ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 45  May 2023 CPA Licensure Examination

FINANCIAL ACCOUNTING & REPORTING / AUDITING PRACTICE

CASH & CA
Composition of Cash:
a. Undeposited currency and coins
b. Demand deposits deposited in checking and savings account that can be withdrawn anytime, without
advance notice
c. Undeposited negotiable checks payable to the company or bearer awaiting deposit
d. Foreign currencies converted to Philippine peso at the exchange rate as at reporting date
e. Bank drafts are commitments by banking institutions to advance funds on demand by the party
to whom the draft was directed
f. Money orders are similar to bank drafts but are drawn generally from authorized post offices or other financial
institutions.
g. Other short-term funds for current operations like:
Petty Cash Fund (Coins, bills, replenishment checks and employees’ checks)
Dividend Fund
Change Fund
Tax Fund
Interest Fund
Payroll Fund
Fund for the Acquisition of Current Assets
Cash Equivalents

Cash equivalents are short-term highly liquid investments that are readily convertible into cash and so near their
maturity that they present insignificant risk of changes in value due to changes in interest rates. Only highly liquid
investments that are acquired three months, or less than three months, before maturity can qualify as cash
equivalents such as the following:
a. Three-month commercial paper or money market instrument
b. Three-month time deposit
c. Three-month treasury bills
Valuation of Cash in the Statement of Financial Position
a. Generally valued at face amount
b. Cash in foreign currency is valued in Philippine peso using the current exchange rate as of the reporting
date
Cash in Closed Banks or in Banks having Financial Difficulty
Cash in bank or in financial institutions having financial difficulty or in bankruptcy should be shown at its
estimated realizable or recoverable value and is presented as Receivables.
Financial Statement Presentation
Cash and Cash Equivalents are the first item shown among the current assets, the details of which are presented
in the notes to financial statements.
Compensating Balance
The minimum amount to be maintained in a bank account to act as collateral for the payment of a depositor’s
loan. Its presentation in the financial statements is dependent on whether the balance is legally restricted or
unrestricted:
1.

Equivalents”. The account title, Cash Held as

 2.

1. Cash equivalents are

2. A compensating balance

Page 1 of 10 0915-2303213  www.resacpareview.com

NTANCY

S. IRENEO  G. MACARIOLA  C. ESPENILLA  J. BINALUYO

CASH & CASH EQUIVALENTS

thdrawn anytime, without

deposit
reporting date
demand by the party

rized post offices or other financial

vertible into cash and so near their

es in interest rates. Only highly liquid
e maturity can qualify as cash

hange rate as of the reporting

ptcy should be shown at its

bles.

, the details of which are presented

for the payment of a depositor’s

balance is legally restricted or

Legally restricted compensating balance if held as collateral for:

a. Short-term borrowing--Shown separately under current assets but not part of “Cash and Cash
Equivalents”. The account title, Cash Held as Compensating Balance, may be used.
b. Long-term borrowings—Shown separately as non-current asset either as Long-term Investments or
Other Assets
Unrestricted – Should presented as part of Cash

a.

b.

c.
d.

a.
b.
c.
d.
 FARAP-4501
 J. BINALUYO

UIVALENTS

ld as collateral for:
under current assets but not part of “Cash and Cash
ng Balance, may be used.
as non-current asset either as Long-term Investments or
ash
FINANCIAL ACCOUNTING & REPORTING - THEORIES

Short-term and highly liquid investments that are readily convertible into cash.
Short-term and highly liquid investments that are readily convertible into cash with remaining
maturity of three-months.
Short-term and highly liquid investments that are readily convertible into cash and acquired three
months or less before maturity.
Short-term and highly liquid marketable equity securities.

Must be included in “cash and cash equivalents”.

Which is legally restricted and related to a long-term loan is classified as current asset.
Which is legally restricted and related to a short-term loan is classified separately as current asset.
Which is not legally restricted as to withdrawal is classified separately as current asset.
ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
CASH & CASH EQUIVALENTS
3. Which of the following is usually considered cash?
a.
b.
4. Petty cash fund is
a.

b.
c.
d.
5. The petty cash fund account under the Imprest fund system
a.
b.
c.
d.
6. Which of the following statements is not true (false)?

a.

b.
c.
d.
7. A cash short and over account is
a.
b.
c.
d.
8. What is the major purpose of an Imprest petty cash fund?
a.
b.
c.
d.
If the cash balance shown in the company’s cash records is
9. the company nor the bank has made any errors, there mus
a.
b.
c.
d.
10. A bank reconciliation is
a.
b.
c.

d.
11. Which of the following items must be added to the cash balance per ledger in preparing a bank reconciliation
which ends with adjusted cash balance?
 a.
b.
c.
d.
12. Bank reconciliation are normally prepared on a monthly basis to identify adjustments needed in the depositor’s
records and to identify bank errors. Adjustments on the par
a.
b.
c.
d.
13. Following are reconciling items in an enterprise’s bank reconciliation statement.
I. Deposits in transit
II. Company’s check for P32,500 recorded in the books for
III. Note collected by bank in behalf of the company
IV. Deposit of another company erroneously credited by ba
V. No sufficient fund check charged back by bank
VI. Company deposit for P32,500 recorded in the books for
Which of these adjustments would be shown as addition to
the correct cash balance?
a.
b.
c.
d.

Page 2 of 10
 FARAP-4501

Certificate of deposit. c. Money market saving certificate.

Checking account. d. Customer’s postdate check.

Separately classified as current asset.

Money kept on hand for making minor disbursements of coin and currency rather than by writing
checks.
Set aside for the payment of payroll.
Restricted cash.
etty cash fund account under the Imprest fund system is debited
Only when the fund is created.
When the fund is created and every time it is replenished.
When the fund is created and when the size of the fund is increased.
When the fund is created and when the fund is decreased.
of the following statements is not true (false)?
Adjustment of the petty cash account is made at the end of the period to avoid understatement of
expenses and overstatement of cash.
Entries are made to the petty cash account to increase or decrease the size of the fund or to adjust
the balance if not replenished at year-end.
The Imprest petty cash system in effect adheres to the rule of disbursements by check.
The petty cash account is debited when the fund is replenished.
h short and over account is
A contra account to cash.
Debited when the petty cash fund proves out over.
Debited when the petty cash fund proves out short.
Not generally accepted.
is the major purpose of an Imprest petty cash fund?
To effectively plan cash inflows and outflows.
To ease the payment of cash to vendors.
To determine the honesty of the petty cashier.
To effectively control cash disbursements.
cash balance shown in the company’s cash records is less than the correct cash balance and neither
mpany nor the bank has made any errors, there must be
Outstanding checks.
A no-sufficient fund check returned by the bank.
Bank charges not yet recorded by the depositor.
An interest credited by the bank in the depositor’s account.

A formal financial statement that lists all of the bank account balances of an entity.
A merger of two banks that previously were competitors.
A statement sent by the bank to depositor on a monthly basis.
A schedule that accounts for the difference between an entity’s cash balance as shown in the bank
statement and the cash balance as shown in the general ledger.
per ledger in preparing a bank reconciliation
ends with adjusted cash balance?
 Note receivable collected by bank in favor of the depositor and credited to the account of the
depositor.
NSF customer check.
Service charge.
Erroneous bank debit.
dentify adjustments needed in the depositor’s
ds and to identify bank errors. Adjustments on the part of the depositor should be recorded for
All items except bank errors, outstanding checks and deposits in transit.
Bank errors, outstanding checks and deposits in transit.
Book errors, bank errors, deposits in transit and outstanding checks.
Outstanding checks and deposits in transit.
ion statement.
osits in transit
mpany’s check for P32,500 recorded in the books for P23,500
ote collected by bank in behalf of the company
eposit of another company erroneously credited by bank to the company’s account
sufficient fund check charged back by bank
ompany deposit for P32,500 recorded in the books for P23,500
of these adjustments would be shown as addition to the cash balance per books in order to arrive at
rrect cash balance?
II, III, and VI
II and III
II, V and VI
III and VI

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FARAP-4501

ting

nt of

adjust

bank
ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
CASH & CASH EQUIVALENTS
14. Bank statements provide information about all of the following, except
a.
b.
c.
d.
15. In preparing a bank reconciliation, interest paid by the bank on the depositor’s account is
a.
b.
c.
d.
FINANCIAL ACCOUNTING & RE
Problem 1: On December 31, 2021, the Cash and Cash Equivalents account of Partridge Company shows the
following composition:

*Cash in Savings deposit includes P10,000 of compensating balances. It was noted that 40% of that amount
are legally restricted as to withdrawal.
How much is the amount of Cash and Cash Equivalents to be presented in the Statement of Financial Position on
December 31, 2021?
a. 218,000
Problem 2: Turtledoves Corporation's checkbook balance on December 31, 2021, was P8,000. In addition,
Turtledoves held the following items in its safe on December 31:
a.

b.

c.

d.

e.
The proper amount to be shown as Cash in the SFP on December 31, 2021 is
a. 6,400
Problem 3: The December 31, 2020 trial balance of French Company included the following accounts:

● The Cash on hand included a customer postdated check of P200,000 and a postal money order of
P80,000
● The Petty cash fund included an unreplenished petty cash vouchers for P4,000 and an employee check
for P6,000 dated January 6, 2021.
● A check for P400,000 was drawn against Metro bank account, dated January 31, 2021, delivered to
the payee and recorded December 31, 2020.
● The Landbank time deposit is set aside for the acquisition of Land to be used as a factory site.
What is the total amount of Cash and Cash Equivalents that should be reported in the Statement of Financial
Position on December 31, 2020?
a. 3,930,000
Page 3 of 10
 of the following, except
Bank changes for the period.
Errors made by the company.
Checks cleared during the period.
No sufficient fund checks.
d by the bank on the depositor’s account is
Added to the bank balance.
Added to the book balance.
Subtracted from the bank balance.
Subtracted from the book balance.
FINANCIAL ACCOUNTING & REPORTING - PROBLEMS
Cash Equivalents account of Partridge Company shows the

Petty Cash Fund

Traveler’s check
Cash in Savings deposit*
Manager’s check
Postage stamps
IOUs from the officers
Bank draft in a checking account with Allied Bank
Postal Money order
Deposits segregated to pay dividends
Securities:
BSP T. Bills (1yr.)
BSP T. Bills (6mos.)
MM Funds (9mos.)
pensating balances. It was noted that 40% of that amount

ents to be presented in the Statement of Financial Position on

b. 238,000
balance on December 31, 2021, was P8,000. In addition,
December 31:
Check payable to Turtledoves Corporation, dated January 2, 2022, not included in
December 31 checkbook balance
Check payable to Turtledoves Corporation, deposited December 20, and included in
December 31 checkbook balance, but returned by bank on December 30, stamped
"NSF." The check was redeposited on January 2, 2022, and cleared on January 7, 2022.
Check payable to Turtledoves Corporation, undeposited, dated May 1, 2021, included
in December 31 checkbook balance
Check
Check drawn on Turtledoves Corporation's account, payable to a vendor, dated and
recorded on2022,
January 3, December 31, 2021and
was delivered butrecorded
not mailed
onuntil January
December 15,
30, 2022.
2021.anuary 3, 2022, was
delivered and recorded on December 30, 2021.anuary 3, 2022, was delivered and recorded on
December 30, 2021.anuary 3, 2022, was delivered and recorded on December 30, 2021.
P on December 31, 2021 is
 b. 9,350
of French Company included the following accounts:
Cash on hand
Petty cash fund
Cash in bank at Metrobank
Cash in bank at Landbank – 60-day time deposit
BSP treasury bills - 30 days
check of P200,000 and a postal money order of

etty cash vouchers for P4,000 and an employee check

ank account, dated January 31, 2021, delivered to

quisition of Land to be used as a factory site.

ents that should be reported in the Statement of Financial

b. 9,530,000
 FARAP-4501

Turtledov
es
Corporati
on on's
January account,
3, payable
2022, to a
LEMS was supplier,
delivere dated
d and January
recorde 3, 2022,
5.000
d on was
10.000 Decemb delivered
104.000 er 30, and
23.000 2021.a recorded
nuary on
1.000 3, December
3.000 2022, 30,
70.000 was 2021.anu
delivere ary 3,
20.000
d and 2022,
100.000 recorde was
Date Acquired Maturity Date Amount d on delivered
1/30/21 01/30/22 Decemb
40.000 and
11/01/21 04/01/22 er 30, recorded
30.000
2021.a on
12/01/21 02/28/22 50.000
nuary December
3, 30,
2022, 2021.anu
was ary 3,
delivere 2022,
d and was
c. 328,000
recorde delivered
d on and
Decemb recorded
er 30, on
2.000 2021.a December
nuary 30,
3, 2021.anu
2022, ary 3,
500 was 2022,
delivere was
drawn 950 d and delivered
January 3, 2022, was delivered and recorded on December 30, recorde and
2021.anuary 3, 2022, was delivered and recorded on December d on recorded
30, 2021.anuary 3, 2022, was delivered and recorded on 1.000 Decemb on
December 30, 2021.anuary 3, 2022, was delivered and er 30, December
recorded on December 30, 2021. 2021. 30, 2021. 850
c. 8,400 d. 7,350

P 1,000,000
40.000
2,700,000
4,000,000
6,000,000

c. 9,930,000 d. 13,930,000
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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
CASH & CASH EQUIVALENTS
Problem 4: The Drake Company’s ledger showed a balance of P363,000 in its Cash and Cash Equivalents
E account on December 31, 2021, the breakdown of which is as follows:
Petty Cash Fund*
Payroll Account – BPI
Restricted foreign bank account
Treasury bill, due 3/30/22 (purchased 12/31/21)
Treasury bill, due 1/31/22 (purchased 5/1/21)
Demand deposit – PNB (overdraft)
Cash in Bank – BDO**
Cash set aside for the acquisition of equipment to
be disbursed 4 months after reporting date
Bond Sinking Fund
DAUD/DAIF customer’s check
Cash Surrender Value
* Including expense receipts of 1,000, IOUs of 500 and Employee’s check dated December 30, 2021 of P200.
** Net of undelivered check payable to creditors of P30,000.
How much is the amount of Cash and Cash Equivalents on December 31, 2021?
Problem 5: Gold Company established a petty cash fund of P5,000 on July 1,
a. 253,300
2020. At the end of the month, the
count of cash on hand indicated that P675.40 remained in the fund. A review of the
petty cash vouchers disclosed
the following expenses had been incurred during the month:
Office supplies – P341.60
Representation – P1,000.00
Miscellaneous – P837.60
The above information indicates that there is a
a. shortage
Problem 6:44.00
If a petty cash fund of Gee Company is established in the amount of
P2,500, and contains P2,000 in
cash and P450 in receipts for disbursements when it is replenished,
The journal entry to record replenishment should include credit to the following accounts
a. Petty Cash, 450
A E Problem 7: Mild Company prepares a reconciliation of the bank and books balances on a regular monthly bas
The December 31, 2021 reconciliation shows a balance per bank of P581,050, balance per books of P615,900,
outstanding checks of P84,300, deposits in transit of P120,000, interest earned on the bank balance of P1,250
and service charges of P400.
How much is the correct cash in bank on December 31, 2021?
a. 616,750
A E Problem 8: In preparing its August 31, 2021 bank reconciliation, Ladies Company has the following informatio
Balance per bank statement, August 31, 2021 – P180, 500; Deposit in transit – P32, 500; Return of customer’
check for insufficient funds – P6,000; Outstanding checks – P27,500; Bank service charges – P1,000.
What is the unadjusted cash balance per books at August 31, 2021?
Problem 9: Lords Company keeps all its cash in checking account. An examination
a. 192,500
of the company’s accounting
records and bank statement for the month ended December 31, 2021 revealed the
following information: Cash
balance per bank statement – P846,900; Cash balance per ledger – P852,400.
A deposit of P95,000 placed in bank’s night depository on December 29, 2021 does
not appear on the bank
statement. The bank statement shows that on December 26, 2021, the bank
collected a note for Lords and
credited the proceeds of P93,500 to the company’s account. The proceeds included
P3,500 interest, all of which
Lords
Lords discovered
earned duringthatthe
Check No. accounting
current 032759 written in December
period. 2021
Lords has not forrecorded
yet P18,300the
in
payment
collection.ofChecks
an account had
outstanding
been recorded31,
on December in the
2021company’s records as P13,800. Included with the December
totaled P27,000.
31, 2021 bank statement was
an NSF check for P25,000 that Lords had received from Leaping Company on
December 20, 2021. Lords has not
yet recorded the returned check. The bank statement shows a P1,500 service
charge for December.
The adjustment to the cash balance as of December 31, 2021 is
a. debit to cash of 93,500 b. credit to cash of 31,000 c. debit to cash of 62,500 d. debit to cash of 62,500

Page 4 of 10
 FARAP-4501
0 in its Cash and Cash Equivalents

5.000
60.000
25.000
70.000
40.000
(20.000)
90.000

30.000
45.000
10.000
8.000
ck dated December 30, 2021 of P200.

b. 253,500 c. 233,300 d. 283,500

Postage – P780.00
Transportation – P1,321.40

b. overage of 44.00 c. shortage of 1,394.80 d. overage of 1,394.80

ollowing accounts
b. Petty Cash, 500 c. Cash, 450; Over/Short, 500 d. Cash, 500
oks balances on a regular monthly basis.
1,050, balance per books of P615,900,
earned on the bank balance of P1,250,

b. 616,570 c. 615,100 d. 545,350

s Company has the following information:
ransit – P32, 500; Return of customer’s
ank service charges – P1,000.

b. 185,500 c. 180,000 d. 173,500

62,500 d. debit to cash of 62,500

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 ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP-4501
CASH & CASH EQUIVALENTS
Problem 10: Piper Company had the following bank reconciliation as at October 31, 2021:
Balance per bank, October 31
Add: Deposit in Transit P 80,000
Erroneous bank debit* 15.000
Bank service charge 5.000

Less: Outstanding checks P 70,000

Credit memo 50.000
Balance per book, Oct. 31
* Corrected in November

All reconciling items at October 31, 2021 cleared through the bank in November. Items for November are the
following: Deposits in transit and Outstanding checks were P 40,000 and P60,000, respectively. Proceeds from
bank loan was P 20,000 and a debit memo of P8,000 are not yet recorded on the depositor’s books. Total Bank
receipts was P300,000; Total Bank disbursements was P250,000.
1. In a “four-column proof of cash statement”, what is the amount of Adjusted Cash Receipts in November?
a. 260,000
2. In a “four-column proof of cash statemen

a. 240,000
3. How much is the Adjusted Cash in Bank?
a. 480,000
Problem 11: In reconciling the Cash in Bank of Drummer Company with the bank statement balance for the
M month of November 2021, the following data are summarized:
Book receipts- November
Bank receipts - November
Credit memo for note collection:

Credit memo for November bank loan

Deposit in transit for October
Erroneous bank credit in November corre
Erroneous bank credit in October correcte
Erroneous book credit in November corre
Erroneous book credit in October correcte
Debit memo for service charge - October
Debit memo for service charge – Novemb
Erroneous book debit – November correc
Erroneous bank debit – November correc
Book disbursement – November
Bank disbursement – November
Outstanding check – October
1. In a four-column “Proof of Cash Stateme
November?
a. 800,000
2. In a four-column “Proof Cash Statement”
November?
 a. 500,000
AUDITING PRACTICE
Significant Business Processes: Order to Cash and Purchase to Pay
(Formerly Revenue and Receipt and Purchasing and Disbursement Cycles)
PROBLEM 1: (COMPOSITION, CASH COUNT)
You were assigned to audit the cash and cash equivalents account of your audit client, Luzon Corp. for the
period ended December 31, 2020. As a result of your investigations, you were able to gather the following
from the Corp.’s trial balance:
Petty cash fund
25,000
Cash on hand – undeposited collections 1,250,000
Cash in bank – BPI Current Account No. 2099 3,780,000
Cash in bank – BDO Current Account No. 22013 (160,000)
Cash in bank – UCPB Savings Account No. 02312 3,500,000
Other Items 2,000,000

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P-4501

P420,000

100.000
P520,000

120.000
P400,000

s for November are the

pectively. Proceeds from
ositor’s books. Total Bank

eceipts in November?
b. 275,000 c. 290,000 d. 245,000
column proof of cash statement”, what is the amount of Adjust
November?
b. 225,000 c. 237,000 d. 222,000

b. 450,000 c. 445,000 d. 400,000

tement balance for the

pts- November P800,000

pts - November 900.000
mo for note collection:
October 60.000
November 75.000
mo for November bank loan 100.000
transit for October 120.000
bank credit in November corrected in Decem 25.000
bank credit in October corrected in Novembe 50.000
book credit in November corrected in Decem 5.000
book credit in October corrected in Novembe 10.000
o for service charge - October 6.000
o for service charge – November 8.000
book debit – November corrected in Decemb 20.000
bank debit – November corrected in Decemb 65.000
rsement – November 600.000
rsement – November 700.000
g check – October 80.000
olumn “Proof of Cash Statement”, what is the adjusted amount o

b. 825,000 c. 885,000 d. 900,000

olumn “Proof Cash Statement”, what is the adjusted amou
the month of
 b. 515,000 c. 597,000 d. 600,000
E
and Purchase to Pay
d Disbursement Cycles)

Luzon Corp. for the

gather the following

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP-4501
CASH & CASH EQUIVALENTS
The petty cash fund consisted of the
Audit notes: following items as of December 31, 2020
(count date):
Employees’ vales/IOUs duly
1. Currency
supportedand coins P3,800
by promissory notes
signed by
Currencies/money in an envelope
employees concerned
marked “collections for
Christmas Party” with names
attached
Unreplenished petty cash expense v
Check drawn by Luzon Corp., payable
Unused postage stamps
Personal check of Aljun Li, officer,
2. Cash on hand represents undeposited collection

a.
b.

Included
c. among the checks drawn by Luzon
Corp. against the BPI Current Account No.
d.
2099 and
recorded in the cash disbursement journal in
3. December 2020 are the following:
a.

b.
The credit balance in the BDO Current
Account
The UCPB No. 22013Account
Savings represents
No.checks
02312 drawn
has
c.
in excess of the
the board of directors for
been set by
deposit balance.
acquisition of new These checks were still
4. outstanding
computers. This account is31,
at December 2020. to be
expected
disbursed in the next 3 months from the
5. balance sheet date.
6. Other items included:
a.

b.

c.

d.
Determine the audited balances of the following:
1. Petty cash fund
2. Petty cash shortage/overage
3. Cash on hand – undeposited collections
4. Total cash in banks (excluding undeposited collections) to be included as cash and cash
equivalents in the current asset section of the
5. Total Cash and cash equivalents to be reported in the 2020 balance sheet
PROBLEM 2: (CASH COUNT)
Your petty cash count conducted on January 4, 2021 in the presence of Jon Tan, the custodian of your client,
Visayas Inc. revealed the following:
Coins and currency
Paid vouchers:
12/27 Transportation P 550
12/27 Gasoline 420
12/28 Office Supplies 590
12/29 Postage stamps 300
12/30 Employee IOU (with promissory note) 500
1/2 Office repairs 375
1/3 Representation expense 325
Officer’s check returned by bank marked “NSF”
Check drawn by company to the order of Jon Tan
Unused postage stamps

12.28 Petty cash receipt voucher for the return of

a travel advance. A total travel advance of P1,500
was made in October and fully replenished in
November for P1,500.*
Page 6 of 10 0915-2303213  www.resacpareview.com
RAP-4501
etty cash fund consisted of the
ing items as of December 31, 2020
tyees’
date):
vales/IOUs duly
ncy
rtedand coins P3,800
by promissory notes
dncies/money
by in an envelope
edyees concerned
“collections for 2.500
mas Party” with names
ed 5.200
lenished pettyA customer’s check for3.250
cash expense v
drawn by Luzon Corp.,returned
P125,000 payableby
11.200
bank
on December 28, 2020 due
d postage stamps 900
to insufficient
nal check of Aljun Li, officer, 3.000
fund but subsequently
on hand represents undeposited
redeposited and clearedcollections
by as of December 31, 2020 and includes the following:
A customer check for
the bank on January 2,
P99,000 dated June 1,
2021.
2020 received on the same
Another
date, stillcustomer’s
on hand check fo
and yet to be deposited to
ed among the thechecks
bank. drawn by Luzon
against the BPI Current Account No.
Postal money orders and ban
and
ded in the cash disbursement journal in
mber 2020 are the following:
Check written and dated
Check written
dated Aprilon December
1, 2020 2
December 29, 2020 and
amounting
December to P90,000 still
delivered to payee onP94,00
29, 2020,
outstanding by December
January 2, 2021,
31, 2020 as
P72,000.
redit balanceper theBDO
in the client-prepared
Current
nt No. 22013 December bank-
Account No.checks
represents
CPB Savings reconciliation 02312 drawn
has
statement.
ess by
set of the
the board of directors for
it balance.
sition of new These checks were still
anding
uters. This account is31,
at December 2020. to be
expected
sed in the next 3 months from the
ce sheet date.
November 1, 2021 (This
deposit is not allowed to be
P1.2M time deposit
pre-terminated with
as per BP
the
signed
P200,000
agreementinvestment in
with the bank)
ordinary shares designated
P500,000 money market pla
as FVPL, purchased
P100,000 investment onin
1, 2021, and;
November 15,
redeemable preference
2020,
sharesexpected
purchased to on
be sold
by February 14,
December 1, 2020 with2021.
a mandatory redemption
date on February 28, 2021.

and cash
alents in the current asset section of the
the custodian of your client,

P 2,900

3.060
1.000
3,000
300

500

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCYFARAP-4501
CASH & CASH EQUIVALENTS
The petty cash fund had an imprest balance of P10,000 as reflected in the company’s general ledger.
*The company does not maintain a separate travel fund, instead, the company makes use of the petty cash
fund for travel expenses. After your cash count, you were able to confirm that the P500 cash was subsequently
deposited to the company’s current account.
Requirements:
1. What is the petty cash shortage?
2. What is the correct/adjusted balance of the Petty Cash Fund account as of December 31,
2020?
PROBLEM 3: (CASH COUNT)
A count of the undeposited receipts under the custody of Mr. Gor, the cashier of Macario Corp., on
September 30, 2020 showed the following composition:
Currency and coins
Unused postage and documentary stamps
Employee IOU’s (supported by promissory notes)
Other disbursement vouchers paid from cash receipts
Checks:
Date Payee
3-24-20 Macario Corp.
9-20-20 Macario Corp.
9-27-20 Macario Corp.
9-30-20 MERALCO
10-2-20
Total per count Macario Corp.
**Marked NSF by the bank (replaced by the customer and redeposited on October 5)
Assuming the cashier’s accountability is P33,540 per the client’s records as of September 30:
1. What was the amount of shortage/overage on September 30?
2. What is the adjusted balance of undeposited collections as of September 30?
PROBLEM 4: (BANK RECONCILIATION; PROOF OF CASH)
You obtained the following information pertinent to the current account of Park Corp. during your examination
of its financial statements for the year ended December 31, 2020.
Audit notes:
a. November items:
● The bank statement on November 30, 2020 showed a bal
● Among the bank credits
account of the company which the company recorded in the

● Included in the November bank debits were cost of check

included in the November bank debits was a P240,000 chec
in error against Park Corp.’s account. Bank errors are usual
following month.
● November deposits in transit amounted
P1,050,000, 30,000 of which h
● A P195,000 customer collection in November was recorde
discovered and corrected in the cash receipt journal in Dece
b. December items:
● The bank statement for the month of December showed t
charges of P1,724,000.
 ● The company’s books, on the other hand, showed total D
credits of 2,443,200. The December cash balance per book
● A December credit memo for bank loan proceeds amount
year-end bank credits.
● Bank debit memos for December were: No. 121 for servic
customer’s returned check marked “NSF” for P144,000.
● The total bank credit and the total bank debit for the mon
P23,000 customer check. This check bounced in December
cleared the bank also in December. Examination revealed t
no longer recorded in the books since they will have no effe
● A P95,000 collection check of Perk Corp. was erroneously
company’s account in December.

● On December 31, 2020 the company authorized the bank

note payable to a supplier. The note matures on January 5,
note as part of its disbursements although the bank was ab
date.
● A check for P11,880 was recorded in the company’s cash
as P118,800. This error was discovered by the company in
correction has already been made to the cash account in th

Page 7 of 10
neral ledger.
se of the petty cash
cash was subsequently

31,

Corp., on

P24,620
220
2.000
1.600

Drawer
Rita Co. (Customer) 2.000
Tams Co. (Customer) 4.700
Jonli Inc. (Customer) 3.920 **
Macario Corp. 5.700
1,500
X24E Co. (Customer) P 44,760

r 30:

ing your examination

November 30, 2020 showed a balance of P1,872,000.

in November was customer’s note for P600,000 collected for the
which the company recorded in the cash receipts journal in December.

er bank debits were cost of checkbooks amounting to P7,200. Likewise

bank debits was a P240,000 check which was charged by the bank
p.’s account. Bank errors are usually automatically corrected the

ransit amounted g checks totaling

P1,050,000, 30,000 of which has been certified by the bank in November.
ollection in November was recorded in the books at P159,000. This was
in the cash receipt journal in December.

the month of December showed total credits of P4,496,000 and total

on the other hand, showed total December debits of P4,413,600, total
December cash balance per books was at P2,913,600.
mo for bank loan proceeds amounted to P800,000 was among the

December were: No. 121 for service charges, P9,600 and No. 122 on a
k marked “NSF” for P144,000.
d the total bank debit for the month of December both included a
This check bounced in December but subsequently redeposited and
December. Examination revealed that the return and redeposit were
books since they will have no effect on the ending cash balance.
eck of Perk Corp. was erroneously credited by the bank to the
cember.

the company authorized the bank to automatically settle a P360,000

r. The note matures on January 5, 2021. The company treated this
ements although the bank was able to settle the note only at maturity

s recorded in the company’s cash disbursements books in December

was discovered by the company in December and the necessary
en made to the cash account in the general ledger also in December.

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
CASH & CASH EQUIVALENTS
Requirements:
1. How much is the undeposited collections as of December 31?
2. How much is the outstanding checks as of December 31?
3. How much is the adjusted cash balance as of November 30?
4. How much is the adjusted cash balance as of December 31?
PROBLEM 5:
The following information was provided by Spoon Corp. as of the fiscal year ended September 30, 2020:

Customers’ direct deposits credited by the

bank (recorded per books the following month)
Bank loan and interest payments
Customer’s NSF checks, recorded in the books the following month
Customer’s NSF check returned by the bank in September,
redeposited also in September. Examination revealed that the
company recorded the return and redeposit per books.
Undeposited collections
Outstanding checks
Total credits per bank statement
Total debits per bank statement
Total debits per books
Total credits per books
Additional information:

a.

b.

c.

d.

e.
Requirements:
1. What is the correct cash in bank balance as of August 31?
2. What is the correct deposit in transit as of September 30?
3. What is the correct outstanding checks as of September 30?
4. What is the correct cash in bank balance as of September 30?
PROBLEM 6: (RAP; INTERNAL CONTROLS, TEST OF CONTROLS, SUBSTANTIVE TESTING)

1.
2.

3.

Page 8 of 10
 FARAP-4501

ecember 31?
mber 31?
vember 30?
cember 31?
(BANK RECONCILIATION; PROOF OF CASH)
Corp. as of the fiscal year ended September 30, 2020:
August 31

55.000
120.000
following month 15.000
tember,
ed that the
oks.
89.000
122.000

A P25,000 collection was erroneously recorded twice in the books in September, the company
discovered the error and corrected the same in September.
A P30,000 check disbursement was recorded in the books as P3,000 in August. The correction was
made in September.
The bank erroneously charged the company in August for a disbursement of Spin Corp. for the
amount of P40,000. The bank corrected the error in September.
A September collection was correctly record in the books at P21,000. This was erroneously credited
by the bank at P12,000. The error was discovered and immediately corrected by the bank also in
September.
The unadjusted balance per book in August was at P698,000. The unadjusted balance per bank
in September was at P785,000.

ugust 31?
mber 30?
ptember 30?
eptember 30?
T OF CONTROLS, SUBSTANTIVE TESTING)
Cash is the most inherently risky among assets in the perspective of the auditor. This is mo
to the fact that cash has the highest risk of misappropriation either from within or outs
Which of the following controls most likely would reduce the risk of diversion of customer receipts by an
employees?
entity’s a. Daily deposit of cash receipts.
b.
c.
d.
Which of
protecting receipts from possible loss due to misappropriation?
a. Requiring customers, where possible, to pay through checks.

b.
c.

d.
Which of the following is not a universal rule for achieving strong internal control over cash receipts?

a.
b.
c.

d.

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 September 30

72.000
80.000
6.000

4,400
?
?
1,819,000
1,618,000
1,795,000
1,800,000

ooks in September, the company

P3,000 in August. The correction was

disbursement of Spin Corp. for the

ber.
P21,000. This was erroneously credited
diately corrected by the bank also in

. The unadjusted balance per bank

sky among assets in the perspective of the auditor. This is mostly associated
the highest risk of misappropriation either from within or outside the entity.
risk of diversion of customer receipts by an
yees?
ly deposit of cash receipts.
Monthly bank reconciliations.
Prenumbered remittance advice
A bank lockbox system
 the following is not consistent with the requirements of the imprest system with regard to
n?
ks. Requiring the company’s personnel who receives the check first
to automatically
restrictively endorse check collections.
Requiring the treasury
reconcile bank records department to prepare books.
against the company’s monthly bank reconciliation statements to
Requesting customers, where possible, to remit payments
directly to the bank.
rong internalSeparate
control over cash handling
the cash receipts? function, record keeping function
and regular bank
reconciliation functions.
Decentralize the receiving
Where collections are made ofthrough
cash as cash
muchand
as not
possible.
through
Deposit each receipts
checks, cash days’ cash receipts
should be by the end of the day.
reconciled with the prenumbered official receipt at the end of
the operating day.
ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
CASH & CASH EQUIVALENTS

As payments are received, one mailroom employee is assig

receipts and preparing the deposit slip prior to forwarding t
remittance advices to accounts receivable for posting. Acco
slip, stamp a restrictive endorsement on the back of each c
deposit slip to the treasury department. Which of the follow
control on this process?
4. a. Internal control is adequate.

5. Which of the following would the auditor consider to be an

cashier

Which of the following is not consistent with the requiremen

6. the internal control measures in handing and processing dis
a.

b.

c.

d.
7. Which of the following is a standard internal accounting con

a.
b.

c.

d.

Which of the following cash fraud activities involves the pos

can be well perpetrated where there is lack of segregation o
custodial functions?
8. a. Kiting
b.
c.
d.
An auditor suspects that a client’s cashier is misappropriatin
lapping customer checks received in the mail. In attempting
9. the auditor most likely would compare the:
a.

b.
 c.

d.
10. Which of the following characteristics most likely would be indicative of check kiting?
a.
b.
c.
d.
11. Which of the following audit procedures will likely detect or uncover kiting activities of the client?
a. Sending confirmation to banks.
b.
c.
d.
12. For the most effective internal control, monthly bank statements should be received directly from the
banks and reviewed by the
a. Controller.
b.
c.
d.

Page 9 of 10
 FARAP-4501

yments are received, one mailroom employee is assigned the responsibility of prelisting check
ts and preparing the deposit slip prior to forwarding the check receipts, the deposit slip, and the
ance advices to accounts receivable for posting. Accounts receivable personnel refoot the deposit
tamp a restrictive endorsement on the back of each check, and then forward the receipts and the
it slip to the treasury department. Which of the following is a reasonable assessment of internal
ol on this process?
Internal control is inadequate because
ernal control is adequate.
treasury employees should prepare the
b. Internal control is inadequate because mailroom employees should not have access to c
deposit slip.
c. Internal control is inadequate because of a
d. lack of segregation of duties.
of the following would the auditor consider to be an incompatible operation for a cashier if the
receives remittances from the mailroom?
a. Posting the receipts to the accounts receivable subsidiary ledger cards.
b. Making the daily deposit at the local bank.
c. Preparing the daily deposit.
d. Endorsing the checks.
of the following is not consistent with the requirement of the imprest system with regard to
ternal control measures in handing and processing disbursements?
All disbursements, without exception, should be made through checks.
For immaterial disbursements, the company may be allowed to use undeposited
collections.
Documents in the voucher package (e.g., sales invoice, purchase order, receiving
reports) shouldbe
Checks should bereleased
automatically cancelled
immediately oncepayees,
to the disbursement checks
preferably areone
by the signed.
who
signed
the checks last.
of the following is a standard internal accounting control for cash disbursements?
Checks should be signed by the controller and at least one other employee of the
company.
Checks should
accounted bethe
for by sequentially numbered
person preparing theand thereconciliation
bank numerical sequence should be
statement.
Checks and supporting documents should be marked “paid” immediately after the
check is
returned with the
Checks should be bank statement.
sent directly to the payee by the employee who prepares documents
that
authorize check preparation.

of the following cash fraud activities involves the postponement of the recording of receipts and
e well perpetrated where there is lack of segregation of duties between recordkeeping and
dial functions?
ng
Lapping
Window dressing
Salami fraud
ditor suspects that a client’s cashier is misappropriating cash receipts for personal use by
g customer checks received in the mail. In attempting to uncover this embezzlement scheme,
uditor most likely would compare the:
Dates uncollectible accounts are authorized to be written off with the dates the write- of
are actually recorded.
Individual bank deposits slips with the details of the monthly bank statements.
 Daily cash summaries with the sums of the cash receipts journal entries.
Dates checks are deposited per bank statements with the dates remittance credits are
recorded.
ive of check kiting?
High turnover of employees who have access to cash.
Many large checks that are recorded on Mondays.
Frequent cash withdrawals from checking accounts.
Low average balance compared to high level deposits.
er kiting activities of the client?

Vouch check issuances representing disbursements to source documents.

Render cash count on a surprise basis.
Simultaneously validate bank reconciliations statements.
should be received directly from the

Cash receipts accountant.

Cash disbursement accountant.
Internal auditor.

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hould not have access to cash.
ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP-4501
CASH & CASH EQUIVALENTS
13. Which of the following assertions does the auditor most likely would like to validate in deciding to
render cash counts?
a. Completeness
b. Existence
c. Valuation
d. Rights and obligation
14. In rendering cash counts, the accountability shall represent:
a. The cash items only.
b. Cash items and other evidences of the use of cash s
vouchers.
Cash that should be on hand per collection
c. activities of thebetween
The difference custodian.
the cash balance per
collection records against the valid cash items
d. and evidences supporting the use of cash.
15. In rendering cash counts, cash shortage results when: Accountability is higher than valid cash and non-
a. Accountability is equal to valid cash and non-cash items. cash items.
b. Accountability is lower than valid cash and non-
c. cash items.
d. Accountability is zero.
Where the accountability is the petty cash fund
16. Which of the following is correct regarding cash counts? balance, accommodated checks are
considered not valid support of NSF, post-dated or
Where the accountability is the undeposited
a. stale as of the count date.
collection balance, customer collection
checks are considered valid support even if they
are NSF, post-dated or stale as of the
Where the accountability is the petty cash fund
b. count date.
balance, any evidence to claim that cash
was used to pay certain disbursements (e.g.
postage stamps) shall be considered valid
Where the accountability is the undeposited
c. support.
collection balance, any evidence to claim
that collection was used to pay certain
disbursements (e.g. postage stamps) shall be
d. considered valid support.
17. In validating bank reconciliation statements of the client, the auditor should trace back
outstanding checks to the:
a. Accounts payable voucher.
b. Cancelled checks returned by the bank.
c. Bank statement of the current month.
d. Cut-off bank statement of the subsequent month.
18. In validating the bank reconciliation statements of the client, the auditor should trace back the
unrecorded debits, like service charges to the:
a. Accounts payable voucher.
b. Cancelled checks returned by the bank.
c. Bank statement of the current month.
d. Cut-off bank statement of the subsequent month.
19. In preparing the bank reconciliation statement of the client, a cash in bank shortage normally
occurs when: The adjusted balance per bank is higher than the
a. The unadjusted balance per bank is lower than the unadjusted balance per
unadjusted books.
balance per books.
b. The unadjusted balance per bank is higher than the
c. unadjusted balance per books.
d. The adjusted balance per bank is lower than the adj
20. The proof of cash statements is usually prepared by the auditor when:
a. Internal control over cash is strong and control risk is placed at the maximum.
b. Internal control over cash is weak and control risk
c. Cash balance is very significant.
d. Cash balance is very insignificant.
21. The usefulness of the standard bank confirmation request may be limited because the bank
employee who completes the form may: Not believe that the bank is obligated to verify
confidential information
Sign and return the formtowithout
a third inspecting the
a. parity.
accuracy of the client’s bank reconciliation.
b. Not have access to the client’s cutoff bank
c. statement.
d. Be unaware of all the financial relationships that the bank has with the client.
- END -

Page 10 of 10 0915-2303213  www.resacpareview.com

FARAP-4501
ding to

s of the use of cash s

r collection
h balance per
alid cash items
se of cash.
lid cash and non-

d cash and non-

petty cash fund

are
NSF, post-dated or
undeposited
llection
port even if they
of the
petty cash fund
that cash
ements (e.g.
dered valid
undeposited
e to claim
certain
amps) shall be

he bank.
month.
ubsequent month.
the

he bank.
month.
ubsequent month.
ally

is higher than the

nk is higher than the

is lower than the adj

ak and control risk

.
nt.
k
igated to verify
rd inspecting the
ut
conciliation.
cutoff bank