Unit V Substantive Audit of Cash

V – 1. Mila Lim is the cashier of the Plaridel Glass Company. As representative of

the Reyes, Tan and Associates, CPAs, you were assigned to verify her cash on
hand in the morning of January 4, 20X7. You began to count at 9:00 A.M. in the
presence of Miss Lim. In the course of your counting, you found currencies in
paper bills and coins together with checks, vouchers and other items, which are
mentioned below:

Bills
2 fifties, 9 twenties, 13 tens

Coins
P5.00 5 loose
1.00 74 loose
0.25 - 5 rolls and 32 loose ( 50 pieces to a roll )
0.10 - 10 rolls and 15 loose ( 50 pieces to a roll )
0.05 - 16 rolls and 9 loose ( 40 pieces to a roll )

Maker Date Payee Amount

Jose Cruz, Asst. Manager 12/23/X6 Plaridel Glass Co. P60.00
Mila Lim, Cashier 12/26/X6 Plaridel Glass Co. 40.00

I.O.Us
A. David, janitor 12/20/X6 P35.00
R. Tirao, clerk 12/22/X6 25.00
Pedro Munar, bookkeeper 12/24/X6 15.00
 Petty Cash Vouchers for Replenishment

Payee Date Account Charged Amount

L. Bilbao, Messenger 12/16/X6 Advances to Employees P10.00
Rosario & Co. 12/17/X6 Supplies 14.50
Victor Liner 12/18/X6 Freight-in 18.25
Bureau of Posts (stamps) 12/18/X6 Supplies 30.00
A. Vallo, carpenter 12/20/X6 Repairs 45.00
B. Tello 12/21/X6 Miscellaneous Exp. 15.40

Your investigation also disclosed the following:

1. The balance of petty cash fund per books is P900.

2. Cash sales of January 2, 20X7 amounted to P865 per sales records, while Cash
Receipts Book and Deposit Slip showed that only P7656 was deposited in the
bank on January 3, 20X7.
3. The following employees’ pay envelopes had been opened and the money
removed. Each envelope was marked “unclaimed”.

N. Roy P33.25
G.Gloria 24.75

Required:

1. Prepare working papers showing your cash count.

2. Prepare necessary adjusting journal entries without explanation in the books
of the company.

V – 2. A surprise count of the Pampanga Company’s imprest petty cash fund, carried
on its records at P5,000 was made on November 10, 20X7.

The company acts as agent for an express company in the issuance and sale of
money orders. Blank money orders are held by the cashier for issuance upon
payment of the designated amounts by employees. Settlement with the express
company is made weekly with its representative, who calls at the Pampanga Co.
office. At that time, he collects for orders issued, accounts for unissued orders,
and leaves additional blank money orders, serially numbered.
The count of the items presented by the cashier as composing the fund was as
follows:

Currency (bills & coins) P 22,000

Cashed checks 5,000
Vouchers (made out in pencil and signed by
recipients 7,400
NSF checks (dated June 10 and 15, 20X7) 2,600
Copy of petty cash receipt vouchers: P2,000
Return of expense advance 1,000 3, 000
Sale of money orders (No. A 1 1 – 20)

Blank money orders claimed to have been

purchased for P100 each from the
express company (No. A21-29) 6,000

At the time of the count, there were also on

hand the following:
Unissued money orders, No. A30-40
Unclaimed wage envelopes (sealed
and amounts not shown)

the following day, the custodian of the fund produced vouchers aggregating
P4,000 and explained that these vouchers had been temporarily misplaced the
previous day. They were for wage advances to employees.

Required:

1. Show the proper composition of the fund at November 10, 20X7.

2. State the audit process necessary for the verification of the items in the fund.

1. Examine liquidation of travel advance as reported and determine

accuracy of the amount returned.
2. Vouch supporting invoices.

a. Sale of money orders

1. Examine the latest report of the Pampanga Company to establish proper
accountability.
2. Confirm directly with the Pampanga Company all unreported money
orders sold as well as unissued as of November 10.
 b. Vouchers subsequently presented
1. Examine vouchers as to date, approval amount, and nature of
expenditure.
2. Confirm directly with employees those items representing wage advance.

c. Book balance of the Petty Cash Fund

1. Trace to the general ledger the balance of the fund.

V – 3. On your examination of the financial statements of Heroes Group Company for

the year ended December 31, 20X7 you obtained the following information on
the checking account of the company:

The bank statement on November 30, 20X7 showed a balance of P15,300.

among the bank credits in November was customer’s note for P5,000
collected for the account of the company which the company recognized in
December among its receipts. Including in the bank debits were cost of
checkbooks amounting to P60 and a P2,000 check which was charged by the
bank in error against Heroes Group Co. account. Also, in November you
ascertained that there were deposits in transit amounting to P4,000 and
outstanding checks totaling P8,500.

The bank statement for the month of December showed total credits of P20,800
and total charges of P10,200. Company books for December showed total
receipts of P36,780 and disbursements of P20,360. Bank debit memos for
December were:
No. 4118 for service charges, P80 and No. 4 on a customer’s returned check
marked “Refer to Drawer” for P1,200.

The bank error of P2,000 in November was corrected by the bank in December.

On December 29, 20X7 the company placed with the bank a customer’s
promissory note with a face value of P6,000 for collection. The company treated
this note as part of its receipts although the bank was able to collect on the note
only in January, 20X8.

A check for P198 was recorded in the company cash payments book in December
as P1,980.

Required:
 1. Prepare four (4) column bank reconciliation statement for the month of
December, 20X7 for Heroes Group Co. Develop your reconciliation statement
by starting with the bank balances and proving these balances per book
balances.

2. Present computation:
2 – a. Deposit in transit, December 31, 20X7.
2 – b. Outstanding checks, December 31, 20X7.

(PhilCPA adapted)

V – 4. From the following information, prepare a four-column reconciliation of receipts,

disbursements, and balances for Panay Company, using the form where the bank
and book balances are brought to a corrected cash balance:

Aug. 31 Sept.
30
1) Balance per bank P 14,010 P 19,630
2) Balance per books 11,190 18,945
3) Deposit in transit 2,740 3,110
4) Outstanding checks 4,260 3,870
5) Bank collections not in books 1,200 1,600
6) Bank charges not in books 950 640
7) Of the checks outstanding on September 30, one check for P700 was certified at
the request of the payee.
8) Deposits for September, per bank cash journal, P 281,070.
9) September disbursements, per cash journal, P 273,885.
10) NSF check from customer was charged by the bank on September 28, and has
not been redeposited, P 800.
11) NSF check returned in August and recorded in September, P 1,050.
12) NSF check returned and recorded in September, P 900.
13) Check of Pasay Company charged by bank in error, P 2,010.
14) Receipt on September 5 paid out in cash for travel expenses, P 750.
15) Error in recording customer’s check, September 20; P 165 instead of P 465.
16) Error in Disbursement journal for entries for September, P 3,250 instead of P
325.

Also prepare adjusting entries for the accounts of Panay Company at September 30.
V – 5. You are examining the records of Reyes Co. where internal control is found to be
weak. Part of your work includes a reconciliation of cash for December 20X7
is correct. The following information is available to you:

Client’s Reconciliation, November 30, 20X7

Cash per general ledger P 2,631.74

Less: Cash on hand 210.89
2,420.85
Less: Bank service charge for November 9.00
2,411.85
Add: Outstanding checks 991.00
Balance per Bank P 3,402.85

Cash receipts are summarized weekly; the cash receipts book for
December appears below:

Dec. 1 Balance from Nov. 30 P 2,631.74

8 Received on accounts 25,774.80
15 Received on accounts 27,447.56
22 Received on accounts 4,659.82
29 Received on accounts __5,886.85
P 65,300.77