Audit of Cash and

Cash Equivalents
- Cash is one of the most important assets of a
business.
- Because of the very nature of cash, it is considered a
high-risk area.
- It requires good internal control and careful
monitoring.
- Due to its high degree of inherent risk, more audit
time is devoted to the audit of this account than is
indicated by its peso value.
AUDIT PROCEDURES for Cash and CEs
1. Conduct cash count of undeposited collections, petty cash and other
funds.
2. Confirm bank balance by direct correspondence in which the client has
had deposits and loans during the year.
3. Obtain bank reconciliation.
4. Obtain list of interbank transfers of funds a few days before and after the
reporting date.
5. Test reasonableness of cut-off.
6. Inspect savings account passbook and certificates of deposits.
7. Determine any restrictions on availability of cash.
8. Determine propriety of financial statement presentation and adequacy of
disclosures.
 What is the amount of cash and cash equivalents to be
presented in the financial statements?

CASH AND CASH EQUIVALENTS

CASH CASH EQUIVALENTS

CASH ON CASH IN CASH

HAND BANK FUNDS
 It is assumed that the journal entry for payment is already
made when the check was drawn. But because the check
(cash) is still in the company’s control as of reporting date,
the entry for payment should be reversed.
Entry when check is drawn: Entry for reversal:
Dr. Accounts payable XX Dr. Cash XX
Cr. Cash XX Cr. Accounts payable XX
Usual distractions (not considered as cash)

1. I Owe You (IOUs) – treated as receivable

2. Postage stamps – treated as supplies
3. Credit memo from suppliers – treated as contra purchase account
4. Cash surrender value – treated as investment
5. Investment in shares (equity securities) – treated as investment
Problem 1

The following information has been extracted from the accounting records of the
Hazelnut Company at December 31, 2021:

Cash on hand (undeposited sales receipts) Php 40,800 - Cash

Certificate of time deposit with maturity of 3 months 1,000,000 - Cash equivalents
Customer’s note receivable 40,000 - Receivable
Reconciled balance in BPI checking account (14,000) - Current liability (bank overdraft)
Reconciled balance in PNB Bank checking account 374,000 - Cash
Balance in BDO savings account 342,400 - Cash
Customer’s postdated check 54,000 - Receivable
Employee travel advances 64,000 - Receivable
Cash in bond sinking fund 48,000 - Other noncurrent asset
Bond sinking fund investments 323,600 - Other noncurrent asset
Postage stamps 17,200 - Supplies

What total amount should the Company report as “cash” at December 31, 2021?

Cash = 40,800 + 374,000 + 342,400 = 757,200

Problem 2

Audit of the December 31, 2021 financial statements of Dionisio Corp. reveals the ff:
Current account at BDO P (30,000) - Current liability (bank overdraft)
Current account at PNB 135,000 - Cash
Treasury bills (acquired 3 months before maturity) 300,000 - Cash equivalents
Treasury bills (maturity date is Dec. 31, 2022) 1,500,000 - Other current asset
Payroll account 390,000 - Cash
Foreign bank account-restricted 2,000,000 - Noncurrent asset
Postage stamps 1,250 - Supplies
Employee’s postdated check 4,500 - Receivable
IOU from the vice president 8,000 - Receivable
Credit memo from supplier for a purchase return 8,100 - Contra purchase account
Traveler’s check 21,000 - Cash
Money order 12,900 - Cash
Petty cash fund (P3,000 in currency and expense - Cash (P3,000)
receipts for P12,000) 15,000

What total amount should the Company report as “cash and cash equivalents” at December 31,
2021?
Cash and CEs = 135,000 + 300,000 + 390,000 + 21,000 + 12,900 + 3,000 = 861,900
Problem 3
The Cash account of Bea Corp. as of Dec. 31, 2021 was composed of the ff:
Deposit in current account with BPI P 900,000
Cash collection not yet deposited to the bank 350,000
A customer’s check returned by the bank for insufficient fund 150,000
A check drawn by the VP dated Jan. 18, 2022 70,000
A check drawn by a supplier dated Dec. 28, 2021 for goods
returned by the company 60,000
A check dated May 31, 2021, drawn by the company against BDO
in payment of custom duties. Since the importation did
not materialize, the check was returned by the customs
broker. This check is outstanding in the reconciliation of
BDO. 410,000
Petty cash fund of which P10,000 is in currency; P7,200 in form
of employees’ IOUs, and P2,800 is supported by approved
petty cash vouchers for expenses all dated prior to closing
of books on Dec. 31, 2021. 20,000
TOTAL P 1,960,000
Less: Overdraft with BDO secured by a chattel mortgage on the
inventories (300,000)
Cash balance per ledger P 1,660,000

What is the amount of cash to be reported on Dec. 31, 2021 Statement of Financial Position?
Cash = 900,000 + 350,000 + 60,000 + 10,000 + 110,000 = 1,430,000
 PETTY CASH FUND
Entries:
 PETTY CASH FUND
Petty cash (shortage) / overage

• Accountability – per ledger

• Accounted – per cash count
 PETTY CASH FUND
Petty cash adjusted balance at the end of reporting period
Problem 1
The auditor for SAM Inc. examined the petty cash fund immediately after the close of business, July 31, 2021,
the end of the company’s natural business year. The petty cash custodian presented the following during the
count:

Currency P 1,650
Petty cash vouchers:
Postage 420
Office supplies expense 900
Transportation expense 340
Computer repairs 800
Advances to office staff 1,500
A check drawn by Sam, Inc. payable to the petty cash custodian 7,200
Postage stamps 300
An employee’s check, returned by bank marked NSF 1,000
An envelope containing currency of P1,890 for a gift for a retiring employee 1,890
P 16,000
The general ledger shows an imprest petty cash fund balance P16,000.

How much is the petty cash shortage or overage?

What is the adjusted balance of petty cash fund at July 31, 2021?
Currency P 1,650
Petty cash vouchers (420 + 900 + 340 + 800 + 1,500) 3,960
A check drawn payable to the petty cash custodian (replenishment check) 7,200
Employee’s NSF check 1,000
Petty cash accounted P 13,810
Petty cash fund per ledger (custodian’s accountability) 16,000
Petty cash shortage P 2,190

Currency P 1,650
Replenishment check P 7,200
Adjusted petty cash balance P 8,850
BANK RECONCILIATION
PROOF OF CASH
PROOF OF CASH
PROOF OF CASH