All About CASH

1 of 18 

AUDIT OF CASH - QUIZZERS PROBLEM NO. 1

In connection with your examination, the Pound Company  presented to you the following information regarding its Cash in Bank account for the month of December, 2005: a)

Balances Balances per bank bank statem statements ents:: Novemb November er 30, 30, P107, P107,800 800,, and and Decemb December er 31, 31, P115,200.

b)

Balances Balances of cash in bank account account in compa company’ ny’s s books books:: November November 30, P82,725 P82,725,, and and December 31, P113,400.

c)

Total recei receipts pts per per books books were were P1,1 P1,110,9 10,950 50 of which which P6,050 P6,050 was was paid paid in cash cash to a creditor on December 24.

d)

Total charges charges in in the bank bank stateme statement nt during during Decembe Decemberr were were P1,09 P1,094,85 4,850. 0.

e)

Undepos Undeposited ited receipts receipts were: were: Novembe Novemberr 30, 30, P45,3 P45,300 00 and Decembe Decemberr 31, 31, P50,6 P50,600. 00.

f)

Outstand Outstanding ing checks checks were: were: Novembe Novemberr 30, P13,375 P13,375,, and Decembe Decemberr 31, P9,650, P9,650, of which a check for P2,500 was certified by the bank on December 26.

g)

NSF checks checks retur returned, ned, recorded recorded as redu reductio ction n of cash receipts receipts,, were: were: • •

Returned by bank on December, recorded also in December, P5,200. Returned by bank on December but recorded in January, P4,300

h)

Collecti Collections ons by by bank bank not not recorde recorded d by Compa Company ny were were P60,7 P60,750 50 in Novembe Novemberr and P58,200 in December.

i)

Bank Bank service service charges charges not entered entered in company company’s ’s books books were: were: Novembe Novemberr 30, P3,750 P3,750 and December 31, P2,100.

 j)

A check for for P4,750 of Found Company was charged charged to Pound Pound Company Company in error error..

k)

A check check drawn drawn for P4,20 P4,200 0 was was erroneo erroneously usly entered entered in the the books books as P2,40 P2,400. 0.

QUESTIONS:

Based on the above and the result of your audit, answer the following: 1.

How How much much is the the adju adjuste sted d cash cash balan balance ce as as of Nov Novemb ember er 30, 30, 2005 2005? ? a. P107,80 ,800 b. P139,725 c. P75,875 d. P137,225

2.

How How much much is the the adju adjuste sted d book book recei receipts pts for for Dece Decembe mberr, 2004 2004? ? a.P1,102,350 b. P1,113,600 c. P1,056,950 d. P1,108,400

3.

How much is the the adjusted adjusted book disburse disbursement ments s for for Dece December mber,, 2004? 2004? a. P1,084,725 b. P1,078,675 c. P1,089,925 d. P1,084,725

4.

How How much much is the the adju adjuste sted d cash cash balan balance ce as as of Dec Decemb ember er 31, 31, 2004 2004? ? a. P158,65 P158,650 0 b. P153,90 P153,900 0 c. P165,20 P165,200 0 d. P163,400

5.

How How much much is the the cash cash sho shorta rtage ge of Dec Decemb ember er 31, 2004 2004? ? a. P1,80 P1,800 0 b. P9,50 P9,500 0 c. P4,75 P4,750 0

d. P0

SUGGESTED ANSWERS: B, B, C, D, D PROBLEM NO. 2

AP-5907Q

2 of 18 

Your audit senior instructed you to prepare a four column proof of cash receipts and disbursements for the month of August, 2005. The bank reconciliation prepared by Franc Company at July 31 is reproduced below: (All book adjustments were recorded in August). P52,000

Bank balance

 Add deposit in transit, July 31

900

P40,000

Book balance  Add: Proceeds of note receivable collected by bank in July Deposit made in bank on July 31 not recorded in books until August

Total

52,900

Less outstanding checks:

Total

8,000

 

1,000 49,000

Less bank service charge

No. 436

P200

 

450

1,800

 

451

1,400

454

600

 Adjusted balance

100

4,000 P48,900

.  Adjusted balance

P48,900

Upon inquiry about the client’s August 31 bank reconciliation, you were informed that it has been lost and that the client is too busy at this time to prepare another. Your senior told you to get the August bank statement and paid checks and to prepare the August 31 reconciliation so that you may complete the August proof of cash. The August bank statement is reproduced below: Kapuso Bank  Account Name: Franc Company Debits

Credits

 August 1

1,800

900

 August 6

1,400

 August 9

600

 August 12

140 DM 

Date

July 31

 August 15

1,000

 August 20

700

 August 27

1,440

 August 29

100 EC 

 August 31

440 SV 

 August 31

300 DM 

10,000 140

14,000

100 EC 

1,820 SV  – Service Charges; DM  – Debit Memo; EC  – Error Corrected; CM  – Credit Memo

AP-5907Q

3 of 18 

The paid checks accompanying this bank statement (all clearing in August) were (checks listed in order of payment by bank). No. 450

P1,800 No. 455

451

1,400

454

600

456

P1,000 No. 458

P1,440

459

1,820

700

The check register revealed that the last check issued in August was no. 460 for P1,000 and that check no. 457 was for P2,400. Cash received for the period August 21 through 31 of P9,400 was deposited in the bank on September 1. The debit memo on August 12 and August 31 were customer NSF checks returned by the bank. The check on August 12 was immediately redeposited without entry. The check returned on August 31 was redeposited by the client in the bank on September 1 without entry. QUESTIONS:

Based on the application of the necessary audit procedures and appreciation of the above data, you are to provide the answers to the following: 1.

How much is the unadjusted book receipts for August? a. P25,140 b. P42,400 c. P35,540

d. P43,300

2.

How much is the unadjusted book disbursements for August? a. P8,460 b. P9,740 c. P8,760 d. P8,360

3.

How much is the adjusted book receipts for August? a. P33,640 b. P33,450 c. P34,400

d. P33,400

How much is the adjusted book disbursements for August? a. P9,100 b. P8,900 c. P9,200

d. P9,340

4. 5.

How much is the adjusted cash balance as of August 31, 2005? a. P73,940 b. P73,060 c. P73,400 d. P73,200

SUGGESTED ANSWERS: B, A, D, A, D

PROBLEM NO. 3

You were able to obtain the following information in connection with your audit of the Cash account of the Piso Company as of December 31, 2005: November 30

December 31

P742,800

P774,696

Balances per books

619,304

670,392

Outstanding checks

254,096

300,184

Balances per bank

d.

The bank statement for the month of December showed total credits of P5,401,800 while the cash receipts per books totaled P9,341,780.

e.

NSF checks are recorded as a reduction of cash receipts. NSF checks which are later redeposited are then recorded as regular receipts. Data regarding NSF checks are as follows:

AP-5907Q

4 of 18 

1. Returned by the bank in Nov. and recorded by the company in Dec., P1,000. 2. Returned by the bank in Dec. and recorded by the company in Dec., P25,000. 3. Returned by the bank in Dec. and recorded by the company in Jan., P9,200. f.

Check of Sopi Company amounting to P9,292 was charged to the company account by the bank in error on December 31.

g.

A bank memo stated that the company’s account was credited for the net proceeds of TM’s note for P8,060. This is not yet recorded on the books.

h.

The company has hypothecated its accounts receivable with the bank under an agreement whereby the bank lends the company 80% of the hypothecated accounts receivable. The company performs accounting and collection of the accounts.  Adjustments of the loan are made from daily sales reports and deposits.

i.

The bank credits the company account and increases the amount of the loan for 80% of the reported sales. The loan agreement states specifically that the sales report must be accepted by the bank before the company is credited. Sales reports are forwarded by the company to the bank on the first day following the date of sale. The bank allocates each deposit 80% to the payment of the loan, and 20% to the company account. Thus, only 80% of each day’s sales and 20% of each collection deposits are entered on the bank statement. The company accountant records the hypothecation of new accounts receivable (80% of sales) as a debit to Cash and a credit to the bank loan as of the date of sales. One hundred percent of the collection on accounts receivable is recorded as a cash receipt; 80% of the collection is recorded in the cash disbursements books as a payment on the loan. In connection with the hypothecation, the following facts were determined: •

•

 j.

Included in the undeposited collections is cash from the hypothecation of accounts receivable. Sales were P162,000 on November 30, and P169,000 at December 31, the balance was made up of from collections of P128,440 which was entered on the books in the manner indicated above. Collections on accounts receivable deposited in December, other than deposits in transit, totaled P4,800,000.

Interest on the bank loan for the month of December charged by the bank but not recorded in the books, amounted to P24,560.

QUESTIONS:

Based on the above and the result of your audit, answer the following: 1.

How much is the adjusted cash balance as of November 30, 2005? a. P618,304 b. P514,624 c. P488,704 d. P359,104

2.

How much is the adjusted book receipts for December, 2005? a. P5,427,488 b. P9,370,240 c. P9,505,440 d. P9,350,260

3.

How much is the adjusted book disbursements for December, 2005? a. P9,255,992 b. P9,246,700 c. P9,349,452 d. P5,406,700

4.

How much is the adjusted cash balance as of December 31, 2005? a. P509,492 b. P612,244 c. 602,952 d. P636,804

5.

How much is the cash shortage as of December 31, 2005? a. P19,980 b. P20,550 c. P97,200

d. P0

SUGGESTED ANSWERS: C, B, B, B, D

AP-5907Q

5 of 18 

PROBLEM NO. 4

The Rupiah Corporation was organized on January 15, 2005 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 15, when you started the examination of the accounts, you find the cash on hand to be P25,700. From inquiry at the bank, it was ascertained that the balance of the Company’s bank deposit in current account on the same date was P131,640. Verification revealed that the check issued for P9,260 is not yet paid by the bank. The corporation sells at 40% above cost.

Your examination of the available records disclosed the following information: P1,600,000

Capital stock issued at par for cash Real state purchased and paid in full

1,000,000

Mortgage liability secured by real state

400,000

Furniture and fixtures (gross) bought on which there is still balance unpaid of P30,000

145,000

Outstanding notes due to bank

160,000

Total amount owed to creditors on open account

231,420

Total sales

1,615,040

Total amount still due from customers

426,900

Inventory of merchandise on November 15 at cost

469,600

Expenses paid excluding purchases

303,780

QUESTIONS:

Based on the above and the result of your audit, compute for the following as of November 15, 2005: A

B

C

D

1. Collections from sales

1,615,040

2,041,940

1,153,600

1,188,140

2. Payments for purchases

1,207,204

922,180

1,854,620

1,391,780

3. Total cash disbursements

3,273,400

2,625,984

2,810,560

2,340,960

4. Unadjusted cash balance

1,007,180

537,580

74,740

722,156

389,500

859,100

574,076

0

5. Cash shortage SUGGESTED ANSWERS: D, D, C, B, A

AUDIT OF CASH AND CASH EQUIVALENTS PROBLEM NO. 1

AP-5907Q

6 of 18 

You were able to gather the following from the December 31, 2005 trial balance of Peso Corporation in connection with your audit of the company: 372,000

Cash on hand Petty cash fund

10,000 950,000

BPI current account Security Bank current account No. 01

1,280,000

Security Bank current account No. 02

(40,000)

PNB savings account

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, 2005 due to insufficient fund but subsequently redeposited and cleared by the bank on January 8, 2006. b. Customer’s check for P30,000 dated January 2, 2006, received on December 29, 2005. c. Postal money orders received from customers, P36,000. The petty cash fund consisted of the following items as of December 31, 2005. Currency and coins

P 2,100

Employees’ vales

1,600

Currency in an envelope marked “collections for charity” with names attached

1,200 800

Unreplenished petty cash vouchers Check drawn by Peso Corporation, payable to the petty cashier 

 

4,600

P10,300 Included among the checks drawn by Peso Corporation against the BPI current account and recorded in December 2005 are the following: a. Check written and dated December 29, 2005 and delivered to payee on January 2, 2006, P50,000. b. Check written on December 27, 2005, dated January 2, 2006, delivered to payee on December 29, 2005, P86,000. The credit balance in the Security Bank current account No. 2 represents checks drawn in excess of the deposit balance. These checks were still outstanding at December 31, 2005. 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 balance sheet date. QUESTIONS:

Based on the above and the result of your audit, compute for the adjusted balances of following: 1. Cash on hand a. P282,000

b. P408,000

c. P246,000

d. P342,000

AP-5907Q

7 of 18 

2. Petty cash fund a. P6,700

b. P2,100

c. P9,100

d. P10,000

3. BPI current account a. P1,086,000

b. P1,000,000

c. P914,000

d. P950,000

c. P2,954,700

d. P3,414,700

4. Cash and cash equivalents a. P2,914,700 b. P2,614,700

PROBLEM NO. 2

The Cash in Bank account of Dollar Company  disclosed a balance of P203,000 as of December 31, 2005. The bank statement as of December 31, 2005 showed a balance of P106,000. Upon comparing the bank statement with cash records, the following facts were developed: a.

The company’s account was charged on December 26 for a customer’s uncollectible check amounting to P30,000.

b.

A two-month, 17% P60,000 customer’s note dated November 25, discounted on December 12, was dishonored on December 25, and the bank charged the company P62,000, which included a protest fee of P2,000.

c.

A customer’s check for P15,400 was entered as P14,500 by both the depositor and the bank but was later corrected by the bank.

d.

Check no. 142 for P12,425 was entered in the cash disbursements journal at P12,245 and check no. 156 for P3,290 was entered as P32,900.

e.

Bank service charges of P1,830 for December were not yet recorded on the books.

f.

A bank memo stated that a customer’s note for P25,000 and interest of P1,000 had been collected on December 28; and the bank charged P500. (No entry was made on the books when the note was sent to the bank for collection).

g.

Receipts on December 31 for P24,000 were deposited on January 2.

h.

The following checks were outstanding on December 31: No. 123

P3,000

No. 154

P4,000

143 *

2,000

157

6,000

144

7,000

159

7,000

147

3,000

169

5,000

* Certified by the bank in December

i.

A deposit of P20,000 was recorded by the bank on December 5, but it should have been recorded for Dolor Company rather than Dollar Company.

 j.

Petty cash of P10,000 was included in the Cash in Bank balance.

k.

Proceeds from cash sales of P60,000 for December 18 were stolen. The company expects to recover this amount from the insurance company. The cash receipts were recorded in the books, but no entry was made for the loss.

l.

The December 21 deposit included a check for P20,000 that had been returned on December 15 marked NSF. Dollar Company had made no entry upon return of the

AP-5907Q

8 of 18 

check. The redeposit of the check on December 21 was recorded in the cash receipts journal of Dollar Company as a collection on account. REQUIRED:

Prepare a bank reconciliation and necessary adjusting entries as of December 31, 2005. PROBLEM NO. 3 You were able to obtain the following information during your audit of Euro Company: Reconciling items:

November 30

December 31

P200,000

P120,000

80,000

60,000

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

5,000

7,000

Undeposited collections Outstanding checks Customer’s notes collected by bank

NSF checks not redeposited Customer's check deposited December 10, returned by bank on December 16 marked NSF, and redeposited immediately; no entry made on books for return or redeposit

10,000

Unadjusted balances:

Books Bank

?

90,000

230,000

?

Bank

Books

P420,000

P270,000

500,000

407,000

December Transactions:

Receipts Disbursements REQUIRED:

1. 2.

Prepare a 4-column bank reconciliation for the month of December, using the form that reconciles both the book and bank balances to a correct cash amount. Adjusting entries as of December 31, 2005.

PROBLEM NO. 4

In your audit of the cash account of  Yen Company, you are required to prepare a fourcolumn reconciliation of receipts, disbursements, and balances using the adjusted balance method and to submit adjusting journal entries as of September 30, 2005.

a) Balances per bank b) Balances per books

 August 31

September 30

P14,010

P19,630

13,290

18,195

AP-5907Q

9 of 18 

c) Deposits in transit

2,740

3,110

d) Outstanding checks

4,260

3,870

e) Bank collections not in books

1,200

1,600

950

640

f)

Bank charges not in books

g.

Of the checks outstanding on September 30, one check for P700 was certified at the request of the payee.

h.

Receipts for September, per bank statement – P281,070.

i.

September disbursements, per cash journal – P274,635.

 j.

NSF check from customer was charged by the bank on September 28, and has not been recorded – P800.

k.

NSF check returned in August and recorded in September, P1,050.

l.

NSF check returned and recorded in September, P900.

m.

Check of Yin Company charged by the bank in error, P2,010.

n.

Receipt on September 6 paid out in cash for travel expenses, P750.

o.

Error in recording customer’s check on September 20, P165 instead of P465.

p.

Error in disbursements journal for September, P3,250 instead of P325.

You noted in your audit that that the NSF checks returned by the bank are recorded as a reduction on the cash receipts journal instead of recording it at cash disbursements  journal; redeposits are recorded as regular cash receipts.

PROBLEM NO. 5

You obtained the following information on the current account of Baht Company  during your examination of its financial statements for the year ended December 31, 2005. The bank statement on November 30, 2005 showed a balance of P76,500. Among the bank credits in November was customer’s note for P25,000 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 P300 and a P10,000 check which was charged by the bank in error against Baht Co. account. Also in November you ascertained that there were deposits in transit amounting to P20,000 and outstanding checks totaling P42,500. The bank statement for the month of December showed total credits of P104,000 and total charges of P51,000. The company’s books for December showed total receipts of P183,900, disbursements of P101,800 and a balance of P121,400. Bank debit memos for December were: No. 143 for service charges, P400 and No. 145 on a customer’s returned check marked “DAIF” for P6,000. On December 31, 2005 the company placed with the bank a customer’s promissory note with a face value of P30,000 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, 2006.  A check for P990 was recorded in the company cash payments books in December as P9,900. QUESTIONS:

AP-5907Q

10 of 18  

Based on the application of the necessary audit procedures and appreciation of the above data, you are to provide the answers to the following: 1.

How much is the undeposited collections as of December 31, 2005? a. P84,900 b. P54,900 c. P44,900 d. P34,900

2.

How much is the outstanding checks as of December 31, 2005? a. P47,990 b. P90,490 c. P99,400 d. P90,790

3.

How much is the adjusted cash balance as of November 30, 2005? a. P54,000 b. P64,000 c. P44,000 d. P39,300

4.

How much is the adjusted bank receipts for December? a. P158,900 b. P128,900 c. P118,900

d. P108,900

5.

How much is the adjusted book disbursements for December? a. P56,490 b. P98,990 c. P107,900 d. P99,290

6.

How much is the adjusted cash balance as of December 31, 2005? a. P156,410 b. P93,910 c. P55,000 d. P48,910

PROBLEM NO. 6

Your audit senior instructed you to prepare a four column proof of cash receipts and disbursements for the month of December, 2005. The bank reconciliation prepared by Ringgit Company at November 30 is reproduced below: Unadjusted bank balance

P96,800

Unadjusted book balance

 Add: deposit in transit

  18,000

 Add: CM - Note collected

40,320

Total

98,960

Total

114,800

Less outstanding checks:

Less: DM bank charges

No. 276

P2,400

282

7,200

284

4,800

285

1,600

 Adjusted bank balance

16,000 P98,800

P58,640

160

.  Adjusted balance

P98,800

The December bank statement, which has a beginning balance of P96,800, is reproduced below: May Bank  Account Name: Ringgit Company Date

Debits

Credits

P18,000

December 01 December 02

P7,200

December 04

24,000

40,000

AP-5907Q

11 of 18  

48,000

December 06

400,000 CM83

December 08 40,000 DM97 

December 10 December 11

56,000

December 16

20,000

December 18

64,000

December 21

72,400 36,000

December 28

80,000

4,000 DM98 

December 31

 

Totals

P131,200

DM97 – Customer’s DAIF check DM98  – Service Charges

 

64,000 CM84

P842,400

CM83 – Note collected by the bank CM84 – Account collected by the bank

The company’s cash receipts and cash disbursements journals for the month of December 2005 are provided below: Cash Receipts Journal

Date

Cash Disbursements Journal

OR No.

 Amount

Date

Dec. 01

415

P40,000

Dec. 01

286

P16,000

 

05

416

48,000

 

03

287

24,000

 

10

417

56,000

 

10

288

32,000

 

17

418

64,000

 

14

289

20,000

 

20

419

72,000

 

20

290

28,000

 

30

420

80,000

23

291

36,000

 

31

421

 

26

292

40,000

 

28

293

44,000

 

31

294

 

88,800

. Total

P440,800

Check No.

Total

Amount

 

48,000

P304,000

The company’s Cash in Bank ledger appears below: Cash in Bank Balance

P58,640

12/31/2005

CDJ

P304,000

40,320

12/01/2005

GJ

12/10/2005

GJ ( CM83)

400,000

12/31/2005

CRJ

440,800

QUESTIONS:

AP-5907Q

12 of 18  

Based on the application of the necessary audit procedures and appreciation of the above data, you are to provide the answers to the following: 1.

How much is the outstanding checks as of December 31, 2005? a. P208,000 b. P232,800 c. P216,800 d. P224,000

2.

How much is the adjusted book receipts for December, 2005? a.P985,200 b. P771,600 c. P913,200 d. P904,800

3.

How much is the adjusted book disbursements for December, 2005? a. P347,840 b. P348,000 c. P332,000 d. P339,200

4.

How much is the adjusted cash balance as of December 31, 2005? a. P664,000 b. P688,800 c. P680,000 d. P672,800

5.

How much is the cash shortage as of December 31, 2005? a. P24,240 b. P23,840 c. P15,840

d. P0

PROBLEM NO. 7

In connection with the audit of the financial statements of Rupee Company  for the year ended December 31, 2005, you performed a surprise count of the petty cash fund and undeposited collections under the custody of Ms. Au at 8:15 a.m. on January 3, 2006. 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

Date

Payee

Drawer

Amount

Dec. 30

Cash

Ms. Au

Dec. 30

Rupee Company

Emong De Leon

Dec. 31

Rupee Company

Apol Boba, sales manager  

Dec. 31

Rupee Company

Datu Macmod

35,600

Dec. 31

Rupee Company

Tom Guts

16,600

Dec. 31

German Corp. (not endorsed)

Rupee Company

54,000

P 2,400 28,000 3,360

AP-5907Q

13 of 18  

Expense Vouchers

Date

Payee

Description

Dec. 23

Apol Boba, sales manager 

Cash advance for trip to Baguio City

Dec. 27

Central Post Office

Postage stamps

Dec. 29

Messengers

Transportation

Dec. 29

PC Express

Computer repair  

Amount P14,000 3,240 300 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 Baguio trip: P14,000

Cash advance received on Dec. 23 Less: Hotel accommodation

P9,000

Bus fare for two

800

Cash given to Pedro, salesman

600

Balance

10,400 P 3,600

 Accounted for as follows: Cash returned by Pedro to the sales manager 

P 240

Personal check of sales manager 

 3,360

Total

P 3,600

 Additional information:

a)

The custodian is not authorized to cash checks.

b)

The last official receipt included in the deposit on December 30 is No. 351 and the last official receipt issued for the current year is No. 355. The following official receipts are all dated December 31, 2005.

c)

O.R. No.

 Amount

Form of payment

352

P27,200

Cash

353

35,600

Check

354

7,200

Cash

355

16,600

Check

The Petty Cash balance per general ledger is P20,000. The last replenishment of the fund was made on December 22, 2005.

REQUIRED:

1. 2.

Computation of shortage or overage, if any Adjusting entries as of December 31, 2005

AP-5907Q

14 of 18  

PROBLEM NO. 8

The bank statement for the account of Rial Company as of December 31, 2005 showed a credit balance of P20,000, while the company’s ledger balance of the cash account as of November 30, 2004 was a debit of P40,000. During December 2005, the ledger showed two postings; a debit of P60,000 and a credit of P39,000 from the cash receipts and cash disbursements journal, respectively. Your examination revealed that the cash column of the receipts book was under footed by P6,400. The receipts book recorded only the collections from customers and did not include a bank credit in December for P8,000, representing loan proceeds of a P10,000 promissory note.  An examination of the customers’ subsidiary ledgers showed total credits to individual accounts amounting to P70,400. The December check disbursements journal which was over footed by P500, records only the checks issued by the company. In the month of December, 2005, the bank charged the company for P5,000 representing a loan guaranteed by the client but was dishonored by the maker, the company vice president. The December bank service charges of P1,200 were erroneously charged by the bank to the account of Saudi Company. The bank made the correction in January, 2006. The outstanding checks as of December 31, 2005 amounted to P5,600. On the following morning of January 2, 2006, a cash count conducted produced the following: Bills and coins

P5,200

Three (3) duplicate copies of Rial official receipts, all dated Jan. 2, 2006

1,800

Checks

2,900

REQUIRED:

a. b.

Computation of the cash shortage as of December 31, 2005. Computation of maximum probable shortage as of December 31, 2005.

PROBLEM NO. 9

You were engaged to audit the books of Dinar Company. company, you gathered the following information:

From the records of the

Dinar Company started operations on October 2, 2005 with the owners investing P150,000 cash. Monthly bank reconciliation statements have not been prepared; however, bank statements for October, November, and December were made available to you. Your analysis of these bank statements showed total bank credits (deposits) of P575,000 including the owners’ initial investment and a bank loan, details of which are in additional data. The bank statement in December, 2005 showed an ending balance of P30,200. Examination of the paid checks disclosed that checks totaling P4,500 were issued by the company in December, 2005, and were presented for payment only in January, 2006. Cash count of the cashier’s accountability amounted to P6,300. You were told by the cashier that P5,000 of these, in checks, were cash sales on December 29, 2005, deposited on January 3, 2005. The balance, in currency and coins, represents petty cash.  Additional information are as follows: a.

Accounts receivable subsidiary ledgers had a total balance of P70,000 at December 31, 2005. P5,000 of this was ascertained to be uncollectible.

AP-5907Q

15 of 18  

b.

Suppliers’ unpaid invoices for merchandise totaled P15,000; while an account for store fixtures bought for P50,000 had an unpaid balance of P5,000.

c.

Merchandise inventory at December 31, 2005 amounted to P30,000 but P5,000 of these were spoiled with no resale value.

d.

The bank statement in October showed a bank credit for P98,000, dated October 2, 2005. Inquiry from the cashier disclosed that the amount represents proceeds of a 90-day, discounted bank note. P80,000 of this loan was paid by check in December, 2005.

e.

Operating expenses paid during the period totaled P180,000; while merchandise purchases amounted to P250,000.

f.

The gross profit rate is 120% of cost.

REQUIRED:

Compute for the cashier’s shortage at December 31, 2005.

PROBLEM NO. 10

Select the best answer for each of the following: 1. Who is responsible, at all times, for the amount of the petty cash fund? a. General cashier c. President of the company b. Petty cash custodian d. Chairman of the Board of Directors 2. 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. The petty cash custodian should turn over the petty cash to the general cashier. c. Cash will be overstated and expenses understated. d. Expenses will be overstated and cash will be understated. 3. Normally, the audit objective of valuation is of minimum concern during the audit of cash. However, the auditor’s concern about the valuation objective would most likely increase when a. Both currency and negotiable securities are on hand b. The client uses a demand deposit account. c. The proof of cash cannot be reconciled. d. The client has foreign currency accounts. 4. 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. Detect kiting activities that may otherwise not be discovered. b. Corroborate information regarding deposit and loan balances. c. Provide the data necessary to prepare a proof of cash. d. Request information about contingent liabilities and secured transactions. 5. 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. This procedure will detect kiting activities which otherwise not be detected. c. The mailing of confirmation forms to all such banks is required by GAAS.

AP-5907Q

16 of 18  

d. This procedure relieves the auditor of any responsibility with respect to nondetection of forged checks. 6. The standard bank confirmation form requests all of the following except a. Maturity date of a direct liability. b. The principal amount paid for a direct liability. c. Description of collateral for a direct liability. d. The interest rate of a direct liability. 7. As one of the year-end audit procedures, the auditor instructed the client’s personnel to prepare a standard bank confirmation request for a bank account that had been closed during the year. After the client’s treasurer had signed the request, it was mailed by the assistant treasurer. What is the major flaw in this audit procedure? a. The confirmation request was signed by the treasurer. b. Sending the request was meaningless because the account was closed before year-end. c. The request was mailed by the assistant treasurer. d. The CPA did not sign the confirmation request before it was mailed. 8. An auditor who is engaged to examine the financial statements of a business enterprise will request cutoff bank statement primarily in order to a. Verify the cash balance reported on the bank confirmation inquiry form. b. Verify reconciling items on the client’s bank reconciliation. c. Detect lapping. d. Detect kiting. 9. On receiving the bank cutoff statement, the auditor should trace a. Deposits in transit on the year-end bank reconciliation to deposits in the cash receipts journal. b. Checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation. c. Deposits listed on the cutoff statement to deposits in the cash receipts journal. d. Checks dated subsequent to year-end to the outstanding checks listed on the yearend bank reconciliation. 10. An unrecorded check is issued during the last week of the year would most likely be discovered by the auditor when a. Check register for the last month is reviewed. b. Cutoff bank statement is reconciled. c. Bank confirmation is reviewed. d. Search for unrecorded liabilities is performed. 11. To gather evidence regarding the balance per bank in a bank reconcil iation, an auditor would examine all of the following except a. Cutoff bank statement c. Bank confirmation b. Year-end bank statement d. General ledger 12. An auditor compares information on cancelled checks with information contained in the cash disbursement journal. The objective of this test is to determine that a. Recorded cash disbursement transactions are properly authorized. b. Proper cash purchase discounts have been recorded. c. Cash disbursements are for goods and services actually received. d. No discrepancies exist between the data on the checks and the data in the journal. 13. An auditor should trace bank transfers for the last part of the audit period and for the first part of the subsequent period to detect whether a. The cash receipts journal was held open for a few days after the year-end. b. The last checks recorded before the year-end were actually mailed by the year-end.

AP-5907Q

17 of 18  

c. Cash balances were overstated because of kiting. d. Any unusual payments to or receipts from related parties occurred. 14. Which of the following cash transfers would appear as a deposit in transit on the December 31, 2005 bank reconciliation? Bank Account A

Bank Account B

Disbursing Date (Month/Day)

Receiving Date (Month/Day)

Per Bank

Per Books

Per Bank

Per Books

a.

12/31

12/30

12/31

12/30

b.

1/2

12/30

12/31

12/31

c.

1/3

12/31

1/2

1/2

d.

1/3

12/31

1/2

12/31

15. Which of the following transfers would not appear as an outstanding check on the December 31, 2005 bank reconciliation? Bank Account A

Bank Account B

Disbursing Date (Month/Day)

Receiving Date (Month/Day)

Per Bank

Per Books

Per Bank

Per Books

a.

12/31

12/30

12/31

12/30

b.

1/2

12/30

12/31

12/31

c.

1/3

12/31

1/2

1/2

d.

1/3

12/31

1/2

12/31

The information below was taken from the bank transfer schedule prepared during the audit of Khaye Ting Company’s financial statements for the year ended December 31, 2005. Assume all checks are dated and issued on December 30, 2005. Check No. From

To

101

Pbcom

HSBC

102

UCPB

Metrobank

103

HSBC

PSBank

104

Metrobank

PNB

Disbursements

Receipts

Per Books

Per Bank

Per Books

Per Bank

12/30

1/4

12/30

1/3

1/3

1/2

12/30

12/31

12/31

1/3

1/2

1/2

1/2

1/2

1/2

12/31

16.Which of the following checks might indicate kiting? a. Check Nos. 101 and 103 c. Check Nos. 101 and 104 b. Check Nos. 102 and 104 d. Check Nos. 102 and 103 17. Which of the following checks illustrate deposits/transfers in transit at December 31, 2005? a. Check Nos. 101 and 102 c. Check Nos. 102 and 104 b. Check Nos. 101 and 103 d. Check Nos. 103 and 104

AP-5907Q

18 of 18  

18. Which of the following cash transfer results in a misstatement of cash at December 31, 2005? From

To

Amount Disbursements P e Books

r P e Bank

a.

Pbcom

HSBC

30,000 12/31/05

b.

UCPB

Metrobank

20,000

c.

HSBC

PSBank

d.

Metrobank

PNB

Receipts r P e Books

r Per Bank

1/4/06

12/31/05 12/31/05

1/5/06

12/31/05

1/4/06

7,000 12/31/05

1/5/06

12/31/05

1/4/06

6,000

1/11/06

1/4/06

1/4/06

1/4/06

1/4/06

19. Which of the following is one of the better auditing techniques that might be used by an auditor to detect kiting? a. Review the composition of authenticated deposit slips. b. Review subsequent bank statements received directly from the banks. c. Prepare a schedule of bank transfers. d. Prepare year-end bank reconciliation. 20. Kiting is a technique that might be used to conceal cash shortage. The auditor can best detect kiting by performing which of the following procedures? a. Examining the details of deposits made to all bank accounts several days subsequent to the balance sheet date. b. Comparing cash receipts records with details on authenticated bank deposit slips for dates subsequent to the balance sheet date. c. Examining paid checks returned with bank statements subsequent to the balance sheet date. d. Comparing year-end balances per the standard bank confirmation forms with the like balances on the client’s bank reconciliations. 21. A cash shortage may be concealed by transporting funds from one locat ion to another or by converting negotiable assets to cash. Because of this, which of the following is vital? a. Simultaneous confirmations c. Simultaneous verifications b. Simultaneous bank reconciliations d. Simultaneous surprise cash count 22. When counting cash on hand, the auditor must exercise control over all cash and other negotiable assets to prevent a. Theft c. Substitution b. Irregular endorsement d. Deposits-in-transit - End of AP-5907 - End of AP-5907Q -

AP-5907Q