AUDITING PROBLEMS

AUDIT OF CASH
Prof. Francis O. Mateos, CPA

1.
PROBLEM 1
You noted the following composition of Peso Company’s “cash account” as of December 31, 2021 in connection with
your audit: Demand deposit account, P1,000,000; Time deposit - 30 days, P500,000; NSF check from customer,
P20,000; Money market placement (due June 30, 2022), P750,000; Savings deposit in a closed bank, P50,000; IOU
from employee, P10,000; Pension fund, P1,500,000; Petty cash fund, P5,000; Customer’s check dated January 1,
2022, P25,000; Customer’s check outstanding for 18 months, P20,000.

Additional information follows:

 The company uses the calendar year. The cash receipts journal was held open until January 15, 2022, during
which time, P200,000 was collected and recorded on December 31, 2021.
 Check of P50,000 dated January 15, 2022 in payment of accounts payable was recorded and mailed on
December 31, 2021.
 Check of P100,000 in payment of accounts payable was recorded on December 31, 2021 but mailed to
suppliers on January 5, 2022.

REQUIREMENTS: Determine the following balances based on the above.

1. Cash
2. Cash equivalents
3. Cash and Cash Equivalents.

PROBLEM 2
You gathered the following items in connection with your audit of Yuan Company for the year ended December 31,
2021:

 Treasury bills, due 1/31/22 (purchased 2/1/21), P150,000.

 Treasury bills, due 3/30/22 (purchased 12/30/21), P100,000.
 Petty cash fund (P2,000 in currency and expense receipts for P3,000), P5,000.
 Money order, P15,000.
 NSF check, P7,500.
 Credit memo from a vendor for a purchase return, P10,000.
 IOU from president’s sister, P5,000.
 Post-dated check received from employee, P2,000.
 Postage stamps, P500.
 Restricted foreign bank account (in equivalent pesos), P500,000.
 Payroll account, P250,000.
 BPI current account – overdraft, P50,000.
 Metrobank current account, P1,000,000.

REQUIREMENTS: Determine the following balances based on the above.

1. Cash
2. Cash equivalents
3. Cash and Cash Equivalents.

PROBLEM 3
You were able to gather the following from the December 31, 2021 trial balance of Yen Corporation in connection with
your audit of the company: BDO time deposit, P250,000; BDO savings account, P600,000; Union Bank current
account no. 1, P540,000; Union Bank current account no. 2 – overdraft, P40,000; UCPB current account, P500,000;
Petty cash fund, P5,000; Cash on hand, P250,000. Cash on hand includes the following items:
 Postal money orders received from customers, P15,000.
 Customer’s check for P10,000 dated January 2, 2022, received on December 29, 2021.
 Customer’s check for P20,000 returned by bank on December 26, 2021 due to insufficient fund but
subsequently redeposited and cleared by the bank on January 8, 2022.

The petty cash fund consisted of the following items as of December 31, 2021: Currency and coins, P1,000;
Employees’ vales, P800; Currency in an enveloped marked “collections for charity” with names attached, P600;
Unreplenished petty cash vouchers, P650; Check drawn by Yen Corporation, payable to the petty cashier, P2,000.

Included among the checks drawn by Yen Corporation against the UCPB current account and recorded in December
2021 are the following:
 Check written on December 27, 2021, dated January 2, 2022, delivered to payee on December 29, 2021,
P20,000.
 Check written and dated December 29, 2021 and delivered to payee on January 2, 2022, P40,000.

The credit balance in the Union Bank current account no. 2 represents checks drawn in excess of the deposit balance.
These checks were still outstanding at December 31, 2021. The savings account deposit in BDO 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
after the end of the reporting period.

AUDITING REVIEW 1
REQUIREMENTS: Determine the following adjusted balances based on the above.
1.
2. Cash on hand
3. Petty cash fund
4. UCPB current account
5. Cash and cash equivalents

PROBLEM 4
The books of Riyal Corporation disclosed a cash balance of P687,570 on December 31, 2021. The bank statement as
of December 31 showed a balance of P547,800. Additional information that might be useful in reconciling the two
balances follows:
 A bank memo stated that a customer’s note for P45,000 and interest of P1,650 had been collected on
December 27, and the bank charged a P360 collection fee.
 Receipts of December 31 for P134,250 were recorded by the bank on January 2.
 Riyal properly deposited P6,000 on December 3 that was not recorded by the bank.
 Riyal’s account had been charged on December 26 for a customer’s NSF check for P12,960.
 There were bank service charges for December of P2,100 not yet recorded on the books.
 Outstanding checks totaled P98,850 as of December 31.
 The deposit of December 24 was recorded on the books as P28,950, but it was actually a deposit of P27,000.
 A customer’s note dated September 25 was discounted on October 12. The note was dishonored on December
29 (maturity date). The bank charged Riyal’s account for P142,650, including a protest fee of P2,650.
 Check no 750 for P30,000 was originally recorded on the books as P45,000.

REQUIREMENTS: Determine the following balances based on the above.

1. Adjusted cash in bank.
2. Net adjustment to cash as of December 31, 2021.

PROBLEM 5
Shown below is the bank reconciliation of Riyal Company for November 2021:

Balance per bank, Nov. 30, 2021 P 75,000

Add: Deposit in transit 12,000
Total 87,000
Less: Outstanding checks P 14,000
Bank credit recorded in error 5,000 19,000
Cash balance per books, Nov. 30, 2021 P 68,000

The bank statement for December 2021 contains the following data: Total deposits, P55,000; Total charges, including
an NSF check of P4,000 and a service charge of P200, P48,000. All outstanding checks on November 30, 2021,
including the bank credit were cleared in the bank in December 2021. There were outstanding checks of P15,000 and
deposits in transit of P38,000 on December 31, 2021.

REQUIREMENTS: Determine the following balances based on the above.

1. Cash balance per bank on December 31, 2021.
2. Cash receipts per books in December.
3. Cash disbursements per books in December.
4. Cash balance per books on December 31, 2021.
5. Adjusted cash in bank balance as of December 31, 2021.

PROBLEM 6
You obtained the following information on the current account of Quezon Company during your examination of its
financial statements for the year ended December 31, 2021. The bank statement on November 30, 2021 showed a
balance of P153,000. Among the bank credits in November was customer’s note for P50,000 collected for the account
of the company which the company recognized in December among its receipts. Included in the bank debits were cost
of checkbooks amounting to P600 and a P20,000 check which was charged by the bank in error against Quezon
Company account. Also in November you ascertained that there were deposit in transit amounting to P40,000 and
outstanding checks totalling P85,000. The bank statement for the month of December showed total credits of
P208,000 and total charges of P102,000. The company’s books for December showed total debits of P367,800, total
credits of P203,600 and a balance of P242,800. Bank debit memos for December were: No. 211 for service charges,
P800 and no. 222 on a customer’s returned check marked “NSF” for P12,000.

On December 31, 2021 the company placed with the bank a customer’s promissory note with a face value of P60,000
for collection. The company treated this note as part of its receipts although the bank was able to collect on the note
in January 2022. A check for P1,980 was recorded in the company cash payments books in December as P19,800.

REQUIREMENTS: Determine the following balances based on the above.

1. Undeposited collections as of December 31, 2021.
2. Outstanding checks as of December 31, 2021.
3. Adjusted cash balance as of November 30, 2021.
4. Adjusted bank receipts for December.
5. Adjusted book disbursements for December.
6. Adjusted cash balance as of December 31, 2021.

PROBLEM 7

AUDITING REVIEW 2
The Laguna Company was organized on January 10, 2021 and started operation soon thereafter. The company cashier
who acted also as the bookkeeper had kept the accounting records very haphazardly. The manager suspects him of
defalcation and engaged you to audit his account to find out the extent of the fraud, if there is any. On November 13,
when you started the examination of the accounts, you find the cash on hand to be P12,850. From the inquiry at the
bank, it was ascertained that the balance of the Company’s bank deposit in current account on the same date was
P65,820. Verification revealed that the check issued for P4,630 is not yet paid by the bank. The company sells at 40%
above cost.

Your examination of the available records disclosed the following information: Expenses paid excluding purchases,
P151,890; Inventory of merchandise on November 13, 2021 at cost, P234,800; Total amount still due from
customers, P213,450; Total sales, P807,520; Total amount owed to creditors on open account, P115,710;
Outstanding notes due to bank, P80,000; Furniture and fixtures (gross) bought on which there is still balance unpaid
of P15,000, P72,500; Mortgage liability secured by real state, P200,000; Real state purchased and paid in full,
P500,000; Share Capital issued at par for cash, P800,000.

REQUIREMENTS: Determine the following balances based on the above.

1. Collections from sales
2. Payments for purchases
3. Total cash receipts
4. Total cash disbursements
5. Unadjusted cash balance
6. Cash shortage

***END OF DISCUSSION***
***If you get TIRED, learn to REST, not to QUIT***

AUDITING REVIEW 3