ASSIGNMENT 2

AUDIT CASH BALANCE

APPLE BLOSSOM COLOGNE COMPANY
The Apple Blossom Cologne Company has two bank checking accounts. The general
account (account number 101) is with the Big City National Bank, Main at Michigan
Avenue, Chicago, Illinois. It is used for ordinary cash receipts and disbursements
transactions. The payroll account (102) is with the Second National Bank, 615
Lakeway Road, Chicago, Illinois. The payroll account is not an imprest account, and
transfers between it and the general account occur frequently. All transfers are
journalized through the cash receipts journal.
SUBSTANTIVE AUDIT PROCEDURES FOR CASH BALANCE
Lillian Stockton, the treasurer, prepares monthly bank reconciliations for both bank
accounts. You obtained from Don McKenna a copy of the reconciliations for each
bank for the month of December, 2011. You also obtain from Don selected portions
of the cash receipts and cash disbursements journals. You have received from the
banks the confirmations and cut-off bank statements that were requested January 3,
2012. The cut-off bank statements cover the period from January 1 to January 14,
2012.
On December 31, 2011, you were on the clients premises for the purpose of
counting any undeposited cash receipts and the petty cash fund at year-end. The
cashier, Pam Lewis, has charge of the petty cash fund. You obtain control of it,
counted it, recorded your count, and returned it to Pam, obtaining a receipt for its
return. Pam also prepares the company bank deposits. However, on December 31,
2011, she did not prepare a deposit, so you obtained from her the undeposited cash
receipts, listed your count, and returned them to her, obtaining a receipt for their
return. Working papers for these counts are included in the working paper schedule
provided.
The cut-off bank statement, along with items clearing the cutoff period, which you
requested from Big City National Bank, are shown in Exhibit 1. The cutoff statement
and the clearings for the Second National Bank are shown in Exhibit 2. A selected
portion of the cash receipts journal is shown in Exhibit 3, while a selected portion of
the cash disbursements journal is shown in Exhibit 4.
The following is a listing, by working paper index, of the working papers (a)
prepared for you by the client, (b) obtained directly from the banks, and (c)
prepared by you when counting petty cash and undeposited receipts. They are
included for your use in this assignment.
Bank reconciliation Big City National Bank ....................
Standard bank confirmation Big City National Bank.......
Bank reconciliation Second National Bank ....................
Standard bank confirmation Second National Bank.......
Undeposited cash receipts Big City National Bank.........
Petty cash fund.................................................................

A-1
A-2
A-3
A-4
A-6
A-7

Instructions:
1. Write down the audit program to detect the following potential error or
irregularities involving cash receipts, disbursements, and balances:
Cash Receipts:
1. Cash receipts may have been deposited but not recorded in the cash
receipts journal.
2. Cash receipts may have been recorded but not deposited in the bank.
3. Cash receipts may have been credited to the wrong account.
4. The amount of cash receipts may have been incorrectly recorded.
5. Cash receipts may have been recorded in the wrong accounting period.
6. Transfer of cash among bank accounts may have been incorrectly
recorded.
Cash Disbursements:
1. Unauthorized disbursements may have occurred.
2. Disbursements may have been recorded but the check not mailed.
3. Disbursements may have been made but not recorded in the cash
disbursements journal.
4. The disbursement may have been debited to the wrong account.
5. Disbursements may have been recorded in the wrong accounting period.
6. Disbursements related to interbank transfers may have been incorrectly
recorded.
Cash Balances:
1. The bank reconciliation may have been purposefully misfooted to cover a
defalcation.
2. The reconciliation may include fictitious deposits in transit.
3. Outstanding checks may have been omitted from the reconciliation to
conceal a cash shortage.
2. Begin with the list of assertions below and add others as you think appropriate,
then write your audit program to test those assertions.
1. The amount of cash is not materially more than the amount shown on the
balance sheet.
2. All cash has been recorded.
3. Cash is correctly shown as a current asset.
4. No cash is restricted to a noncurrent use.
3. Study the prior years working papers, paying attention to the use of tick marks
to indicate your audit procedures and the system of cross-referencing among
working papers. Gather evidence as necessary from the exhibits, the direct bank
mailings, the client-prepared schedules, and your own observations to perform
your audit work in the cash area. Prepare schedule A-5 in order to analyze the
propriety of interbank transfers.
See current years working paper, index A-1 Bank Reconciliation Big
City National (General)

--------------------------------------------------------------------------------------------------------------------------------------STANDARD BANK CONFIRMATION INQUIRY

ADate, January 3, 2012
Return to: Anderson, Olds, and Watershed
Certified Public Accountants
615 Big City Bank Building
Chicago, Illinois
Report : Big City National Bank
From
Main at Michigan Avenue
Bank
Chicago, Illinois

Your completion of the following report

will be sincerely appreciated IF THE
ANSWER TO ANY ITEM IS NONE PLEASE
SO STATE. Use the enclosed envelope to
return the original directly to our
accountant (see name to left)
Your Truly Apple Blossom Cologne Co.
By Jillian Stockton
Authorized Signature

Bank customer should check here if confirmation of bank balances only (item 1)
is desired.
1. At the close of business on December 31, 2011 our records showed the following
balance (s) to the credit of the above named customer. In the event that we
could readily ascertain whether there were any balances to the credit of the
customer not designated in this request, the appropriate information is given
below:
Subject to withdrawal by
Amou
Account
Remark
check
Account Name
Interest bearing give s
nt
No.
rate
243,6 Apple Blossom
146-2013
X
No
20
Cologne Company
General Account
2. The customer was directly liable to us in respect of loans, acceptances, etc., at
the close of business on that date in the total amount of $ none as follows:

Amoun
t
-

Date
Loan/Disco Due
unt
-

Rate

Interest
Paid
to

Description of Liability,
Collateral, Security
Interests, Liens,
Endorsers, etc.
-

3. The customer was contingently liable as endorser of notes discounted and/or as

guarantor at the close of business on that date in the total amount of $ none as
follows:
Date
Amount Name of Maker
Remarks
Note Due
4. Other direct or contingent liabilities, open letters of credit, and relative collateral.
Were:
None
5. Security agreements under the Uniform Commercial Code or any other
agreements providing for restrictions, not noted above, were as follows (if
officially recorded, indicate date and office in which filed):
None
Date January 7, 2012
Your truly (bank) Big City National Bank
By Buford Chunehill (Cashier)
Authorized Signature Bank
---------------------------------------------------------------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------------------------------------STANDARD BANK CONFIRMATION INQUIRY

ADate, January 3, 2012
Return to: Anderson, Olds, and Watershed
Certified Public Accountants
615 Big City Bank Building
Chicago, Illinois
Report : Second National Bank
From
615 Lakeway Road
Bank
Chicago, Illinois

Your completion of the following report

will be sincerely appreciated IF THE
ANSWER TO ANY ITEM IS NONE PLEASE
SO STATE. Use the enclosed envelope to
return the original directly to our
accountant (see name to left)
Your Truly Apple Blossom Cologne Co.
By Jillian Stockton
Authorized Signature

Bank customer should check here if confirmation of bank balances only (item 1)
is desired.
1. At the close of business on December 31, 2011 our records showed the following
balance (s) to the credit of the above named customer. In the event that we
could readily ascertain whether there were any balances to the credit of the
customer not designated in this request, the appropriate information is given
below:
Subject to withdrawal by
Amou
Account
Remark
check
Account Name
Interest bearing give s
nt
No.
rate
5,791 Apple Blossom
36-118X
No
Cologne Company 402
General Account
2. The customer was directly liable to us in respect of loans, acceptances, etc., at
the close of business on that date in the total amount of $ none as follows:

Amoun
t
-

Date
Loan/Disco Due
unt
-

Rate

Interest
Paid
to

Description of Liability,
Collateral, Security
Interests, Liens,
Endorsers, etc.
-

3. The customer was contingently liable as endorser of notes discounted and/or as

guarantor at the close of business on that date in the total amount of $ none as
follows:
Date
Amount Name of Maker
Remarks
Note Due
4. Other direct or contingent liabilities, open letters of credit, and relative collateral.
Were:
None
5. Security agreements under the Uniform Commercial Code or any other
agreements providing for restrictions, not noted above, were as follows (if
officially recorded, indicate date and office in which filed):
None
Date January 6, 2012
Your truly (bank) Second National Bank
By Wesley Hart (Cashier)
Authorized Signature Bank

------------------------------------------------------------------------------------------------------Apple Blossom Cologne Company

AUndeposited Cash Receipts Big City National
6
12-31-2011

The above checks were examined in my presence and returned to me intact on

this date, 12-31-2011, 3.45 pm

Pam Lewis
Cashier

------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------Apple Blossom Cologne Company

APetty Cash
7
12-31-2011

The above fund was examined I my presence and returned to me intact on this
date, 12-31-2011, 4.30 pm

Pam Lewis
Cashier

------------------------------------------------------------------------------------------------------EXHIBIT 1
BIG CITY NATIONAL BANK CUTOFF BANK STATEMENT AND CLEARINGS

BIG CITY NATIONAL BANK Main at Michigan Avenue, Chicago, Illinois

Statement of Account #146-2013
Apple Blossom Cologne Company
Date
Checks
Deposits
12-31Balance forward
2011
1-3-2012
135, 176
53,250
1-4-2012
10,000
14,670,
111,200
1-6-2012
1,450, 36,000
18,000
1-7-2012
146,880
11,200
1-10-2012 25,355, 150
1,850
1-13-2012 214, 140, 874, 9,600
30,900
1-14-2012 468, 2,950, 565, 10,200, 420,
6,000
37,680

Balance
243,582
296,521
412,391
392,941
257,261
233,606
253,678
207,395

Deposit slips that agree with the above statement were received with the cutoff
bank statement. The following is a list of paid checks that were received with the
cutoff bank statement.
Check
Number
1446

Date of
Check
12-27

Cleared
Bank
1-03

1449
1451
1452
1445
1453
1454

12-27
12-30
12-31
12-27
1-03
1-03

1-03
1-03
1-06
1-06
1-07
1-10

1458
1467
1444
1450
1460
1462
1461
1466
1457

1-06
1-10
12-27
12-30
1-07
1-07
1-07
1-10
1-03

1-10
1-13
1-13
1-13
1-13
1-14
1-14
1-14
1-14

1456
1463

1-03
1-07

1-14
1-14

Payee

Amount

Longhorn Garbage
Disposal
Bertram Hardware
Second National Bank
Second National Bank
Office Decorators
Fruit Juicy Perfume Co.
Hammel, Hammel, &
Johnson
Midtown Office Supply
Dr. Edwar Abel
Lawn Clippers
Quick-Print Printers
Apple Valley Security
William F. Reimann
Alex McBane
Fulton Paper Co.
Edwards, Overstreet &
Gilley
Norton Exterminators
Roberts and Underwood

135
176
10,000
36,000
1,450
146,880
25,355
150
214
140
874
9,600
468
2,950
565
10,200
420
37,680

EXHIBIT 2
SECOND NATIONAL BANK CUTOFF BANK STATEMENT AND CLEARINGS

SECOND NATIONAL BANK 615 Lakeway Road, Chicago, Illinois

Statement of Account #36-118-402
Apple Blossom Cologne Company
Date
12-31-11
1-3-2012
1-4-2012
1-6-2012
1-7-2012
1-10-2012
1-11-2012
1-12-2012

Checks
Balance forward
2,342,
3,134
15,442
14,386
2,742, 10,120
1,545
1,227

Deposits

Balance
5,791
13,449
46,315
30,873
16,487
3,625
2,080
853

10,000
36,000

Deposit slips that agree with the above statement were received with the cutoff
bank statement. The following is a list of paid checks that were received with the
cutoff bank statement.
Check Number

Date
of
Check
12-31

Clear
ed
Bank
1-03

6889,6891,6892,6893,689
4,6898,6899,6900

12-31

1-04

6904,6906,6907,6910,691
1,6913,6914,
6916,6919,6925
6903,6905,6908,6909,
6912, 6915, 6917, 6926
6918,6920,6921,6922,692
3,6924
6927,6929,6931,6932,693
6,6939,6940
6930, 6933, 6937, 6938
6928, 6934, 6935

1-03

6890,6895,6896,6897,
6901,6902

Payee

Amount

2,342

1-06

6 hourly employee (see

cash disbursement journal
for names)
8 hourly employee (see
cash disbursement journal
for names)
10 salaried employees

1-03

1-07

8 salaried employees

14,386

1-03

1-10

8 salaried employees

10,120

1-07

1-10

7 hourly employees

2,742

1-07
1-07

1-11
1-12

4 hourly employees
3 hourly employees

1,545
1,227

EXHIBIT 3
CASH RECEIPTS JOURNAL (Selected Portion)
CASH DEBIT
DATE
SOURCE
163,093
12-24-11
Total brought forward
25,800
12-24
Various A/R Listed
53,250
12-27
Various A/R Listed
10,000
12-30
Big City National Bank

3,134

15,442

CREDIT
163,093
25,800
53,250
10,000
*

14,670
256,813
0
111,200
18,000
11,200
140,400

36,000

12-31

Big City National Bank

46,000

12-31
12-31-11

Various A/R Listed

December totals

1-01-12
1-03
1-04
1-07
1-07-12

Beginning balance
Various A/R Listed
Young and Beautiful
Various A/R Listed
0
Totals forward to next
page
* Cash credit is to Miscellaneous Income, account #950
** Cash credit is to Big City National Bank, account #101

36,000
**
14,670
256,81
3
0
111,200
18,000
11,200
140,40
0

46,00
0
0

EXHIBIT 4
CASH DISBURSEMENTS JOURNAL (Selected Portion)

DATE

CHECK
NUMBE
R

12-24-11
12-27
12-27
12-27
12-27
12-27
12-27
12-30
12-30
12-31
12-31
12-31
12-31
12-31
12-31
12-31
12-31
12-31
12-31
12-31
12-31
12-31
12-31
12-31
12-31-11
1-03-12

PAYEE

Totals brought forward

1444
1445
1446
1447
1448
1449
1450
1451
6889
6890
6891
6892
6893
6894
6895
6896
6897
6898
6899
6900
6901
6902
1452
1453

Lawn Clippers
Office Decorators
Longhorn Garbage Disposal
Gulf States Oil Supply
United Fund
Bertram Hardware
Quick-Print Printers
Second National Bank
Bert Campo
Karl Marker
Earnest Jones
Patricia Sanders
Bruce Jones
Robert Smith
Milton Schaefer
Antonio Salvadore
Susan Billingsley
Robin Botner
Raymond Arthur
Bill Potet
David Johnson
Elizabeth Robertson
Second National Bank
December totals
Fruit Juicy Perfume Co.

DEBIT
ACCOUN
T
NUMBE
R

CASH CREDIT
BIG
SECO
CITY
ND
NAT.
NAT.
212,00
0

8,735

301
140
301
1,450
301
135
830
80
832
25
301
176
301
874
See cash receipts journal
303
416
303
401
303
435
303
401
303
342
303
353
303
403
303
384
303
384
303
393
303
380
303
414
303
365
303
405
See cash receipts journal
214,880 14,211
301
146,880

1-03
1-03
1-03
1-03
1-03
1-06

1454
6903-26
1455
1456
1457
1458

Hammel, Hammel, & Johnson

Salaried employees, Dec. Payroll
Mid-town Office Supply
Norton Exterminators
Edwards, Overstreet, and Gilley
Mid-town Office Supply

301
303
112
301
301
112

25,355

1-07
1-07
1-07
1-07
1-07

1459
1460
1461
1462
1463

Fruit Scents, Inc.

Apple Valley Security
Alex McBane
William F. Reimann
Roberts and Underwood

301
301
301
301
115

7,757
9,600
2,950
468
37,680

1-07
1-07

1464
6927-40

301
303

5,184

1-10
1-10
1-10
1-10
1-10-12

1465
1466
1467
1468

Fruit Juicy Perfuem Co.

Hourly employees weekly
payroll
Hoffmann Supply Co.
Fulton Paper Co.
Dr. Edward Abel
Flash Freight Co.
Totals carried forward

301
301
301
301

240
565
214
404
251,867

39,948
3,800
420
10,200
150

5,514

45,462

-----------------------------------------------------------------------------------------------------------

PRIOR YEARS WORKING PAPERS

--------------------------------------------------------------------------------------------------------------------------------------STANDARD BANK CONFIRMATION INQUIRY

ADate, December, 2011
Your completion of the following report
will be sincerely appreciated IF THE
ANSWER TO ANY ITEM IS NONE PLEASE
SO STATE. Use the enclosed envelope to
return the original directly to our
accountant (see name to left)
Your Truly Apple Blossom Cologne Co.
By Jillian Stockton
Authorized Signature
Bank customer should check here if confirmation
of bank balances only (item 1)
is desired.
1. At the close of business on December 31, 2010 our records showed the following
balance (s) to the credit of the above named customer. In the event that we
could readily ascertain whether there were any balances to the credit of the
customer not designated in this request, the appropriate information is given
below:
Amou Account Name
Account
Subject to withdrawal by
Remark
nt
No.
check
s
Interest bearing give
Return to: Anderson, Olds, and Watershed
Certified Public Accountants
615 Big City Bank Building
Chicago, Illinois
Report : Big City National Bank
From
Main at Michigan Avenue
Bank
Chicago, Illinois

rate
No

483,4
A40

Apple Blossom
146-2013
X
Cologne Company
General Account
2. The customer was directly liable to us in respect of loans, acceptances, etc., at
the close of business on that date in the total amount of $ 125,000 as follows:
Amoun
t
125,00
I-1
0

Date
Loan/Disco Due
unt
4-30-2010

4-302011

Rate

Interest
Paid to

12 %

4-302010

Description of Liability,
Collateral, Security
Interests, Liens,
Endorsers, etc.

Unsecured

3. The customer was contingently liable as endorser of notes discounted and/or as

guarantor at the close of business on that date in the total amount of $ none as
follows:
Date
Amount Name of Maker
Remarks
Note Due
4. Other direct or contingent liabilities, open letters of credit, and relative collateral.
Were:
None
5. Security agreements under the Uniform Commercial Code or any other
agreements providing for restrictions, not noted above, were as follows (if
officially recorded, indicate date and office in which filed):
None
Date January 7, 2011
Your truly (bank) Big City National Bank
By Buford Chunehill (Cashier)
Authorized Signature Bank

--------------------------------------------------------------------------------------------------------------------------------------STANDARD BANK CONFIRMATION INQUIRY

ADate, December, 2011
Your completion of the following report
will be sincerely appreciated IF THE
ANSWER TO ANY ITEM IS NONE PLEASE
SO STATE. Use the enclosed envelope to
return the original directly to our
accountant (see name to left)
Your Truly Apple Blossom Cologne Co.
By Jillian Stockton
Authorized Signature
Bank customer should check here if confirmation
of bank balances only (item 1)
is desired.
1. At the close of business on December 31, 2010 our records showed the following
balance (s) to the credit of the above named customer. In the event that we
could readily ascertain whether there were any balances to the credit of the
customer not designated in this request, the appropriate information is given
below:
Return to: Anderson, Olds, and Watershed
Certified Public Accountants
615 Big City Bank Building
Chicago, Illinois
Report : Second National Bank
From
Main at Michigan Avenue
Bank
Chicago, Illinois

Amou
nt

Subject to withdrawal by
check
Interest bearing give
rate
X
No

Account
No.

Account Name

6,421
A-

Remark
s

Apple Blossom
36-118Cologne Company 402
General Account
2. The customer was directly liable to us in respect of loans, acceptances, etc., at
the close of business on that date in the total amount of $ none as follows:
Amoun
t
-

Date
Loan/Disco Due
unt
-

Rate
-

Interest
Paid to
-

Description of Liability,
Collateral, Security
Interests, Liens,
Endorsers, etc.

3. The customer was contingently liable as endorser of notes discounted and/or as

guarantor at the close of business on that date in the total amount of $ none as
follows:
Date
Amount Name of Maker
Remarks
Note Due
4. Other direct or contingent liabilities, open letters of credit, and relative collateral.
Were:
None
5. Security agreements under the Uniform Commercial Code or any other
agreements providing for restrictions, not noted above, were as follows (if
officially recorded, indicate date and office in which filed):
None
Date January 7, 2011
Your truly (bank) Big City National Bank
By Wesley Hart (Cashier)
Authorized Signature Bank

Apple Blossom Cologne Company

Petty Cash
12-31-2010

A1-216
2012
Pieter

The above fund was examined and counted I my presence and returned to me
intact on this date, 12-31-2010 4.30 p.m.

Pam Lewis

Cashier
Note:
AJE #3 for unreimbursed voucher on 12-31-2010
Miscellaneous Expense
80
Petty Cash Fund
80

---------------------------------------------------------------------------------------------