank 218,340
statement QUESTIONS:
c) Cash receipts per cash book 172,880
d) Checks written per cash book 211,900 1. What is the total book disbursement in December?
a. ₱367,660 c. ₱369,720
QUESTIONS: b. ₱244,780 d. ₱368,540

1. What is the total book receipts in December? 2. What is the total bank receipts in December?
a. ₱172,880 c. ₱253,780 a. ₱260,160 c. ₱306,060
b. ₱245,120 d. ₱181,540 b. ₱308,120 d. ₱309,020

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 3. What is the total outstanding checks on December 31? Problem 8
a. ₱100,220 c. ₱62,220
b. ₱38,000 d. ₱74,080 Select the best answer for each of the following:

4. What is the adjusted bank balance on November 30? 1. Who is responsible, at all times, for the amount of the petty cash
a. ₱636,300 c. ₱637,800 fund?
b. ₱685,180 d. ₱634,800 a. General cashier
b. President of the company
5. What is the adjusted book receipts balance in December? c. Petty cash custodian
a. ₱307,500 c. ₱303,380 d. Chairman of the Board of Directors
b. ₱306,220 d. ₱305,440
2. What is the effect of not replenishing the petty cash fund at year-
6. What is the adjusted bank disbursements balance in December? end and not making the appropriate adjusting entry?
a. ₱353,980 c. ₱345,960 a. A detailed audit is necessary
b. ₱365,840 d. ₱366,020 b. The petty cash custodian should turn over the petty cash to
the general cashier
7. What is the adjusted book balance on December 31? c. Cash will be overstated and expenses understated.
a. ₱577,500 c. ₱576,420 d. Expenses will be overstated and cash will be understated.
b. ₱577,400 d. ₱579,460
3. The primary purpose of sending a standard confirmatory request
Problem 7 to financial institutions with which the client has done business
during the year is to
You are conducting an audit of the KARLL ALLAN Company for the a. Detect kiting activities that may otherwise not be
year ended December 31, 2013. The internal control procedures discovered.
surrounding cash transactions were not adequate. The bookkeeper- b. Corroborate information regarding deposit and loan
cashier handles cash receipts, maintains accounting records, and balances.
prepares the monthly bank reconciliations. c. Provide the data necessary to prepare a proof of cash.
d. Request information about contingent liabilities and secured
The bookkeeper-cashier prepared the following reconciliation at the transactions.
end of the year:
4. The auditor should ordinarily mail confirmation request to all
Balance per bank statement ₱350,000 banks with which the client has conducted any business during
Add: Deposit in transit ₱175,250 the year, regardless of the year-end balances, since
Note collected by bank 15,000 190,250 a. The confirmation form also seeks information about
Total 540,250 indebtedness to the bank
Less: Outstanding checks 246,750 b. This procedure will detect kiting activities which otherwise
Balance per general ledger ₱293,500 not be detected
c. The mailing of confirmation forms to all such banks is
In the process of your audit, you gathered the following: required by GAAS
 At December 31, 2013, the bank statement and general ledger d. This procedure relieves the auditor of any responsibility
showed balances of ₱350,000 and ₱293,500, respectively. with respect to non-detection of forged checks
 The cut-off bank statement showed a bank charge on January 2,
2014 for ₱30,000 representing correction of an erroneous bank 5. An auditor who is engaged to examine the financial statements
credit. of a business enterprise will request cutoff bank statement
 Included in the list of outstanding checks were the following: primarily in order to
a. A check payable to a supplier, dated December 29, 2013, in a. Verify the cash balance reported on the bank confirmation
the amount of ₱14,750, released on January 5, 2014. inquiry form
b. A check representing advance payment to a supplier in the b. Verify reconciling items on the client’s bank reconciliation
amount of ₱37,210, the date of which is January 4, 2014, c. Detect lapping
and released in December, 2013. d. Detect kiting
 On December 31, 2013, the company received and recorded
customer’s postdated check amounting to ₱50,000. 6. Which of the following cash transfers would appear s a deposit in
transit on the December 31, 2013 bank reconciliation?
QUESTIONS: Bank Account A Disbursing Bank Account B
Date (Month/Day) Receiving Date
1. The adjusted deposit in transit as at December 31, 2013 is (Month/Day)
a. ₱175,250 c. ₱225,250 Per Bank Per Books Per Bank Per Books
b. ₱125,250 d. ₱125,000 a. 12/31 12/30 12/31 12/30
b. 1/2 12/30 12/31 12/31
2. The adjusted outstanding checks as at December 31, 2013 is c. 1/3 12/31 1/2 1/2
a. ₱298,710 c. ₱209,540 d. 1/3 12/31 1/2 12/31
b. ₱232,000 d. ₱194,790
7. Which of the following transfers would not appear as an
3. The adjusted cash to be presented in the statement of financial outstanding check on the December 31, 2012 bank
position at December 31, 2013 is reconciliation?
a. ₱235,460 c. ₱265,460 Bank Account A Disbursing Bank Account B
b. ₱250,460 d. ₱310,460 Date (Month/Day) Receiving Date
(Month/Day)
4. The cash shortage as of December 31, 2013 is Per Bank Per Books Per Bank Per Books
a. ₱45,000 c. ₱60,000 a. 12/31 12/30 12/31 12/30
b. ₱58,040 d. ₱ 8,040 b. 1/2 12/30 12/31 12/31
c. 1/3 12/31 1/2 1/2
5. The net adjustment to the cash account as of December 31, 2013 d. 1/3 12/31 1/2 12/31
is
a. ₱43,040 c. ₱58,040 Use the following information for the next two questions.
b. ₱60,000 d. ₱45,000
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 The information below was taken from the bank transfer
schedule prepared during the audit of XYZ Company’s financial
statements for the year ended December 31, 2012. Assume all
checks are dated and issued on December 30, 2012.

Disbursements Receipts
Per Per Per Per
No. From To Books Bank Books Bank
101 Pbcom HSBC 12/30 1/4 12/30 1/3
102 UCPB MBank 1/3 1/2 12/30 12/31
103 HSBC PSBank 12/31 1/3 1/2 1/2
104 MBank PNB 1/2 1/2 1/2 12/31

8. Which of the following checks might indicate kiting?

a. Check Nos. 101 and 103
b. Check Nos. 102 and 104
c. Check Nos. 101 and 104
d. Check Nos. 102 and 103

9. Which of the following checks illustrate deposits/transfers in the

transit at December 31?
a. Check Nos. 101 and 102
b. Check Nos. 101 and 103
c. Check Nos. 102 and 104
d. Check Nos. 103 and 104

10. Which of the following cash transfer results in a misstatement of

cash at December 31, 2014?

Per Per Per

From To books bank books Per bank
a. Pbcom HSBC 12/31/12 1/4/13 12/31/12 12/31/12
b. UCPB MB 1/4/13 1/5/13 12/31/12 1/4/13
c. HSBC PBank 12/31/12 1/5/13 12/31/12 1/4/13
d. MSBank PNB 1/4/13 1/11/13 1/4/13 1/4/13

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