AUDIT OF CASH AND CASH EQUIVALENTS

PROBLEM 1: Compensating Balance

AVATAR had the following balances on Cash as of year-end:
Cash in bank…………………………………………………………………….. P 2,250,000
Cash on hand……………………………………………………………………. 125,000
Cash restricted for plant addition……………………………………………… 1,600,000
Cash in bank included P600,000 of compensating balances.

Answer the following independent instances:

1. The compensating balance is against short-term borrowing agreement. The compensating balance is not
legally restricted to withdrawal. At year-end, what total cash should be reported under current assets?
a. P 1,775,000 c. P 2,375,000
b. P 2,250,000 d. P 3,975,000

2. The compensating balance is against short-term borrowing agreement. The compensating balance is legally
restricted to withdrawal. At year-end, what total cash should be reported under current assets?
a. P 1,775,000 c. P 2,375,000
b. P 2,250,000 d. P 3,975,000

3. The compensating balance is against long-term borrowing. The compensating balance is not legally
restricted to withdrawal. At year-end, what is the total cash to be reported under current assets?
a. P 1,775,000 c. P 2,375,000
b. P 2,250,000 d. P 3,950,000

4. The compensating balance is against long-term borrowing. The compensating balance is legally restricted
to withdrawal. At year-end, what is the total cash to be reported under current assets?
a. P 1,775,000 c. P 2,375,000
b. P 2,250,000 d. P 3,950,000

PROBLEM 2: Cash Equivalents

AANG company has the following investments of excess cash as of December 31, 2023
• 3-month treasury bill, P200,000
• 5,000, 8%, P50 par value redeemable preferred shares acquired on November 1, 2023. The redemption
date will be on April 1, 2024.
• 6-month treasury bill, maturing on February 28, 2024, P300,000
• 1-year treasury bill, acquired on December 15, 2023, maturing on February 28, 2024, P400,000
• 8% one-year term bonds, issue date February 1, 2023 acquired on October 1, 2023, P400,000
• 90-day money market placement, P200,000
• 30day certificate of time deposit, P240,000
• 180-day certificate of time deposit, P180,000
• 9% one-year term bonds, issue date march 1, 2023 acquired on December 1, 2023, P350,000
• 100,000, ordinary shares acquired on December 20, 2023, P300,000

The amount that may be included as cash equivalents on its balance sheet is:

PROBLEM 3: COMPREHENSIVE
At year-end, APPA company’s cash and cash equivalent account balance were composed of the following
items:

Cash on hand P 200,000

Petty cash fund P 20,000
HSBC current account P 1,000,000
BDO, checking account P 800,000
BPI, current account P 850, 000
SBC, current account P (90,000)
PNB, 60-day time deposit P 150,000
AUB, checking account P1,000,000
EastWest Bank $10,000
DBP, current accounts $20,000
CBS, savings (closed bank) P 100,000
Bank of Commerce, checking P1,000,000

The examination of the above-mentioned items revealed the following:

• The cash-on-hand account includes a customer’s check of P30,000 dated January 2, 2024 and a P25,000
postal money order
 • The petty cash fund includes unreplenished vouchers for P10,000, and a P5,000 company check bearing
the name of the petty cash custodian.
• Included among the checks drawn by the company against its HSBC current account and recorded in
December 2023 are:
o Check no. 1001208001 written and a dated December 23, 2023 which was delivered to the payee
on January 6, 2024 P120,000
o Check no. 100012250001 written December 28, 2023 dated January 12, 2024 which was handed
to the payee on December 29, 2023, P190,000
• BDO checking account, include a P50,000 compensating balance maintained in relation to an existing
short-term, loan which is not restricted as to withdrawal
• The BPI current was composed of the following items:
o Current account No. 2908356 P 1,000,000
o Current account No. 2908357 (150,000)
• The PNB time deposit was set aside for the acquisition of manufacturing equipment to be purchased by
the end of March 2024
• AUB checking account, includes a P100,000 compensating balance maintained in relation to an existing
long-term loan which is legally restricted as to withdrawal
• The Dollar account in EastWest Bank is currently restricted as to withdrawal. Exchange rates are as follows:
December 23, P48; December 31, P50; January 8, 2024, P51 (date the financial statements were
prepared)
• Bank of commerce checking account, in which the company is required to maintain a minimum average
balance of P120,000 at all times to insure future credit availability

The amount to be reported as cash and cash equivalent on December 31, 2023 is

PROBLEM 4: Bank Reconciliation

KATARA Company prepared the following bank reconciliation on December 31:
Balance per bank statement 2,800,000
Add: Deposit in transit 195,000
Checkbook printing charge 5,000
Error made by FOODIE in recording
check issued in December 35,000
NSF check 110,000 345,000
Total 3,145,000
Less: Outstanding check 100,000
Note collected by bank including
P15,000 interest 215,000 315,000
Balance per book 2,830,000

On December 31, the entity had cash on hand and petty cash fund amounting to P500,000 and P50,000,
respectively.

Requirements:
1. What amount should be reported as cash in bank at year-end?
a. 3,130,000 b. 3,095,000 c. 2,930,000 d. 2,895,000

2. What total amount of cash should be reported at year-end?

a. 3,350,000 b. 3,380,000 c. 3,395,000 d. 3,445,000

PROBLEM 5: Bank Reconciliation

ZUKO Company provided the following bank reconciliation on April 30:
Balance per bank statement 2,100,000
Deposits outstanding 300,000
Checks outstanding (50,000)
Correct cash balance 2,350,000

Balance per book 2,360,000

Bank service charge (10,000)
Correct cash balance 2,350,000

Data for the month of May:

Bank Book
Checks recorded 2,300,000 2,400,000
 Deposits recorded 1,700,000 1,800,000
Collection by bank, P500,000 note plus
interest 550,000
NSF check returned with May 31 statement 100,000
Balances 1,950,000 1,750,000

Requirements:
1. What is the amount of outstanding checks on May 31?
a. 200,000 b. 150,000 c. 100,000 d. Zero

2. What is the amount of deposits in transit on May 31?

a. 400,000 b. 200,000 c. 100,000 d. Zero

3. What amount should be reported as adjusted cash in bank on May 31?

a. 2,250,000 b. 2,200,000 c. 1,950,000 d. 1,760,000

PROBLEM 6: Computation of DIT

The following were provided by TOPH Company for the month of June
• Deposits and credit memos recorded by the bank in June, including interest of P2,500; P480, 000
• Total debits to Cash in all journals during June, P555,000
• Deposit in transit as of May 31, P60,000
• Interest income reflected in the May bank statement, recorded only in the books in June, P4,000
• Loan proceeds reflected in the May bank statement recorded only in the books in June, P82,000
• Direct payment to the bank by TOPH Company’s customers. TOPH Company was not informed of the
said payment as of June 30, P47,000

The deposit in transit at June 30 is

PROBLEM 7: Computation of DIT

The following were provided by SOKKA Company for the month of October
• Total book debits for the month of October P510,000
• Total bank credits for the month of October P575,000
• Deposit in transit at October 30, P39,600
• October deposits for P43,000 was recorded in the books at P34,000
• A deposit in October by SOKKA Company for P12,000 was recorded by the bank in another account
• Credit memo for the month of September, P6,000 was recorded by SOKKA Company only in October
• Interest income for the month of October, P3,500 has not been recorded in the books

The deposit in transit at the beginning of October is

PROBLEM 8: Computation of OC
The following were provided by AZULA Company related to December
Checks issued by AZULA Company in December P780,000
Checks paid by the bank in December 820,000
Outstanding checks, November 30, 2023 70,000
Debit memo – NSF checks in December 14,000
Debit memo – NSF checks in November 22,000
The amount of outstanding checks at December 31, 2023 is

PROBLEM 9: Computation of OC
The following were provided by IROH Company for the month of June
• May bank charges, recorded on the books only in June, P6,000
• Customer’s NSF check returned as a bank charges in June (no entry made on books), P9,000
• Customer’s NSF check returned in May and re-deposited in June (no entry made in books in either May
or June), P5,000
• Outstanding checks as of June 30, P90,000
• Deposit in transit as of June 30, P55,000
• Checks against IRO Company were charged to IROH Company by the bank in June, P20,000. No
corrections were yet made as of June 30
• Check for P25,000 written in June 18, was recorded in the disbursements journal as P52,000
• Check for P16,000 written on June 28, was recorded in the disbursements journal as P1,600
• Checks and charges recorded by the bank in June, including a June service charge of P3,500; P276,000
• Total credits to Cash in all journals during June, P264,000

The amount of outstanding checks at the beginning of June

 PROBLEM 10: Bank Reconciliation
The bank portion of the bank reconciliation for ROKU Company at October 31, 2023 was as follows:
ROKU Company
Bank Reconciliation
October 31, 2023
Cash Balance per Bank P 12,367.90
Add: Deposit in transit 1,530.20
P 13,898.10
Less: Outstanding checks

Check Number Check Amount

2451 P1,260.40
2470 720.10
2472 844.50
2474 1,050

4,301.80

Adjusted cash balance per bank P 9,596.30

The adjusted cash balance per bank agreed with the cash balance per books at October 31.

The November bank statement showed the following checks and deposits.

Bank Statement
Checks Deposits
Date Number Amount Date Amount
11-1 2470 720.10 11-1 1,530.20
11-2 2471 844.50 11-4 1,211.60
11-5 2474 1,050.00 11-8 990.10
11-4 2475 1,640.70 11-13 2,575.00
11-8 2476 2,830.00 11-18 1,472.70
11-10 2477 600.00 11-21 2,945.00
11-15 2479 1,750.00 11-25 2,567.30
11-18 2480 1,330.00 11-28 1,650.00
11-27 2481 695.40 11-30 1,186.00
11-30 2483 575.50 Total 16,127.90
11-29 2486 900.00
Total 12,936.20

The cash records per books for November showed the following:
Cash Receipts
Cash Payments Journal Journal____
Date Number Amount Date Number Amount Date Amount
11-1 2475 1,640.70 11-20 2483 575.50 11-3 1,211.60
11-2 2476 2,830.00 11-22 2484 829.50 11-7 990.10
11-2 2477 600.00 11-23 2485 974.80 11-12 2,575.00
11-4 2478 538.20 11-24 2486 900.00 11-17 1,472.70
11-8 2479 1,570.00 11-29 2487 398.00 11-20 2,954.00
11-10 2480 1,330.00 11-30 2488 800.00 11-24 2,567.30
11-15 2481 695.40 Total 14,294.10 11-27 1,650.00
11-18 2482 612.00 11-29 1,186.00
11-30 1,225.00
Total 15,831.70

The bank statement contained two bank memoranda:

1. A credit of P2,105.00 for the collection of a P2,000 note for ROKU Company plus interest of P120 and less a
collection fee of P15. ROKU company has not accrued any interest on the note.

2. A debit for the printing of additional company checks, P50.

At November 30, the cash balance per books was P11,123.90, and the cash balance per the bank statement
was P17,604.60. The bank did not make any errors, but ROKU Company made two errors.

Note: The correction of any errors pertaining to recording checks should be made to Accounts Payable. The
correction of any errors relating to recording cash receipts should be made to Accounts Receivable

1. The unadjusted cash ledger balance of ROKU COMPANY at November 30, 2023 is:
a. P 11,133.90 b. P 12,990.90 c. P 13,188.90 d. P 13,377.90

2. The unadjusted bank balance of ROKU COMPANY at November 30, 2023 is:
a. P 12,828.90 b. P 13,008.90 c. P 13,188.90 d. P 17,614.60

3. The outstanding checks of ROKU COMPANY at November 30, 2023 is:

a. P 5,659.70 b. P 5,830.70 c. P 5,839.70 d. P 6,028.70

4. The deposit in transit of ROKU COMPANY at November 30, 2023 is:

a. P 1,225 b. P 1,216 c. P 1,234 d. P 1,396

5. The adjusted book balance of ROKU COMPANY at November 30, 2023 is:
a. P 11,133.90 b. P 12,990.90 c. P 13,188.90 d. P 13,377.90

PROBLEM 11: Proof of Cash

The following information pertains to the cash of TYLEE Company:

Nov 31 Dec. 31
Balance shown on bank statement P 27,380 P 26,960
Balance shown in general ledger before
reconciling the bank account 25,780 25,000
Outstanding checks 8,630 10,150
Deposits in transit 6,850 12,450

For Dec.
Deposits shown in bank statement P 55,880
Charges shown on bank statement 56,300
Cash receipts shown in company’s books 53,980
Cash payments shown in company’s books 54,760

The bank service charge was P180 in November (recorded by the company during December) and P240 in
December (not yet recorded by the company).

Included with the December bank statement was a check for P5,000 that had been received on December 25
from a customer on account. The returned check marked “NSF” by the bank, has not yet been recorded on the
company’s books.

During December the bank collected P7,500 of bond interest for the company and credited the proceeds to the
company’s account. The company earned the interest during the current accounting period but has not yet
recorded it.

During December the company issued a check for P6,960 for equipment. The check, which cleared the bank
during December, was incorrectly recorded by the company for P8,960.

1. The adjusted cash receipts of TYLEE COMPANY at December 31 is:

a. P 61,480 b. P 53,980 c. P 50,280 d. P 46,480

2. The adjusted cash disbursements of TYLEE COMPANY at December 31 is:

a. P 63,980 b. P 61,980 c. P 57,820 d. P 54,780

3. In a proof of cash, the NSF check:

a. Should be added in the December 31 column since this was returned back by the bank.
b. Should be deducted in the December 31 column since this was returned back by the bank.
a. Should be deducted in the December 31 column since this was returned back and not paid by the bank,
thus not considered as receipts.
b. Should be added in the December 31 column since this was returned back and not paid by the bank,
thus not considered as receipts.

4. The adjusted December 31 cash balance of TYLEE COMPANY is:

a. P 29,760 b. P 29,260 c. P 27,260 d. P 25,600

5. The adjusted November 31 cash balance of TYLEE COMPANY is:

a. P 29,160 b. P 27,260 c. P 26,160 d. P 25,600

6. The check issued but was incorrectly recorded as P8,960 should be adjusted by:
a. Accounts payable 2,000 c. Cash 2,000
Cash 2,000 Accounts payable 2,000
b. Equipment 2,000 d. Cash 2,000
Cash 2,000 Equipment 2,000
PROBLEM 12: PROOF OF CASH
In connection with the general examination of the accounts of KYOSHI Company at December 31, 2023, you
obtained the information and data as shown below relative to your verification of Cash.

The record kept by the accountant showed the following:

a. Balances at the end of the month:

December 1, 2023 December 31, 2023

Per Bank Statement P 54,000 P101,100
Per Books 50,400 70,215
Undeposited collections 3,300 7,200
Outstanding checks 6,900 * 12,000 *

* Composed of the following #6515 510 #6552 P 1,800

6517 2,250 6553 5,700
6518 2,400 6554 2,550
6519 1,740 6555 1,950

b. Totals for the month of December, 2023:

Cash Book:
Receipts P 425,550
Disbursement 405,735
Bank Statement
Receipts P 444,225
Disbursement 397,125

After application of the necessary auditing procedures, the following were noted:
a. Footing of disbursement should be P 404,235, instead of P 405,735.
b. Bank service charge of P15 for December has not been booked.
c. Cancelled checks (returned together with the December bank statement) include the following which
were charged in the statement:
1. Check #6530 dated December 15, 2023 for P2,400 - this was issued as replacement of check #
6518 which was returned by the payee because of certain erasures. No entry has been made to
record the cancellation of check #6518.
2. Check #6517 for P225 - this was erroneously recorded on the books as P2,250.
3. Check of Neil Trading for P900 - this was charged by bank in error.
d. Proceeds from sale of stocks amounting to P23,250 (cost is P18,000) transmitted directly by the broker to
the bank and credited on December 31, 2023. No entry has been made on the books to record this sale of stock
investment.
e. The company failed to record disbursement for payment of accounts payable at December 31, 2023 for
P1,500.

1. The adjusted cash receipts per ledger of KYOSHI COMPANY at December 31, 2023 is:
a. P 448,800 b. P 448,125 c. P 444,225 d. P 425,550

2. The adjusted cash disbursement per bank of KYOSHI COMPANY at December 31, 2023 is:
a. P 401,325 b. P 402,000 c. P 405,735 d. P 406,125

3. The adjusted cash ledger balance of KYOSHI COMPANY at December 31, 2023 is:
a. P 91,350 b. P 95,400 c. P 97,200 d. P 97,500

4. The adjusted cash in bank balance of KYOSHI COMPANY at December 31, 2023 is:
a. P 91,350 b. P 95,400 c. P 97,200 d. P 97,500

5. The cash shortage of KYOSHI COMPANY at December 31, 2023 is:

a. P 765 b. P 675 c. P 575 d. P 390

PROBLEM 32: Petty Cash Fund

Present journal entries to record the following transactions in the books of SUKI Corporation, which uses a calendar
year as accounting period. Assume that the company is using the imprest method in accounting for petty cash
fund:

A petty cash fund was set up on November 1, 2023 in the amount of P2,400.

On November 29, 2023, a check was issued to replenish the fund, the composition of which was as follows:
Currency – bills and coins 166
Vouchers showing expenditures for:
 Office supplies 270
Charges from purchased of supplies 124
Repairs and maintenance 350
Wages paid to casual employees 950
Charges from purchased of goods to be sold 400

On December 18, 2023, the fund was replenished and correspondingly increased to P3,000; its composition
included the following:
Currency – bills and coins 158
Vouchers showing expenditures for:
Store supplies 304
Accounts payable 914
Charges from purchased of goods to be sold 242
Miscellaneous expenses 782

An examination on December 31, 2023, disclosed the following composition of the fund, although it was not
replenished on this date:
Currency – bills and coins 958
Check of office manager, dated January 5, 2024 1,000
Vouchers showing expenditures for:
Office supplies 126
Miscellaneous expenses 90
Accounts payable 800

On January 5, 2024, the check of office manager was cashed and the proceeds were added to the petty cash
fund.

On January 6, 2024, replenished disbursement from December 18, 2023 to January 5, 2024.

1. The entry to record the November 29 replenishment of petty cash fund is:
a. Operating expenses 1,694
Freight-in 400
Cash short/over 140
Cash 2,234
b. Operating expenses 2,234
Petty cash fun d 2,234
c. Operating expenses 1,694
Freight-in 400
Cash short/(over) 140
Petty cash fund 2,234
d. No entry since the company is using an impress fund system.

2. The adjusted Petty Cash Fund balance of SUKI CORPORATION at December 31, 2023 is:
a. P 3,000 b. P 1,958 c. P 984 d. P 958

3. The entry to record the December 31, 2023 adjustment of petty cash fund is:
a. Operating expenses 216
Accounts payable 800
Cash short/over 26
Petty cash fund 1,042
b. Operating expenses 216
Accounts payable 800
Cash short/over 26
Cash 1,042
c. Operating expenses 216
Accounts payable 800
Advances – employees 1,000
Cash short/(over) 26
Petty cash fund 2,042
d. No entry since there is no replenishment yet.

4. The entry to record the January 6, 2024 replenishment of petty cash fund is:
a. Operating expenses 216
Accounts payable 800
Cash short/over 26
Petty cash fund 1,042
b. Operating expenses 216
Accounts payable 800
Cash short/over 26
Cash 1,042
c. Operating expenses 216
Accounts payable 800
Advances – employees 1,000
Cash short/(over) 26
Cash 2,042
d. No entry since the account has been adjusted on December 31.

END