POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

College of Accountancy and Finance

Sta. Mesa, Manila
ACCO 30123: Integrated Review Course in Applied Auditing

AA-01: CASH & CASH EQUIVALENTS

CASE 1: In connection with your audit of the company, you were able to gather the following from the December
31 current year trial balance of ROGER Company:

Cash on hand P372,000

Petty cash fund 10,000
BPI current account 950,000
Security Bank current account no. 01 1,280,000
Security Bank current account no. 02 (40,000)
PNB savings deposit 500,000
PNB time deposit 300,000

Cash on hand includes the following items:

a. Customer’s check for P60,000 returned by bank on December 26 due to insufficient fund but subsequently
redeposited and cleared by the bank on January 08.
b. Customer’s check for P30,000 dated January 02, received on December 29.
c. Postal money orders received from customers, P36,000.

The petty cash fund consisted of the following items as of December 31:

Bills and coins P2,100

Employee’s vales 1,600
Currency in an envelope marked “birthday party” with names attached 1,200
Unreplenished petty cash vouchers 800
Check drawn by ROGER Company 4,600

Included among the checks drawn by ROGER Company against the BPI current account and recorded in December
are the following:
a. Check written and dated December 29 and delivered to payee on January 02, P50,000.
b. Check written on December 27, dated January 02, delivered to payee on December 29, P86,000.

The credit balance in the Security Bank current account no. 02 represents checks drawn in excess of the deposit
balance. These checks were still outstanding at December 31.

The savings account deposit in PNB has been set aside by the Board of Directors for acquisition of new equipment.
This account is expected to be disbursed in the next 3 months from the end of the reporting period.

REQUIRED:
1. Cash on hand –
2. Petty cash fund –
3. BPI current account –
4. Cash and cash equivalents –

CASE 2: In connection with the audit of the financial statements of LUFFY Company for the current year, you
performed a surprise count of the petty cash fund and undeposited collections under the custody of NAMI at
8:15AM on January 02. Your count disclosed the following:

Bills and Coins:

Bills Coins
P100 10 pieces P1.00 410 pieces
50 80 pieces 0.50 324 pieces
20 70 pieces 0.25 64 pieces
10 54 pieces

Unused postage stamps – P730

Checks:
Page 1 of 4
 Date Payee Drawer Amount
Dec. 30 Cash NAMI P2,400
Dec. 30 LUFFY Company USOPP 28,000
Dec. 31 LUFFY Company SANJI, sales manager 3,360
Dec. 31 LUFFY Company FRANKIE 35,600
Dec. 31 LUFFY Company CHOPPER 16,600
Dec. 31 ROBIN Company (not endorsed) LUFFY Company 54,000

Expense vouchers:
Date Payee Description Amount
Dec. 23 SANJI, sales manager Cash advance for trip to FISH-MAN ISLAND P14,000
Dec. 27 Central Post Office Postage stamps 3,240
Dec. 29 Messengers Transportation 300
Dec. 29 PC Express Computer repair 1,600

Other items found inside the cash box:

a. Two pay envelopes which had been opened and the contents aggregating P15,000 representing unclaimed
salaries had been removed.
b. The sales manager’s liquidation report for his FISH-MAN ISLAND trip:

Cash advance received on Dec. 23 P14,000

Less: Hotel accommodation P9,000
Bus fare for two 800
Cash given to ZORO, salesman 600 10,400
Balance P3,600

Accounted for as follows:

Cash returned by ZORO to SANJI P240
Personal check of SANJI 3,360
Total P3,600

Additional information:
a. The custodian is not authorized to cash checks.
b. The last official receipt included in the deposit on Dec. 30 is No. 351 and the last official receipt issued for the
current year is No. 355. The following official receipts are all dated Dec. 31.

O.R. No. Amount Form of Payment

352 P27,200 Cash
353 35,600 Check
354 7,200 Cash
355 16,600 Check

c. The petty cash balance per general ledger is P20,000. The last replenishment of the fund was made on Dec. 22.

REQUIRED:
1. Computation of shortage or overage, if any.
2. Adjusting entries as of December 31.

CASE 3:
You were able to obtain the following information during your audit of JOYBOY Company:

Reconciling items:
Nov. 30 Dec. 31
Undeposited collections P200,000 P120,000
Outstanding checks 80,000 60,000
Customer’s notes collected by bank 100,000 120,000
Bank service charges 2,000 3,000
Erroneous bank debits 10,000 20,000
Erroneous bank credits 40,000 30,000
NSF checks not redeposited 5,000 7,000
Customer’s check deposited Dec. 10, returned by bank on Dec. 16 marked “NSF”, and 10,000
redeposited immediately; no entry made on books for return or redeposit

AA-01: Cash & Cash Equivalents Page 2 of 4

Unadjusted balances:
Nov. 30 Dec. 31
Books ?? 90,000
Bank 230,000 ??

December transactions:
Bank Books
Receipts P420,000 P270,000
Disbursements 500,000 407,000

REQUIRED:
1. Prepare a 4-column bank reconciliation for the month of December, using the form that reconcile both the book
and bank balances to a correct cash amount.
2. Adjusting entries as of December 31.

CASE 4: Audit procedures related to the audit of cash and cash equivalents:
1. Which of the following balance-related audit objective typically is assessed as having high inherent risk for
cash?
a. Cut-off
b. Detail tie-in
c. Existence
d. Presentation and disclosure

2. The general cash account is considered a significant account in almost all audits:
a. Even when the ending balance is immaterial.
b. Except those of not-for-profit organizations.
c. Where either the beginning or ending balance is material.
d. Where the ending balance is material.

3. Who is always responsible for the petty cash fund?

a. General cashier
b. Petty cash custodian
c. President of the company
d. Those charged with governance

4. What is the effect of not replenishing the petty cash fund at year-end and not making the appropriate adjusting
entry?
a. A detailed audit is necessary.
b. Cash will be overstated, and expense understated.
c. Expenses will be overstated, and cash will be understated.
d. The petty cash custodian should turn over the petty cash to the general ledger.

5. An imprest petty cash fund would least likely be sued to pay for which of the following items?
a. Minor office expenses
b. Monthly interest payment
c. Postage stamps for mailings
d. Small contributions to a birthday event

6. The starting point for the verification of the balance in the general bank account is to obtain:
a. A bank reconciliation from the client.
b. A cutoff bank statement directly from the bank.
c. The client’s cash account from the general ledger.
d. The client’s year-end bank statement.

7. Which of the following substantive audit procedures is most likely to be performed by the auditor to gather
evidence in support of the balance per bank?
a. Compare to general ledger.
b. Confirm directly with bank.
c. Trace items on the cutoff bank statement to bank reconciliation.
d. Trace to cash receipts journal.

8. Which of the following substantive audit procedures is least likely to be performed by the auditor to gather
evidence in support of the deposits in transit?
AA-01: Cash & Cash Equivalents Page 3 of 4
 a. Inspect bank credit memo.
b. Inspect supporting documents for reconciling item not appearing on cutoff bank statement.
c. Trace items on the bank reconciliation to cutoff bank statement.
d. Trace to cash receipts journal.

9. Which of the following substantive audit procedures is least likely to be performed by the auditor to gather
evidence in support of the outstanding checks?
a. Ascertain reason for unusual delay.
b. Confirm directly with bank.
c. Trace items on the bank reconciliation to cutoff bank statement.
d. Trace to cash disbursements journal.

10. A partial-period bank statement and the related canceled checks, duplicate deposit slips, and other documents
included in bank statements, mailed by the bank directly to the CPA firm's office, is called:
a. A cutoff bank statement.
b. A four-column proof of cash.
c. A short-period bank statement.
d. A year-end bank statement.

11. An auditor who is engaged to examine the financial statements of a business enterprise will request cutoff bank
statement primarily in order to:
a. Detect kiting.
b. Detect lapping.
c. Verify reconciling items on the client’s bank reconciliation.
d. Verify the cash balance reported on the bank confirmation inquiry form.

12. The primary purpose of sending a standard confirmation request to financial institutions with which the client
has done business during the year is to:
a. Corroborate information regarding deposit and loan balances.
b. Detect kiting activities that may otherwise not be discovered.
c. Provide the data necessary to prepare a proof of cash.
d. Request information about contingent liabilities and secured transactions.

13. The auditor should ordinarily mail confirmation requests to all banks with which the client has conducted any
business during the year, regardless of the year-end balance, since:
a. The confirmation form also seeks information about indebtedness to the bank.
b. The mailing of confirmation forms to all such banks is required by GAAS.
c. This procedure relieves the auditor of any responsibility with respect to non-detection of forged checks.
d. This procedure will detect kiting activities which otherwise not be detected.

14. Auditors are likely to prepare a proof of cash when the client has:
a. Material control weaknesses in accounts payable and inventory.
b. Material control weaknesses in accounts receivable and revenue.
c. Material control weaknesses in cash receipts and cash disbursements.
d. Material control weaknesses in payroll.

15. A proof of cash represents:

a. A substantive test of transactions and test of details of balances.
b. A substantive test of transactions.
c. A test of controls and substantive test of transactions.
d. A test of details of balances.

End
“You don’t have to be great to start, but you have to start to be great.” – Zig Ziglar

AA-01: Cash & Cash Equivalents Page 4 of 4