CHAPTER Audit of Cash & Cash Equivalents AUDIT PROGRAM FOR CASH Audit Objectives: To determine that: 4. Cash balances at the end of the reporting period represent cash and cash items on hand, in transit to, or in depository banks. Cash transactions have been properly recorded. Cash balances are properly described and classified, and adequate disclosures with respect to amounts[CPA EXAMINATION REVIEWER: AUDITING PRACTICE restricted as to withdrawal are made in the financial statements. ‘Audit Procedures: 1. Conducta cash count of undeposited collections, petty ‘ash, and other funds. ‘Obtain custodians signature to acknowledge return of items counted. + Reconcile items counted with general ledger balances. + Trace undeposited collections counted to bank reconciliation. ‘+ Follow up dispositions of items in cash counted: > Undeposited collections should be traced to bank deposits > Checks accommodated in petty cash should be deposited after the count to establish their validity. > 10Us in the petty cash should be confirmed and traced to collections in the next payroll period >» expense vouchers should be traced to the succeeding replenishment voucher. * Coordinate cash count with count of marketable securities and other negotiable assets of the client, + Obtain confirmation of yearend fund balances of cash not counted in branches or other offices. 2. Confirm bank balance by direct correspondence with all banks in which the client has had deposits and loans during the year. cnr 1 AUDITOF chsh ano cast caunaents 3. Obtain bank reconciliation, + Check arithmetical accuracy of reconciliation, Trace balance per book to the general ledger balance of cash account. ‘Trace balance per bank to bank statement and ‘compare with amount confirmed by bank + Establish authenticty of reconciling items by reference to ther respective sources, ike > Bank debit or credit advices. > Duly approved journal vouchers. ‘+ Investigate checks outstanding for along period of time. > Consider adjustment, especially ifthe check is already stale > Consider the possibilty of an erroneous preparation of the check ‘+ Investigate any unusual reconciling items ‘+ Where internal control over cash is weak, consider preparing a proof of cash reconciliation. ‘Obtain cutoff bank statement showing the client's transactions with the bank atleast one week after the reporting date, and: + Trace year-end reconcling items, ike: > Deposit of the year-end undeposited collections > Completeness of year-end outstanding checks > Corrections of bank errors. + Examine supporting documents of year-end outstanding checks that did not clear in the cutoff bank statement—_ COAENMINATONREVEVER: AUDMNG PRACT obtain at of nterbank transfers funds few before and after the reporting date. net een ot + vouch epprting doce ascertain” thats the rested receipts and disbursements were booted byte cent within tre Same dayor ates within the some month Test reasonableness of cutoff by + Comparing dates of checks returned with with cutoff bank statement to dates of recording in the cash disbursements register ‘+ Tracing receipts recorded a few days before the reporting date to bank deposi. Inspect savings account passbook and certificates of deposits. ‘+ Reconcile with book Balances. + Update interest earned posting on passbooks, if necessary: + Compare balances with bank confirmation reply, Determine any restrictions on availability of cash, Determine propriety of financial statement presentation and adequacy of aisclosures. ‘quarter 1 AUDIT OF CASH AND CASH EQUIVALENTS PROBLEM I-1 = Cash and Cash Equivalents sit of VICKAY Companys financial rnber 31, 2023, you have extracted unting records In connection with your annual au atements fr the year ended Dece ‘he following information from your client's ac ‘cash on hand (Note 1) “ avane P1,200,000 petty cash fund (Note 2) jie 10,000 Pesca ghay Bank current account (Note 3) 1.64,6°% 980.000 Solid Bankcurrent account No.1 swe, (60008 Solid Bank current account No.2 (100,000) Lagaslas Bank savings account (Note 4) 1*1500,000 ‘Time Deposit (90 days) ~ BDO 2,000,000 [Note 1 ~ Cash on hand included the following: ‘a. PHLPOST money orders from various customers, P300,000 E Aeastomer check for(P50.000)%as returned by the bank on Jecember, 29, 2023 due to insufficient fund but was tubsequenty eedeposited and cleared by the bank on January 6. 2024, The Cash Receipts Journal during which time (300,000 was cole December 31,2023. 4. Aeastomer check fox?30,000Mated January 30, 2024, received on December 27, 2023 as held open until January 10, 2024 ited and recorded on Note 2 - The Petty Cash Fund consisted of the folowing items on December 31,2023. ills and coins 3,000 UUnreplenished petty cash disbursements 4,000 Employees’ 1OUs ‘500 Carrency in an envelope marked “employees! contributions for charity” 1,500 eine6 CPA AMNATION REVIEWER. AUDITING PHAC Hey 4 Check araenby Vickay Company, payable othe petty cash custodian ners euaaag Note 3 - nciuded among the checks drawn by Vickay Company against the Balanghay Bank current acount are the following 1. A-check written and dated December 23,2023 and delivered to payee on January 29,2024, P30,000. b. A check written on December 28, 2023, dated january 3, 2024, delivered to payee on December 29, 2023, P75,000. Note 4 - Vickay’s savings account deposit in Lagaslas Bank has been earmarked for the acquisition of a'state-otthe-art manufacturing ‘equipment within the next couple of months. Based on the preceding information, compute for the adjusted balances ofthe following: 1. Cashon hand & P1A70000 ©. P870,000 B. P823,000 . 820,000 2. Petty cash fund ‘A. P8500 © P8000 B P7,000 D. Pt0,000 3. Balanghay Bank curren account ‘A. P1.085,000 1,055,000 B. Pio10.000 D. 980,000 4. Cash and cash equivalents A. P4272,000 ©. P4.273,500 B. P8372.000 D. 4322.00 - uavte 1 AUDIT OF EAH ANO CASH EOUNALENTS SOLUTION 1-1 1,200,000 (60,000) ca ccs recorded in Deceiver 2023 90.09} seo Soe oo mg es "Re ant check aes a ‘mer a Balance per books ee vchveret/Unreeased dsbursemant check f a one 21.085,000 mane ‘own o « cameigam., ving Sealants aa Bistomenen Ss, eitmeses Sn earn = roa8 CCPAEXAMINATION REVIEWER: AUDITING Mcp PROBLEM 1-2 peace ee ‘Cash and Cash Equivalents Your audit of the December 31, 2023, financial statements of DIONISIO CORP. reveals the following: : Current account at Prime Bank P(30,000) , Current account at Prudent Bank 135,000.» Treasury bills (acquired 3 months before maturity) 300,000 ~ ‘Treasury bills (maturity date is Dee 31,2024) 1,500,000 x 390,000 Payroll account Foreign bank account ~ restricted (translated Using the December 31,2023, exchange rate) 2,000,000 Postage stamps 1250 Employee's postdated check 4500 TOU from the vice-president 8,000 Credit memo froma supplier fora purchase return 8,100 ‘Traveler's check 21,000“ Money order 12,900 ” Petty cash fund (P3,000-n currency and expense 15,000 receipts for P12,060) ‘What amount would be reported as cash and cash equivalents in the statement offnancial position on December 31,2023? AL P840,050 c P849,400 B. 873,900 . P861,900 SOLUTION 1-2 Se eee ‘Current account at Prudent Bank 135,000 “Treasury bis (acquired 3 months before maturity) 300,000 — ~_— catnrten AUDIT OF case AND CASH EQUIVALENTS a ‘payroll account 390,000 ‘ravelers check 21,000 Toney ere 12500 pocyeash tnd —3000 ‘etl cash ond ash enaets Ese Ansver: PROBLEM 1-3 Cash and Cash Equivalents ste accountant of SANTIAGO COMPANY inthe proces of Preparing Foe spars nancal statement forte ea ended December 9 sae cor ving to determine the correc balance of sh and Savings account nhac P132,600 yF22200 (neuding « + Undeposted customér cheeks of P22200 (incu sr crer check dated January 2, 2024, for P3000). Currency and coins on hand of 3480. 1 account at the Northern Philippines Bank with pi o0.c00, * This account is being used 10 ire plant expansion (i 2028) Saving balance of P accumulate cas fr fu peur cash af 4,00 currency of P2260 and unrelenshed vouchers for 2,800)10 (CPA EXAMINATION REVIEWER. AUDITING PRAC Hoy 600,000 loan with the bank. Santiago Company is legal © Treasury bills: Two-month maturity bills 90.000 Seven-month bills 120,000 ‘© Time deposit (placement term is 2 months) “100,000 + Commercial papers (maturities range from 30-90 days at the time of purchase) “P00,000 + Postal money orders received from customers 200,000 ‘What toal amount of cash and cash equivalents should be reported ‘under current assets? A. 1.047.480 c. 1427,480 B. 627,480 D. 1,027,480 SOLUTION 1-3 Savings and current accounts - Metropolitan Bank (P132,600 + 91,90 : na Undeosted comer checks (22200-3000) 13000 ‘Currency and coins on hand 4 Perens a0 Two-month treasury bills \ Time deposit 2 outs ‘Commercial papers samo ea ney os 707009 cas an cas ecules PLud27.480 Ansier: © ~~ — ir Lcneten 1 AUDIT OF CASH AND CASH EQUVALENTS ‘motes: “The F3,000 gested cntomer check wll nat be accepted BY Ue flank when presented ether for encastent oF deposit. Ths should be revertad to accounts receivable 12, The P2,400,000 cash balonce at Northern Philipines Bank. Being Traintained for future plant sxparcion. Thus, unavailable for use In-current operations or payment of current fabates. The amourt Should be shown a8 part of investments in the roncurent assets Section ofthe statement of financial poston. 4. The P120,000 n a current account atthe Northern Pritppnes Bank atch represents a compensating balance i legalyresvicted 2nd i Bamng held against a longterm borrowing. Hence, this should De ‘Casetied as nvestment or other assetin the nencurent assets section ‘ofthe statement of rancal poston. “4, The 7-month treasury bls are not cash equivalents and should BE Shown as part of short-term investments in the curent assets section Of the statement of rancial positon. PAS 7 defines “cash equivalents” as short-term, highly quid Investments that are realy convertble to known amounts of cash ‘and which ae subject to an insgniant risk of changes in vale ‘These normally Include short-term Investments with maturities of three month oF less fram the date of acqusiton. PROBLEM 1-4 oe __ Cash and Cash Equivalents ‘The following information has been extracted from the accounting, ecords of the URSULA COMPANY at December 32, 2023: ‘a. Cashonhand (seenotebelow) 2,000 230,000 >, Impukan Bank savings account 950012 (CPA EXAMINATION REVIEWER AUISIING PACH {& 364-day Treasury bills purchased March 1,2023 400,999 4. Petty cash fund (see note below) 1599 20008" fe Tipid Bank current account (see note below) 14," 160,099 {Time deposit placements: Date Tem Dec. 15,2023 30days 30,000 v Oct. 31,2023 80days 40.000 Nov. 30, 2023 180 days 25,000 x & Employee travel advances, 7.000 » fh Cash in bond sinking fund 500,000 i. Customer's note receivable 45.000 J. Postage stamps 2400 , k. Commercial papers issued to retire short-term ‘obligations to mature in 2024 200,000 « The following are included in cash on hand: + nnvren 1 AUDIT OF CASH AND CASH EQUIVALENTS st 2, Cost of sales (96,235,200 « 70%) 74364640 fh Merchandise Ivetory, December 31 69.000 Coos avatable for sale/Purchaes (there 10 egiming Inventory 4993640 est accounts payee, December 31 309.650 Payments for purchases aaae0 Answer: © 34 tsue pce ford shares (1,500,000 + 150,000) 1,680,000 tes payable ~ bank 509,000 Gatectons 5.060.900 “Total cash receipts pr books ea2i2go0 ‘answer: © 4. land 100,000 Buting 100,000 Forte and tures 367,000 Operating expenses paid (P,005,150~P400,000) 605,180 Payments for purchases 4.993.980 ‘Total ash disbursements per books maeis0 Answer: B 5, Cash receots per books (ee 0. 3) 9,219,800 Cash disbursements per books (se no 4) 336.140) Cash balance per books, December 31 eas Answer: B ¢ Bank Unadjusted balances 303,660 892,000 Deposit in vans 304.660 Serice charge (2,000) (Outstanding checks 475.000) Adjusted balances PaLSGo eaL.e8o saswers be(CPA EXAMINATION REVIEWER: AUDITING Pegs en 1 PROBLEM 1.90 caurrin 1 Avo con won tcamnns “ Computation of Cash Receipts and Disbursemane: SOLUTION 1-20 eee h ag ennection with your audit ofthe cash account of ANNIE CORP, y, "You Bathered the folio ke following information 1. Sank eats (ret) n Decanter 2 oe Less: Depot in trast, Noverbe 30 rasasy 60° @ Bala NSF check edeposted in December 11, &_Batence per bank December 3.2023 145,009 ook ce tmontedin December “L140 sneak ‘tal bank receipts (credits) in December 346,009 an cma & Balance per bank December 31,2023 114500, Outstanding checks, Nov. 30, 2023 (including 2. Bank balance, December 1, 2023 P145,000 12,000 paid by bank in December) 67.000 fool eee tee oe coe © Outstanding checks, December 31, 2023 (including Less: Bank balance, December 31, 2023 414.500 ‘checks issued in November) 94,162 Bank disbursements in December 2376.50 Deposit in transit, November 30, 2023 39,458 fom 8 8 Acustomer’s check ceived on December 4, 2023, i aitguretsk bois: rms was returned by bank on December 7 marked tg ingyen "NSE: twas deposed on December 8 2023. can tad ane The only entry made was to ake up the coletion Gee tue Deon, sarang m Decerber 1, sebecember 3 oe Degme + ad Outstanding checks, Dec. 31 P34 162 1. Whatisthe total book resots in December? ves: check ued Ne A. P295,399 . P334,857 (Ps7,000 ~ P12,000) 5000 38162 B. P306,542 ‘D. 346,090 Total 415,662 Tes nt astursorents in Deenter 2. Whats the total bank lsbursements in ecenber? Tutt nook dsbsomers in becom: A 7315500 (._P231.500 Dace ances B. 376500 . P20%.000 nore a Es og9 3 2a 3. What s the total book disbursements in December? ook disbursements (ced) In December es A ps47519 a0 682 B 584519 D pavasi9 ternative computation: a nk dsburseentsin December ne ‘pas Outstanding checks, December 34wen AUDITING PRACT Cy 54 PR EXAMINATION REVIEN Total 0 (470,662 Less: Outstanding checks, Nov. 30 167,000 beersehilaiiag iis 7Btay ‘Book disbursements in December aml ansver: PROBLEM 1-21 Patty Cash Fund; Bank Reconciliation Your audit ofthe cash account of JUNIE CORP. disclosed the following ‘information 1. Cashin bankbalanc per books, Dec. 31,2023 P35,000 2. Bank statement balance, Dec. 31,2023 60,000 3. Note collected by bankin December (principal plus interest of P00, less collection fee ofP200) 27,600 4. Debit memo for a checkbook ? 5. Deposits in transit Dec 31,2023 15,200 6, Transposition errr made by bank in recording deposit of December 28: Correct amount 45,000 Recorded 2s, 4,000 9,000 Erroneous bank debit 26,700 Included in the Cashin bank accounts petty cash fund ‘of 10,000. Your count on December 31, 2023, revealed the folowing fund items: Currency and coins 3.000 ‘Suplies 2,400 Transportation 100 lous 4990 9,500 9. Erroneous bankcredit 11,000 \ <<<. Dave t on cas an exon Jing ober (inchading a certified check of F10,000 1. What is the principal amount of the note collected by bank in December? K 927.600 © 928200 26,800 D. 27,000 22. Whats the adjusted cash in bank balance at December 31,2023) A. 52,500 753.000 B. 52,700 D. P51:900 4. The cost of checkbook s A. 600 © po B F300 D. P10 ‘4, Whatis the amount of petty cash shortage at December 31,2023? A 400 © Pi00 B Ps00 BPO ‘What isthe adjusted petty cash balance? A. P9.500 3,000 8, 73,500 D, P10.000 SOLUTION 1-21 1. Principal (SQUEEZE) 27,000 Inerest 800 ‘collection fee 200) Proceeds credited by bank eso Answer: D 2 Book Bank Unadjusted balances 35,000 760,000 "Note collected by bank 27,600 DebRmeins fora cios2008 (SQUEEZE) (400) Depost in rans 15,200%6 cenesaumATONREVENER AUDITING Mg, a ’ Transpostion error in ecoring depest (P54,000 ~ P45 000) (9,00 Erroneous bank debit 10,000 26,709) Paty cash fund (19,000) Erroneous bank cred (uy, Oustandng chess netol ete heck 000) (38,400 ~ 10,000) sey By Adjusted balances FRE BR) sAnsner: 3. Cost ofcheekbok seem. 2) 2a Answer: D 4. Petty cash fund pe eer 10,009 Betty cash accounted 21509 Petty cash shortage Pag Arner: B 5. Adjusted paty cash bance ~ curren & cons 2.009 Arner: © PROBLEM 1-22 Bank Reconciliation ‘The cash receipts and the cash payments of JERVS COMPANY for April 2023 follow: Cash Receipts (CR) Cash Payment (CP) Date GashDebit Check No ash Credit April2 208,700 4113 44,550 8 20350 4114 7,350 10 27950 aus 96,500 carr Avot F 81 No cas ecurvaents 57 i 199.350 m6 si200 2a 92.700 a7 73:00 2 53,000 aug 50,000 30 1650 ani9 31,600 Total Biza.909 4120 83.750 iat 5,000 az, 20.550 Total sg200 ‘The cash account of Jervs Company shows the following information at April 30,2023: a Date Mtem Re, Debit Credit Balance April 1 Balance 95,550 30 cR 6 528,900 624450 30 cpa 546,200 78,250 Jervs Company received the following bank statement on April 30, 2023: Bank Statement for April 2023 Beginning balance 95.550 Deposits and other Credits April 1 16300 EFT 4 208,700 9 20,350 2 27950 7 109,350 22 68400 BC 2B 92.700 543,750 Checks and other Debits: April 7 44,550 1B 69500 “4 45,150 US 7350 3 20058 CPA EXAMINATION REVIEWER AUDITING PRA, 21 10,950 EFT a 73.600 a 0.000 x0 1000 SC £235.39 Ending balance i planation: rr mites ater SC sernecharge ‘Additional data for the bank reconciliation include the following: ‘The EFT deposit was receipt of monthly ent. The EFT debit wa, a monthly insurance payment. ‘The unauthorized signature check was received from Haro Monty. ‘The P68,400 bank collection of a note receivable on April 22 ‘included P9,250 interest revenue. The correct amount of check number 4115, a payment on account, |sP69,500. (Jers Company's accountant mistakenly recorded the check for P96,500) 1. Whats the amount of deposits in transit on April 30? A rss000 cr past50 a ooaso D. P1500 2. Wat isthe moun ofoustanding checks on Apel 302 A paooo caass0 B paar D paias00 3. Whatisthe mount a bank receipts Api Mer Cp4si0s0 psanaso D. #528900 \ <<< 9 arate 1 ADH OF CAS AD CASH eUVAENS 4. Whatiathe amount of bank disbursements in APF A" naan ae fh 335.300 5 pa650 5, Whatisthe correct cash balance as of Apri 30? 7132850 ¢“pen50 57,700 D P223150, SOLUTION 1-22 epost intansyAp 30 ‘April 29 collection parce ey Aon 30 caleton er| Total Pa2.850 ansier 8 2 Otstarding checks, At check. 3118, pansin Gheck ro 120 3750 Greco 4121 5‘ Check ne 4122 20.550 Tot asian Anse: A 3. Bank receipts in Aol (Total deposits and other credits) P543.750 ser: & 4 Bank sbrsement in Api (Total checks and other debits) (P335.300 “answer: B Book Bank : ‘Unadjusted balances, April 30 78,250 Feo ‘Deposits in transit (enn) Outstanding checks ror in check no. 4115 sue (096,500 ~P69.500)PA EXAMINATION REVIEWER AUDITING PR 60 c ms 16,300 68,400 (45,150) (10,980) — 1,000) Unadjusted to Adjusted Balances Format FERMIN COMPANY check register shows the following entries fp the month of December Date Checks Deposits Balance 2023 Dec. 1 Beginning Balance P 89,300 5 Deposit 65000 154,300 7 Check #14344 P32500 120,800 11 Check #14345 14,000 106,800 26 Deposit 49,000 155,800 29 Check#i4346 6,600 147,200 Fein’ bank reconciliation for November revealed one outstanding check (No. 14343) for P12,000 (written on November 28), and one ‘eposit in transit for 5.550 (made on November 29), ‘The following is from Fermin’ bank statement for December 2023; 2 enim ay Dec. 1 Beginning Balance P95, 750 1 Deposit 5550 101,300 4 Check No, 14348, 32,500 ‘68B00 5 Deposit 56900 124808 A890 CASH teu NvaLENTS 61 14 CheckNo. 14345 14,000 110.800 15 Loan proceeds 500.00 610,800 20. NSF check 74600 603,200 29 Service charge 000 602.200 31 Interest 1600 6015800 ‘Assume that all errors were committed by Fermin Company, not the bank. Based on the preceding information, determine the following: 1. Adjusted cash balance on November 30 ‘A. P89,300 © Pi02,200 B. 95,750 D. P101,300 2, Outstanding checks on December 31 AL P46,500, P8600 B. P45,500 D. 20,600 3. Deposit in transit on December 31 ‘A. P52,600 C. P5350 B. P49,000 D. P4350 4. Total bank receipts in December ‘A, P114,000_ C. P565,150 B. P119,550 D. 61,550 5. Adjusted cash balance on December 31 ‘A. P663,800 c. P748,200 B, 634,200 De P597,200 SOLUTION 1-23 95,750 1, Balance per bank, Nov. 30 z Outstanding check (no, 14343) quem62 a PAEXAMNATION REVIEWER: AUDITING PRacy Depest * Depot in ana rh lnc, Now 30 wis Answer: Since there a bars (2S 78 book recncing items nNovenBer aes ges wth ca nk SEN Pe ee November 30. 2 ctstndng checks on Cee 3 no. 24s heck We 15648 Tea Answer: D 3. Deposit in rar in transit on December 31: Dec. 26 collection Answer: B 4. Total bank receipts in December Answer: © 12,000 8.500 zoo 29,000 P565.150 The total bank receipt the tatalameount credited bythe bank ding the pened, 5. : ‘Unadjusted balances Deposit in transit Outstanding checks (see m0. 2) Error in recording deposit (P5000 ~ P56,000) Error in arithmetic for Check No, 14344 Loan proceeds NSF check Interest ‘Service charge ‘Agjusted balances Ansuer B ook Bank 147,200 P605,800 49,000 (20,600) (2,000) 1000 00,000 (7,600) 3,600 1.000) Pizs200 234.200 —S—... ‘cninrrr [AUDIT OF CASH AND CASH EQUIVALENTS 63 PROBLEM 1-24 ‘Bank Reconciliation Unadjusted to Adjusted Balances Format tn connection with an audit, you are given the following bark reconciliation BANK RECONCILIATION December 31,2023 Balance per ledger, December 31,2023, 34.350 ‘nad: Collections received onthe ast day of ‘December and charged t "Cashin Bank ‘om books but not deposited Debit memo for customer’ check returned inpaid (checks on hand but no entry bas ‘been made on the books) 4000 Debit memo for bank service charge for December —1.000 Pa6.675 5325 Deduct: ‘Outstanding checks (see detailed ist below) Credit memo for proceeds of note receivable which had been [eft atthe bank fr collection but wiieh has not been recorded as collected 8,000 Check for an account payable entered on books as P12,625 but drawn and paid by bank as P6205 A600 Computed balance Unlocated difference Balance per bank (check P19.625 es P4450 26.600 a0 ced to confirmation)64 CPA EXAMINATION REVIEWER. WUDTEING Mc, Mn LST OF OUTSTANDING CHECKS, Dec. 31,2023 Check No. ‘amount 14344 75820 14358 1295 14367 1543 14399 2001 14401 4992 14407 5074 e correct amount of outstanding checks on Decemboy 1. Whats ti 3p A. 18.625 cc p17625 B. P2625 D, 2,625 2. The journal entry to correct the outstanding checks shoug include a ‘A. Debit to Cashin bank of P4000 B. Credit to Cash in bank ofP4,000 Debit to accounts payable of P&,000 D. No journal entry s necessary 3. The correct amount of ‘unlocated difference” is A 32,600 C P36600 2. PO B. 35,600 ‘The Cash in bank tobe shown on the company’s December 31, 4 2023, statement offiriancial postion is A P34,750 C. P33,750 B. P37,350 D. 37,750 The journal ey oat the Cath bank acount December 31 should include a med! Abe Catnbkot 00 Bred ch nbn BDO eee hina POD D, Netto Cshin bank PD ____ 65 SOLUTION 1-24 1. Outstanding checks, Dec. 31 (core total ofthe kt) aR Answer: B 2. journal entry's necessary. Tere is na eformatin i te probien feeuth dicate tat those Included nthe Bist f oustanding checks ‘were nat taken up propery on Books. Answer: D 4g, A comet reconclation (see no, 4) shows that there actualy 20 “unlocated cifference.” Answer: D 4 Bock Bank Unadjusted balances 34,350 51,050 Deposits in transit 5,325 CCastomer’s check returned (4000) Bank serace charge (1,000) Outstanding checks (22,825) Credit meme for note collected 8,000 Understatement of book disbursement 3500) _ Adjusted balances paazo Baz Answer: C [ADJUSTING JOURNAL ENTRIES December 31, 2023 1, Accounts receivable 4,000 ‘Cashin bank 4,000, Bank service charges 2,000 ‘Cashin bank © Cash in bank 8,000 Notes receivable 1,000 8,00066 CPAEXAMMATION REVENER: AUDITING py en, 4. Accounts Payable oo Cash nbank 36 Debi to cash in bank in bank 4 ret to cash n bank (000+ P,000 + P3600) td tcc wenn a Answer € PROBLEM 1-25 ——————sulion of Book Disbursemo~ Computation of Book Disbursemane In connection with your audit of the MARCELO COMPANy December 31, 2023 the fllowing bank reconciliation Was Submit, toyou by an employee of your client: Balance per bank 30,534 Deposits transit 31.856 68,390 Outstanding checks 42,756 225.634 Balance per books Ratsaie ota acs heed fan irier tole 2024, amounted to P22,482. Checks returned by the bank on ae in dtze ule 95438, Of echelon ok Dea, 124, bank statement; and of those issued, according to the el —>S_-_ rn AUDIT OF CASHAND CASH FOUWALENTS 67 owed on the above doa, cotesae the dsursements er g2mpery records 4. the ference green the disbursements per O0KS #8 Fiimputed and as reported is fn PoLst2 10,000 B 2,800 2. 29,874 forthe difference between suggest three possible explanations forthe if 2 Sung arsements per company as computed and 2s eported SOLUTION 1-25 1 outstanding checks, January 35: From December or Before 9,600 From January 200 P16,800 ‘add, Disbursements per bank statement “5838 Total 75,238 Less: Outstanding checks, December 31 42.755 Disbursements per books as computed essa pisbursements per books as computed 732,482 Disbursements per books as reported si Difference in disbursements io.000 Answer: C 2. Three possible explanations forthe above difference: a. The bank disbursements (P58,438) may be overstated by 10,000. Another company check for P10,000 may have been Charged erroneous by the bank against the cent’ account. b. The December 31 outstanding checks may be understated by 10,000. Since the bank reconalation given Inthe problem was68 PAE AMINATION REVIEWER AUDITING y 5 7 ry Prepared Py company employee te 25510nc mn correct. The client nt’s employee may have failed to record check/s ua Y, thus, understating the book dsbursements (P22. 2 4a)" PROBLEM 1-96 TE tam Recon Unadjusted to Adjusted Balances rate a Inauaiting he eat Scotto ounces Sank account for Decne 202 nec the Bank aa! whi honn snip sbeis pushed et (0) Balance perbanksatemen Dec 31,2023 PA7.I74 (2). Balance per books, Dec.31, 2023 19,289 (3) Outstanding checks, Dee 31, 2023 63.000 (4) Receipts of Dec. 31, 2023, deposited Jan.2,2024 6,260 (5)_ Service charge for November, per bank meme of Dec. 15, 2023, 1,000 (6). Proceeds of bank loan, Dec. 15,2023, discounted for 3 months at 18% per annum, omitted from company books 47,750 (7). Deposit of Dec, 2, 2023, omitted from bank statement 970 (8) Check of Milano Co 10 Company, returned on Dec. 21, 2023, for absence of counter-signature and redeposited with complete signature on Jan.3, 2024, no entry on the books having been ——....... aur 1 AUDIT OF CASH AND CASH EQUIVALENTS 0 ule forthe return or redeposit 77300 terror on hank statement in entering deposit of Dee. 18, 2028 Correct amount Entered in statement 1,600 Jeo 1440 (10) Check No 021261 of Yek Company charged by bank in error to ‘company’s account 13,600 ceeds of note of Harthur Co, ‘collected by bank, Dec. 10,2023, not ‘entered in cash book (principal amount of 'P25,000 plus interest of P1,125, less collection fe) 25,625 (42) Erroneous debit memo of Dec. 28,2023, to charge company’s account with Settlement of bankeloan which was paid by check no, 112170 on same date 5000 (1 Pros (13) Error on bankstatement in entering deposit of Dec 4, 2023: Entered as p14,20062 Correct amount 1240062 1,800 (14) Deposit of Bunso Co. of Det: 2, 2023 ‘credited in error to this company 3500 1. Whats the principal amount ofthe loan obtained from bank 8 December? ‘A. P50,000 B. Pa7,750 2, What amount of prepaid interest December 31, 2023, statement of A. P2250) es BPO c. PaB.125 , P49,625 «should be shown on Hector's aneial position? P375, D. P1875postion fe 8 oye amount c P500 A Pais nS 8 riers 44 What fs the atte’ C ¢ Piz p peas 'S_ The Cash in bank per fed increase (decrease) bY 74945) A Pass oe D. P5945) SOLUTION 1-26 pieces recenss = Pcl Ierest 7,750 P~ (PxiB% x 3/12) Sim 2 p-a08r So = ass > = 4778020965 e ‘Ps0.000 sesver & 2 Pepe tres, De 3 (72.250 2.5/8) euazs Arona 2 Prat Ines came series} awe ve . wus es (SQUEEZE) (500) ‘P2s.625 arse € sh in bank balance a8 of Deceme ra, er asof December 31, 2023, shou, HAPTER 1 AUDIT OF cass amo cag ASH Kanone n en a, ae Meee Sty maven i ace 31/23, on Service charge for woven’ 102/28 e200 Proc tt aco) Deposit of 12/22/23, omitted trom bane statement say % ‘Check of Milano Company, charged back (77, aed Error in entering deposit of 12/18/23 ve 4, ‘Check of Yek Company charged in “ era Coe a romearacsteis | asas etree i, Saeco pheno iy 2 csnaieaa age sa ‘ oe ea ceed err oo i am 22 sot am af von '5, Adjusted Cash in bank balance (see ne. 4) — ‘Cash in bank balance per ledger or ag Net crecit adjustment = decreas Answer: © PROBLEM 1-27 a $a econetiaton forthe fiscal You are auditing general cash forthe DION COMPANY fe oarended july 31,2023. Theclenthas not prepared the ly 2 bane year lation. ARer a brief discussion with te owner you agree2 Cen EXAMINATION REVIEWER AUDITING PRC 7 ty jon, with assistance from one of repare the recon General thn Ledger Beginning balance P4610 57539 Deposits bSZss0 Cash receipts journal ey Checks cleared a {ash disbursements journal 18310) jaly bank service charge (870) Notepad directly (61,000) SP check Ending balance ea. June 30 Bank Reconciliation Information in General Ledger and Bank Statement Balance per bank 57,530 Deposits in transit 6,000 Outstanding checks 17420 46,110 Balance per books ‘Additional information obtained is: 11. Checks clearing that were outstanding on June 30 totaled P16,920 2. Checks clearing that were recorded in the July disbursements journal totaled P204,670. 3, Accheck for P10,600 cleared the bank, but had not been recorded In the cash disbursements journal. It was for an acquisition of inventory. Dion uses the periodic inventory method. conten 1 AUDIT OF CASH AND CASH EQUIVALENTS 2B ‘Accheck fr P3,960 was charged to Dion Company but had been ‘writen ona diffrent company’s bank account Deposits included P6,000 from june and P244,560 for July “The bank charged Dion Company's account for a not-sufcient- fund check totaling P3,110. The credit manager concluded that the customer intentionally closed its account and the owner left the city. The check was turned over toa collection agency. 1A note for PS8,000, plus interest, was paid directly tothe bank linder an agreement signed four months ago. The note payable twas recorded at P58,000 on Dion Company's books. sed on facts given, answer the following 1 The checks outstanding on [une 30 amount to A. 9.980 © P13940 B 10830 D. 3.340 2. The deposits in transiton June 30 amount to A. P6890 P6000 B P10,000 D, P30 3 The adjusted cash balance on july 31s A. P6380 P3870 B Pios40 B, P3020, 4. Which ofthe following audit procedures would be used to verify the payment of note in uly? ‘A. Check the arithmetical accuracy of the July 31 reconciliation. B. Check fr absence of nate on july 31 bank confirmation. © Trace payment to duplicate deposi stip D. Obtain cutoff hank statement