AUDIT OF CASH
QUIZ
I. MULTIPLE CHOICE
Select the best answer for each of the following. (5 items x 2 points)
1. An auditor for a large rice company is performing an audit of the company’s cash balance. The auditor
is considering the most appropriate audit procedure to use to ensure that the amount of cash is
accurately recorded on the company's financial statements. The most appropriate audit procedures
for the objective are:
a. Examine bank reconciliations, confirm bank balances, and verify cut off of- receipts and
disbursements; foot totals of reconciliations and compare to cash account balances.
b. Review collection procedures and perform an analytical review of accounts receivable; confirm
balances of accounts receivable and verify the existence of appropriate procedures and
facilities.
c. Compare cash receipt lists with the receipts journal and bank deposit slips; review the
segregation of duties, observe, and test cash receipts.
d. Review the organizational structure and functional responsibilities; verify the existence and
describe protection procedures for unused checks, including security measures.
2. While performing an audit of cash, an auditor begins to suspect check kiting. Which of the following
is the best evidence that the auditor could obtain concerning whether kiting is taking place?
a. Documentary evidence obtained by vouching credits on the latest bank statement to supporting
documents.
b. Documentary evidence obtained by vouching entries in the cash account to supporting
documents.
c. Oral evidence obtained by discussing with controller personnel.
d. Evidence obtained by preparing a schedule of interbank transfers.
3. If the balance shown on an entity’s bank statement is less than the correct cash balance and neither
the entity nor the bank has made any errors, there must be
a. Deposits credited by the bank but not yet recorded by the entity.
b. Outstanding checks.
c. Deposits in transit.
d. Bank charges not yet recorded by the entity.
4. When counting cash on hand, the auditor must exercise control over all cash and other negotiable
assets to prevent
a. Theft
b. Substitution
c. Irregular endorsement
d. Deposit in transit
5. The primary audit objective for cash is to establish that the balance is properly stated. This involves
determining:
a. b. c. d.
That cash on hand, as shown in the general ledger, is represented by
currency and coins on hand Yes Yes Yes Yes
Ownership and proper accountabilities No Yes No Yes
That cash balances are available without restrictions No Yes Yes No
II. PROBLEM SOLVING
Determine the requirement in each question. Show your computations. (10 items x 5 points)
A. In connection with your audit of the financial statements of EXO-SC COMPANY for the year ended
December 31, 2019, you gathered the following information.
➢ The company maintains its current account with SM Bank. The bank statement on December 31, 2019
showed a balance of P638,340.
Your audit of the company's account with SM Bank disclosed the following:
• A check for P22,500 received from a customer whose account is current had been deposited and
then returned by the bank on December 28, 2019. No entry was made for the return of this check.
The customer replaced the check on January 15, 2020.
• A check for P5,720 was cleared by the bank as P7,520. The bank made the correction on January
2, 2020.
• A check for P3,500 representing payment of an employee advance was received and deposited
on December 27, 2019 but was not recorded until January 3, 2020.
• Postdated checks totaling P67,300 were included in the deposits in transit. These represent
collections of current accounts receivable from customers. The checks were actually deposited on
January 5, 2020.
• Various debit memos for drafts purchased for payment of importation of equipment totaling
P230,000 were not yet recorded. These purchases were previously set up as accounts payable.
Said equipment arrived in December 2019.
• Interest earned on the bank balance for the 4th quarter of 2019, amounting to P1,950 was not
recorded.
• Bank service charges totaling P1,260 were not recorded.
• Deposit in transit and outstanding checks at December 31, 2019 totaled P136,250 and P276,380,
respectively.
➢ Various expenses from the company’s imprest petty cash fund dated December 2019 totaled P16,250,
while those dated January 2020 amounted to P5,903. Another disbursement from the fund dated
December 2019 was a cash advance to an employee amounting to P3,500. A replenishment of the
petty cash fund was made on January 8, 2020
➢ The company’s trial balance on December 31, 2019 includes the following accounts:
Cash in bank - SM Bank P 748,320
Cash in bank - YG Bank (restricted for plant expansion, expected to be disbursed 700,000
in 2020)
Petty cash fund 30,000
Time deposit, placed December 20, 2019 and due on March 20, 2020 1,000,000
Money market placement 4,000,000
Based on the preceding information, determine the following:
6. What is the adjusted petty cash fund on December 31, 2019?
a. P 4,347
b. P10,250
c. P30,000
d. P24,097
7. The petty cash shortage on December 31, 2019 is
a. P 0
b. P5,903
c. P3,500
d. P4,347
8. What is the adjusted Cash in bank - SM Bank balance on December 31, 2019?
a. P500,010
b. P748,320
c. P432,710
d. P429,110
9. The entry to adjust the Cash in bank - SM Bank account should include a debit to
a. Accounts receivable for P89,800.
b. Accounts receivable for P86,300.
c. Accounts payable for P228,200.
d. Interest expense for P1,950.
10. The December 31, 2019 statement of financial position should show “Cash and cash equivalents” at
a. P6,142,960
b. P5,439,360
c. P4,442,960
d. P5,442,960
B. The cash account of CBX COMPANY shows the following activities:
Date Debit Credit Balance
Nov. 30 Balance P345,000
Dec. 2 November bank charges P 150 344,850
4 November bank credit for notes receivable collected P30,000 374,850
15 NSF check 3,900 370,950
20 Loan proceeds 145,500 516,450
21 December bank charges 180 516,270
31 Cash receipts book 2,121,900 2,638,170
31 Cash disbursements book 1,224,000 1,414,170
CASH BOOKS
RECEIPTS PAYMENTS
Date OR No. Amount Check No. Amount
Dec. 1 110-120 P 33,000 801 P 6,000
2 121-136 63,900 802 9,000
3 137-150 60,000 803 3,000
4 151-165 168,000 804 9,000
5 166-190 117,000 805 36,000
8 191-210 198,000 806 57,000
9 211-232 264,000 807 78,000
10 233-250 231,000 808 90,000
11 251-275 63,000 809 183,000
12 276-300 90,000 810 21,000
15 301-309 165,000 811 24,000
16 310-350 24,000 812 48,000
17 351-390 57,000 813 60,000
18 391-420 27,000 814 66,000
19 421-480 51,000 816 108,000
22 481-500 63,000 817 33,000
23 501-525 96,000 818 150,000
23 - - 819 21,000
23 - - 820 12,000
26 526-555 222,000 821 9,000
28 556-611 15,000 822 36,000
28 - - 823 39,000
29 612-630 114,000 824 87,000
29 - - 825 6,000
29 - - 826 33,000
Totals P2,121,900 P1,224,000
BANK STATEMENT
Date Check Charges Credits
Dec. 1 792 P 7,500 P 25,500
2 802 9,000 33,000
3 - - 63,900
4 804 9,000 60,000
5 EC 243,000 243,000
8 805 36,000 285,000
9 CM 16 - 36,000
10 799 21,150 462,000
11 DM 57 3.900 231,000
12 808 90,000 63,000
15 803 3,000 -
16 809 183,000 255,000
17 DM 61 180 24,000
18 813 60,000 57,000
19 CM 20 - 145,500
22 815 18,000 -
23 816 108,000 141,000
23 811 24,000 -
23 801 6,000 -
26 814 66,000 96,000
28 818 150,000 222,000
28 DM 112 360 -
29 821 9,000 15,000
29 CM 36 - 36,000
29 820 12,000 -
Totals P1,059,090 P2,493,900
Additional information:
1. DMs 61 and 112 are for service charges.
2. EC is error corrected.
3. DM 57 is for an NSF check.
4. CM 20 is for loan proceeds, net of P450 interest charges for 90 days.
5. CM 16 is for the correction of an erroneous November bank charge.
6. CM 36 is for customers’ notes collected by bank in December.
7. Bank balance on December 31 is P1,776,810
Based on the preceding information, determine the following:
11. Outstanding checks at December 31
a. P459,000
b. P477,000
c. P441,000
d. P487,650
12. Deposit in transit at December 31
a. P114,000
b. P139,500
c. P132,000
d. P 0
13. Adjusted bank receipts for the month of December
a. P2,297,400
b. P2,291,400
c. P2,303,400
d. P2,321,400
14. Adjusted book disbursements for the month of December
a. P1,228,440
b. P1,246,440
c. P1,210,440
d. P1,246,620
15. Adjusted bank balance at December 31
a. P1,449,810
b. P1,674,810
c. P1,431,810
d. P1,776,810
Instructions: This task performance consists of two (2) parts: Audit of Cash and Audit of Receivables.
Presented below are a series of unrelated situations. Determine the requirements for each independent
case. (20 items x 5 points)
AUDIT OF CASH
CASE 1: RED VELVET
Your audit of the December 31, 201A, financial statements of Red Velvet Corp. reveals the following:
Current account at Psycho Bank P (30,000)
Current account at Power Up Bank 135,000
Treasury bills (acquired 3 months before maturity) 300,000
Treasury bills (maturity date is Dec. 31, 201B) 1,500,000
Payroll account 390,000
Foreign bank account - restricted 2,000,000
Employee’s postdated check 4,500
IOU from the Lee Soo Man 8,000
Credit memo from a supplier for a purchase return 8,100
Traveler’s check 21,000
Money order 12,900
Petty cash fund (P3,000 in currency and expense receipts for P12,000) 15,000
Required:
1. What amount would Red Velvet Corp. will report its “cash” in the statement of financial position on
December 31, 201A?
2. What amount would Red Velvet Corp. will report its “cash equivalents” in the statement of financial
position on December 31, 201A?
3. What amount would Red Velvet Corp. will report its “cash and cash equivalents” in the statement of
financial position on December 31, 201A?
CASE 2: SEVENTEEN
The auditor for Seventeen, Inc. examined the petty cash fund immediately after the end of the company’s
business year. The petty cash custodian presented the following during the count:
Currency P1,650
Petty cash vouchers:
Postage 420
Office supplies expense 900
Transportation expense 340
Maintenance expense 800
Advances to office staff 1,500
Check drawn by Seventeen, 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 with currency of P1,890 for a gift for a retiring employee 1,890
P16,000
The general ledger shows an imprest petty cash fund balance of P16,000.
Required:
4. How much is the petty cash shortage or overage?
5. What is the adjusted balance of the petty cash fund at year end?
CASE 3: GIRL’S GENERATION
Girl’s Generation Company’s check register shows the following entries for the month of December:
Date Checks Deposits Balance
2019
Dec. 1 Beginning Balance P 89,300
Dec. 5 Deposit P65,000 154,300
Dec. 7 Check No. 14344 P32,500 120,800
Dec. 11 Check No. 14345 14,000 106,800
Dec. 26 Deposit 49,000 155,800
Dec. 29 Check No. 14346 7,600 148,200
Girl’s Generation’s bank reconciliation for November revealed one outstanding check (No. 14343) for
P12,000 (written on November 28), and one deposits in transit for P5,550 (made on November 29).
The following is from Girl’s Generation’s bank statement for December 2019:
Date Checks Deposits Balance
2019
Dec. 1 Beginning Balance P95,750
Dec. 1 Deposit P5,500 101,300
Dec. 4 Check No. 14344 P32,500 68,800
Dec. 5 Deposit 56,000 124,800
Dec. 14 Check No. 14345 14,000 110,800
Dec. 15 Loan proceeds 500,000 610,800
Dec. 20 NSF check 7,600 603,200
Dec. 29 Service charge 1,000 602,200
Dec. 31 Interest 3,600 605,800
Assume that all errors were committed by Girl’s Generation Company, not the bank.
Required:
6. What is the adjusted cash balance on November 30?
7. How much is the outstanding checks on December 31?
8. How much is the deposit in transit on December 31?
9. How much is the total bank receipts in December?
10. What is the adjusted cash balance on December 31?
AUDIT OF RECEIVABLES
CASE 1: ELIZALDE COMPANY
On January 1, 201A, Elizalde Company loaned P3,000,000 to Buenaventura Company. The terms of the
loan were payment in full on January 1, 201F, plus annual interest payments at 11%. The interest payment
was made as scheduled on January 1, 201B; however, due to financial setbacks, Buenaventura was unable
to make its 201C interest payment. Elizalde considers the loan impaired and projects the following cash
flows from the loan as of December 31, 201C and 201D. Assume that Elizalde accrued the interest at
December 31, 201B, but did not continue to accrue interest due to the impairment of the loan.
Amount projected as of
Date of Flow Dec. 31, 201C Dec. 31, 201D
December 31, 201D P 200,000 P 200,000
December 31, 201E 400,000 600,000
December 31, 201F 800,000 1,200,000
December 31, 201G 1,200,000 1,000,000
December 31, 201H 400,000
Required:
Your client requested you to determine the following: (Round-off present value factors to four decimal
places)
1. Loan impairment (bad debt expense) for the year 201C.
2. Interest income for 201D assuming the P200,000 was collected on December 31, 201D as scheduled.
3. Allowance for loan impairment as of December 31, 201D.
4. Interest income for 201E assuming the P600,000 was collected on December 31, 201E as scheduled.
5. Carrying amount of loan receivable as of December 31, 201E.
CASE 2: PACALA CORPORATION
The balance sheet of Pacala Corporation reported the following long-term receivables as of December 31,
201A:
Notes receivable from sale of plant P9,000,000
Notes receivable from officer 2,400,000
In connection with your audit, you were able to gather the following transactions during 201B and other
information pertaining to the company’s long-term receivables:
a. The notes receivable from sale of plant bears interest at 12% per annum. The notes are payable in 3
annual installments of P3,000,000 plus interest on the unpaid balance every April 1. The initial principal
and interest payment were made on April 1, 201B.
b. The notes receivable from officer is dated December 31, 201A, earns interest at 10% per annum, and
is due on December 31, 201D. The 201B interest was received on December 31, 201B.
c. The corporation sold a piece of equipment to Lover, Inc. on April 1, 2019, in exchange for a P1,200,000
non-interest-bearing note due on April 1, 201D. The note had no ready market, and there was no
established exchange price for the equipment. The prevailing interest rate for a note of this type at April
1, 201B, was 12%. The present value factor of 1 for two periods at 12% is 0.797 while the present value
factor of ordinary annuity of 1 for two periods at 12% is 1.690.
d. A tract of land was sold by the corporation to Peace Co. on July 1, 201B, for P6,000,000 under an
installment sale contract. Peace Co. signed a 4-year 11% note for P4,200,000 on July 1, 201B, in
addition to the down payment of P1,800,000. The equal annual payments of principal and interest on
the note will be P1,353,750 payable on July 1, 201C, 201D, 201E, and 201F. The land had an
established cash price of P6,000,000, and its cost to the corporation was P4,500,000. The collection of
the installments on this note is reasonably assured.
Required:
Based on the above and the result of your audit, determine the following:
6. Non-current notes receivable as of December 31, 201B.
7. Current portion of long-term notes receivable as of December 31, 201B.
8. Accrued interest receivable as of December 31, 201B.
9. Unamortized discount on note receivable from sale of equipment on December 31, 201B.
10. Interest income for the year ended December 31, 201B.
