AUDITING

AND ASSURANCE: CONCEPT AND APPLICATION 1

Handout 01B – Audit of Cash and Cash Equivalents

PROBLEM 1

You were able to gather the following from the December 31, 2022 trial balance of Bieber Inc. in connection
with your audit of the company:

Petty cash fund 50,000
Cash on hand 1,500,000
Cash in bank – MBTC current account 4,000,000
Cash in bank – BDO Account No. 1 3,160,000
Cash in bank – BDO Account No. 2 (160,000)
Cash in bank – UCPB 4,500,000
Time deposit – BPI 2,000,000

Petty Cash Fund – A count was conducted and the PCF consisted of the following items as of December 31,
2022:
Currency and coins P 10,000
Employees’ vale 8,000
Currency in an envelope marked “collection for wedding gift” with names attach 6,000
Unreplenished petty cash voucher 6,500
Check drawn by Bieber, payable to the petty cashier 20,000
Unused postage stamps 1,500
P52,000

Cash on hand – Cash on hand represents undeposited collections as of December 31, 2022 and includes the
following items:
• Customer’s check for P160,000 returned by bank on December 26, 2022 due to insufficient fund
but subsequently redeposited and cleared by the bank on January 3, 2023.
• Customer’s check for P80,000 dated January 2, 2023, received on December 29, 2022.
• A customer’s check for P90,000 dated June 1, 2022 received on the same date and yet to be
deposited since the same has been missing.
• Postal money orders received from customers, P100,000.

MBTC Current Account – Included amount the checks drawn by Bieber against the MBTC current account
and recorded in December 2022 are the following:
• Check written on December 29, 2022 dated January 2, 2023, delivered to payee on December 29,
2022, P160,000.
• Check written and dated December 29, 2022 and delivered to payee on January 2, 2023,
P200,000.

BDO Account 1 and 2 – The credit balance in the BDOI Current Account No. 2 represents checks drawn in
excess of the deposit balance. These checks were still outstanding at December 31, 2022.

UCPB Account – The savings account deposit in UCPB has been set by the board of directors for acquisition
of property, plant, and equipment. This account is expected to be disbursed in the next 90 days from the
reporting date.

BPI Time Deposit – The time deposit with BPI was purchased on November 1, 2022 and shall mature on
November 1, 2023.

Questions: Based on the above and result of the audit, compute for the adjusted balances of the following:

1. Petty cash fund
A. 30,000 C. 10,000
B. 36,000 D. 24,500

2. Petty cash shortage or overage
A. 4,400 short C. 2,000 over
B. 5,500 short D. 500 er

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3. Cash on hand
A. 1,070,000 C. 1,260,000
B. 1,170,000 D. 1,500,000

4. Cash in bank – MBTC current account
A. 4,000,000 C. 4,200,000
B. 4,160,000 D. 4,360,000

5. Cash and cash equivalent to be reported in December 31, 2022 statement of financial position
A. 8,560,000 C. 10,560,000
B. 8,566,000 D. 15,060,000


Problem 02 – Petty Cash Fund

You are examining the account of Muscle Company. The balance of the Petty Cash account, December 31,
2021 was P10,000; your count of the imprest fund, made at 9:00 am on January 3, 2022 in the presence of
Ms. Sexy, petty cashier revealed the following;

Coins: Bills:
Quantity Denomination Quantity Denomination
76 10 3 1,000
124 5 2 500
50 1 2 100
112 0.25 16 20
20 0.10

Date Payee Maker Amount
12/27/21 Muscle Co. Customer A 1,000*
12/30/21 Cash Vice President 1,220
12/30/21 Muscle Co. Customer B 1,300
12/31/21 Donut Co. Muscle Co. 2,000
01/02/22 Cash Employee A 312
01/02/22 Muscle Co. Customer C 1,200

* Returned by the bank together with December 31, 2021 bank statement marked NSF. Unused Postage
Stamps – P100

Vouchers:
Date Particulars Amount
December 15 Transportation 130
December 16 Office supplies 140
December 17 Xerox fees 160
December 28 Postage 300
January 2 Newspapers 20
January 2 Freight bill on merchandise 100

IOUs:
Date Particulars Amount
December 20 Employee B 500
December 23 Employee C 200

Sales Invoices (for cash receipts, all in cash no checks)
Sales Invoice Date Amount
200889 December 29 300
200890 December 30 340
200891 December 31 420
200901 January 2 610

Questions: Based on the above and the result of your audit, answer the following:

1. How much is the correct accountability on January 2, 2022?
A. 14,170 C. 15,170
B. 11,670 D. 13,970

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2. How much is the petty cash shortage as of January 2, 2022?
A. 1,608 C. 1,998
B. 2,608 D. 2,488

3. The adjustment to correct petty cash fund involves a credit to petty cash fund at:
A. 5,650 C. 4,038
B. 4,158 D. 4,768

4. What is the adjusted petty cash fund as of December 31, 2021?
A. 4,350 C. 5,232
B. 5,842 D. 5,962


PROBLEM 3
The bank statement for the checking account of MSU, Inc. showed a December 31, 2021, balance of
P1,463,212. Information that might be useful in preparing bank reconciliation is as follows:

(a) Outstanding check were P132,025.

(b) The December 31, 2021, cash receipts of P57,500 were not deposited in the bank until January 2,
2022.

(c) One check written in payment of rent for P24,600 was correctly recorded by the bank but was
recorded by MSU as P26,400 disbursement.

(d) In accordance with prior authorization, the bank withdrew P45,000 directly from the checking
account as payment on a mortgage note payable. The interest portion of that payment was
P35,000. MSU has made no entry to record the automatic payment.

(e) Bank service charge of P1,400 were listed on the bank statement.

(f) A deposit of P87,500 was recorded by the bank on December 13, but did not belong to MSU. The
deposit should have been made to the checking account of SUM, Inc.

(g) The bank statement included a charge of P8,500 for an NSF check. The check was returned with
the bank statement and the company seek payment from the customer.

(h) MSU maintains a P20,000 petty cash fund that was appropriately reimbursed at the end of
December.

(i) According to instruction of MSU on December 30, the bank withdrew P1,000,000 from the
account and purchased Treasury Bill for MSU. MSU recorded the transaction in its books on
December 31 when it received notice from the bank. Half of the treasury bills mature on two
months and the other half in six months.

Questions: Based on the above and the result of your audit, answer the following:

1. What is the cash in bank balance per book on December 31, 2021?
A. 1,354,287 C. 1,337,287
B. 1,357,887 D. 1,264,287

2. What is the correct cash in bank balance on December 31, 2021?
A. 1,304,787 C. 1,284,187
B. 1,301,187 D. 1,211,187

3. What is the amount of cash and cash equivalents should be reported in the current asset section of
balance sheet on December 31, 2021?
A. 1,821,187 C. 1,301,187
B. 2,321,187 D. 1,874,287

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PROBLEM 4
You are conducting an audit of Ashanti Company for the year ended December 31, 2021. The internal
control procedures surrounding cash transactions were not adequate.

The bookkeeper-cashier handles cash receipts, maintains accounting records, and prepares the monthly
bank reconciliations. The bookkeeper-cashier prepared the following reconciliation at the end of the year:


Balancer per bank statement P 350,000
Add: Deposit in transit P 175,250
Note collected by bank 15,000 190,250
Total 540,250
Less: Outstanding checks 246,750
Balance per general ledger P 293,500

In the process of your audit, you gathered the following:
§ At December 31, 2021, the bank statement and general ledger showed balances of P350,000 and
P293,500, respectively.

§ The cut-off bank statement showed a bank charge on January 2, 2022 for P30,000 representing
correction of an erroneous bank credit.

§ Included in the list of outstanding checks were the following:

- A check payable to a supplier, dated December 29, 2021, in the amount of P14,750, released
on January 5, 2022.

- A check representing advance payment to a supplier in the amount of P37,210, the date of
which is January 4, 2022, and released in December, 2021.

§ On December 31, 2021, the company received and recorded customer’s postdated check
amounting to P50,000.

Questions: Based on the above and result of your audit, answer the following:

1. The adjusted deposit in transit on December 31, 2021 is
A. 175,250 C. 225,250
B. 125,250 D. 125,000

2. The adjusted outstanding check as of December 31, 2021 is
A. 298,710 C. 209,540
B. 232,000 D. 194,790

3. The adjusted cash to be presented in the statement of financial position as of December 31, 2021 is
A. 235,460 C. 265,460
B. 250,460 D. 310,460

4. The cash shortage as of December 31 2021 is
A. 45,000 C. 60,000
B. 58,040 D. 8,040

5. The net adjustment to cash account as of December 31, 2021 is
A. 43,040 C. 58,040
B. 60,000 D. 45,000

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PROBLEM 5
Your client, Kuldra Company, presented you with the following data:

Bank balances
November 30 P 2,500,000
December 31 3,100,000

Bank receipts in December 2,300,000

Bank service charges (recorded by client in the month following the month of
charge)
November 10,000
December 18,000

NSF checks returned by bank (recorded by client in the month following the
return)
November 30 15,000
December 31 25,000

Note collected by bank (recorded by the client in the following month)
November 76,000
December 84,000

Deposit in transit
November 30 58,000
December 31 47,000

Outstanding checks
November 30 97,000
December 31 46,000

Erroneous bank charges (corrected by the bank in the following month)
November 30 25,000
December 31 37,000

Erroneous bank credit (corrected by the bank in the following month)
November 30 45,000
December 30 50,000

Questions: Based on the above and the result of your audit, answer the following:

1. How much is the adjusted cash balance, November 30, 2021?
A. 2,486,000 C. 2,365,000
B. 2,416,000 D. 2,441,000

2. How much is the adjusted receipts for December 2021?
A. 2,289,000 C. 2,139,000
B. 2,264,000 D. 2,214,000

3. How much is the adjusted disbursement for December 2021?
A. 1,649,000 C. 1,604,000
B. 1,612,000 D. 1,567,000

4. How much is the adjusted cash balance, December 31, 2021?
A. 3,007,000 C. 3,138,000
B. 3,044,000 D. 3,088,000

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PROBLEM 5

In the course of our audit of Bente Corporation’s cash in bank for the year ended December 31, 2021, you
ascertained the following information:

November 30 December
31
Cash per book 60,350 ?
Cash per bank 535,410 689,085
Undeposited checks 41,005 64,400
Outstanding checks 138,590 150,560
Bank service charges 3,600 3,000
Insufficient fund check 41,250
Company’s notes 359,075 404,500
receivable collected
by bank

The bank statement and the company’s records show
the following totals:
Cash disbursements per bank statement 1,091,865
Cash receipts per cash records ?
Cash disbursements per cash records ?
Cash receipts per bank statement 1,245,540

Additional information:
• The insufficient fund check was redeposited in the same month. No entries are made to take up
the return and redeposit.

• A P50,000 bank charge error in November was corrected by the bank in December, while a
P20,000 deposit of House-boy Corporation was erroneously credited by the bank of the
company’s account in December.

• A P19,000 disbursement check was recorded in November as P91,000. The error was discovered
and corrected in December.

• A P20,000 customer collection was recorded in the books in December as P200,000, the error
was detected and corrected in December.

Questions: Based on the above audit findings, answer the following:

1. What is the unadjusted book receipts in December?
A. 1,364,260 C. 1,160,660
B. 1,182,260 D. 1,223,185

2. What is the unadjusted book disbursement in December?
A. 1,243,185 C. 1,063,785
B. 1,063,185 D. 1,266,185

3. What is the correct cash balance as of November 30?
A. 487,825 C. 441,425
B. 437,825 D. 445,025

4. What is the unadjusted cash balance per book as of December 31?
A. 179,425 C. 181,425
B. 109,425 D. 118,425

5. What is the correct cash balance as of December 31?
A. 561,075 C. 605,325
B. 602,925 D. 582,925

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