Professional Documents
Culture Documents
Audit Objectives
To determine that:
1. Cash balances at the end of the reporting period represent cash and cash items on
hand, in transit to, or in depository banks.
2. Cash transactions have been properly recorded.
3. Cash balances are properly described and classified, and adequate disclosures with
respect to amounts restricted to withdrawal are made in the financial statements.
Audit Procedures
1. Conduct a cash count of undeposited collections, petty cash 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:
o Undeposited collections should be traced to bank deposits
o Checks accommodated in petty cash should be deposited after the count
to establish their validity
o IOU’s in the petty cash should be confirmed and traced to collections in
the next payroll period.
o Expense vouchers should be traced to the succeeding replenishment
voucher.
2. Confirm bank balance by direct correspondence with all banks in which the client
has had deposits and loans during the year
3. Obtain or prepare 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 the bank.
Establish authenticity of reconciling items by reference to their respective
sources, like:
o Bank debit or credit advices
o Duly approved journal vouchers
Investigate checks outstanding for a long period of time.
o Consider adjustments, especially if the check is already stale
o Consider the possibility 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.
4. Obtain cut off bank statement showing the clients transactions with the bank at least
one week after the reporting date and:
trace year end reconciling items like:
o deposit of the year end undeposited collections
o completeness of year end outstanding checks
o corrections of bank errors
Examine supporting documents of year end outstanding checks that did not
clear in the cut off bank statement.
5. Obtain a least of interbank transfer of funds a few days before and after the
reporting date.
Vouch supporting documents
Ascertain that the related receipts and disbursements were booked by the client
within the same day or at least within the same month.
Problem 1-1
In connection with your audit of the financial statements of ONOR Company for the
year ended December 31, 2010, you gathered the following information.
1. The company maintains its current account with Tsunami Bank. The bank statement
on December 31, 2010 showed a balance of P638,340.
Your audit of the company’s account with Tsunami 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, 2010. No entry
was made for the return of this check. The customer replaced the check on
January 15, 2011.
A check for P5,720 was cleared by the bank as P7,520. The bank made the
correction on January 2, 2011.
A check for P3,500 representing payment of an employee advance was received
and deposited on December 27, 2010 but was not recorded until January 3,
2011.
Post dated 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, 2011.
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
2010.
Interest earned on the bank balance for the 4th quarter of 2010 amounting to
P1,950 was not recorded.
Deposit in transit and outstanding checks at December 31, 2010 totaled
P136,250 and P276,380mrespectively.
Bank service charges totaling P1,260 were not recorded.
2. Various expenses from the company’s imprest petty cash fund dated December
2010 totaled P16,250 while those dated January 2011 amounted to P3,500 a
replenishment of petty cash fund was made on January 8, 2011.
3. The company’s trial balance on December 31, 2010 includes the following
accounts:
1. What is the adjusted Petty cash fund balance on December 31, 2010?
a.P4,347
b.P10,250
c.P30,000
d.P24,097
a. P 0
b. P5,903
c. P3,500
d. P4,347
3. What is the adjusted cash in bank Tsunami bank balance on December 31,2010?
a. P500,000
b. P748,320
c. P432,710
d. P429,110
4. The entry to adjust the cash in bank – Tsunami bank account should include a debit to
5. The December 31, 2010 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
Solution 1-1
Answer: B
Answer: A
3.
Book Bank
Unadjusted balances P748,320 P638,340
NSF checks (22,500)
Bank error (7520-5720) 1,800
Unrecorded cash receipt 3,500
Post dated checks (67,300)
Deposit in transit (136,250-67300) 68,950
Banf debit memos (230,000)
Interest earned 1,950
Bank service charges (1,260)
Outstanding checks (276,380)
Adjusted balances P432,710 P432,710
Answer: A
Problem 1-2
The following are the cash balances of LEONOR, INC. at December 31, 2010:
Leonor, Inc has agreed to maintain a P200,000 compensating balance in its unrestricted
current account in accordance with the loan covenant.
How much should Leonor, Inc. report as cash on its December 31, 2010 statement of
financial position?
A. P590, 200
B. P2,790,200
C. P790,200
D. P750,000
Solution 1-2
What is the correct cash balance of cash and cash equivalents to be reported in the current
assets section of the statement of financial position?
a. P547,480
b.P427,480
c.P430,280
d.P327,480
Solution 1-3
Answer: B
Problem 1-4
Identifying Cash Items
Which of the following items should be included in the cash balance at December 31,
2010?
I. A check payable to the company, dated January 3, 2011, in payment of sale made in
December 2010.
II. A check payable to a vendor, dated and recorded in the company’s books on
December 31, 2010, but not released until January 4, 2011.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
Solution 1-4
The check payable to the company is a postdated check, dated after the end of the
reporting period. The amount should be shown as a receivable on the December 31,
2010 statement of financial position.
The disbursement check was not released until after the end of the reporting period,
the amount should be included in the cash balance at December 31, 2010.
Answer: B
Problem 1-5
Your audit of the December 31, 2010, financial statements of Dionisio Corp. reveals the
following:
What amount would be reported as “Cash and Cash Eequivalents on the statement of
financial position on the December 31, 2010?
A. P840,050
B. P873,900
C. P849,400
D. P861,900
Solution 1-5
Answer: D
Problem 1-6
Compensating Balance
VICTORIA, INC. needs P2,000,000 to finance its expansion program. Victoria, Inc. is
negotiating a loan with Metropolis Bank which requires the company to maintain a
compensating balance of 10% of the loan principal on deposit in a current account at the
bank. Victoria, Inc. currently maintains a balance P20,000 in its current account. The
current account earns interest of 2% per annum; the interest rate on the loan is 12% per
annum.
a. P2,200,000
b. P2,000,000
c. P1,980,000
d. P2,220,000
a.13.2%
b.11.8%
c.13%
d.12%
Solution 1-6
Answer:A
2.
Annual interest payment (2,200,000) 264,000
Interest income on the loan proceeds in the
compensating balance (200,000 x 2%) 4000
Effective interest 260,000
Divide by loan proceeds 2,000,000
Effective interest rate 13%
Answer: A
Problem 1-7
Computation of Correct Cash balance
The cash account of the BEA CORPORATION as of December 31, 2010 was composed of
the following:
What is the amount to be reported on the December 31, 2010 statement of financial
position of BEA company?
Solution 1-7
Problem 1-8
a. P380 overage
b. P380 shortage
c. P1880 Shortage
d. P1,880 overage
2. What entry would be required to adjust the petty cash fund on December 31,2010?
a. Miscellaneous general expenses 8120
Cash short or over 380
Petty cash fund 8500
b. Miscellaneous general expenses 8120
Cash short or over 380
Petty cash fund 7,740
c. Miscellaneous general expenses 8120
Petty cash fund 8120
d. Miscellaneous general expenses 8,500
Cash short or over 380
Petty cash fund 8120
Solution 1-8
1.
Cash P1,500
Miscellaneous general expenses 8,120
Petty cash accounted (9,620)
Petty cash per ledger 10,000
Petty cah shortage P 380
Answer: B
2.
Miscellaneous general expenses 8,120
Cash short or over 380
Petty cash fund 8,500
Answer: A
Problem 1-9
The auditor for Samantha, Inc. examined the petty cash fund immediately after the close of
business, July 31, 2010, the end of the company’s natural business year. The petty cash
custodian presented the following during the count:
Currency P1,650
Petty cash vouchers
o Postage 420
o Office supplies expense 900
o Transportation expense 340
o Computer repairs 800
o Advances to office staff 1,500
A check drawn by Samantha, Inc payable to the
petty cash custodian 7,200
Postage stamps 300
An employees check, returned by the bank, marked NSF 1000
An envelope containing 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.
a. P2,190 overage
b. P2,190 shortage
c. P1,890 shortage
d.P1,890 overage
2. What is the adjusted balance of the petty cash fund at July 31, 2010?
a. P10,740
b.P3,540
c.P7,200
d.P8,850
Solution 1-9
1.
Currency P1,650
Petty cash vouchers (420+900+340+800+1,500) 3,960
Replenishment check 7,200
Employee’s NSF check 1,000
Petty cash accounted 13,810
Petty cash fund per ledger 16,000
Petty cash shortage P2,190
Answer: B
2.
Currency P1,650
Replenishment check 7,200
Adjusted petty cash balance P8,850
Answer: D
Problem 1-10
On January 1, TANYA CO. establishes a petty cash account and designates Orly Reyes
as petty cash custodian. The original amount included in the petty cash fund is P10,000.
The following disbursements are made from the fund:
1. The person responsible at all times for the amount of the petty cash fund is the
2. The following are appropriate procedures for controlling the petty cash fund, except
a. To monitor variations in different types of expenditures, the petty cash custodian files
petty cash vouchers by category of expenditure after replenishing the fund.
b. To replenish the fund, the general cashier issues a company check to the petty cash
custodian, rather than cash.
c. To determine that the fund is being accounted for satisfactorily, surprise counts of the
fund are made from time to time by the internal auditor or other responsible official.
D. Each individual to whom petty cash is paid is required to present signed receipts to the
petty cash custodian.
5. What is the effect of not replenishing the petty cash at year end and not making any
adjusting entries?
Solution 1-10
1. One individual, the petty cash custodian, should be responsible for the petty cash fund.
Answer: C
2. The petty cashier should not have custody of paid petty cash vouchers to prevent their
reuse.
Answer: A
Answer: C
Answer: D
Problem 1-11
In connection with your audit of the financial statements of Benjamin Corp. for the year
ended December 31,2010, you conducted a surprise count of the company’s petty cash fund
and undeposited collections at 8:20 a.m. on January 3, 2011. Your count disclosed the
following:
Checks
Date Payee Maker Amount
Dec. 30 Cash Custodian P 1,200
Dec. 30 Benjamin Corp. SLV, Inc. 14,000
Dec. 31 Benjamin Corp. Mario Lansang,
Sales manager 1,680
Dec. 31 Benjamin Corp. MSU Corp 17,800
Dec. 31 Benjamin Corp. Ateneo, Inc. 8,300
Dec. 31 Taiwan Corp.
(not endorsed) Benjamin Corp. 27,000
Unreimbursed Vouchers
1. Unclaimed pay envelope of Juan MacDonut. Indicated on the pay slip is his net salary of
P7,500. Your inquiry revealed that Juan’s salary is mingled with the petty cash fund.
2. The sales manager’s liquidation report for his Tagaytay City trip.
Cash advance received on December 23 P20,000
Less: Hotel accommodation, meals, etc. 16,000
Bus fare for two 1,200
Cash given to Pablo, salesman 1,000 18,200
Balance P1,800
Additional information:
3. The petty cash balance per general ledger is P25,000. The last replenishment of the fund
was made on December 22, 2010.
a. P240
b. P1,800
c. P120
d. P 0
a. P44,300
b. P84,300
c. P57,300
d. P41,000
3. The adjusting entries on December 31, 2010 should include a net debit to Travel
Expenses of
a.P17,320
b.P18,320
c.P18,200
d.P18,080
a. P22,450
b. P22.085
c. P22,570
d. P22,205
a. P22,166
b. P8,166
c. P22,406
d. P20,486
Solution 1-11
1.
Cash advance P 20,000
Less: Actual cash disbursed
Hotel, meals, etc P16,000
Bus fare 1,200
Pablo (1,000-120) 880 18,080
Cash that should be returned 1,920
Cash actually returned 1,680
Shortage due from sales manager P 240
Answer: A
4. Unreimbursed vouchers
(20,000 + 1,620 + 150 + 800) P22,570
Answer: C
Answer: A
Benjamin corp.
Cash Count Sheet
January 3, 2011 – 8:20 a.m.
Checks
Date Maker Amount
Dec. 30 Custodian P 1,200
Dec. 30 SLV, Inc. 14,000
Dec. 31 Mario Lansang,
Sales manager 1,680
Dec. 31 MSU Corp 17,800
Dec. 31 Ateneo, Inc. 8,300 P42,980
Unreimbursed Vouchers
Benjamin corp.
Adjusting Journal Entries
December 31, 2010
1. Cash 14,000
Accounts receivable 14,000
4. Cash 7,500
Salaries Payable 7,500
6. Travel expenses
(16,000 + 1,200 + 880) 18,080
Petty cash fund 1,680
Advances to officers and employees 19,760
Problem 1-12
On July 7, 2011, Aning Corp. received its bank statement for the month ending June 30.
The statement showed a P209, 500 balance while the cash account balance on June 30 was
P35, 000. In reconciling the balances, the auditor discovered the following:
1. The June 30 collections amounting to P176,000 were recorded on the books but
were not deposited until July.
2. The banks charged the company for a DAUD (Drawn Against Uncollected Deposit)
check of a customer.
3. A paid check for P24,300 was entered incorrectly in the cash disbursements journal as
P42,300.
4. Outstanding checks as of June 30 was totaled P354,400.
Solution 1-12
1. Customer’s DAUD check (see no. 2) P21,900
2 Book Bank
Unadjusted balances P 35,000.00 P 209,500.00
b. Cash 18,000
Accounts payable 18,000
Or
4. D General ledger
Problem 1-13
The following data were taken from Garay’s check register for the month of April. Garay’s
bank reconciliation for March showed one outstanding check no. 178 for P2,150 (written
on March 20), and one deposit in transit for P4,350 (made on March 31).
Date Item Checks Deposits Balance
2011
April 1 Beginning balance 6,150
1 Deposits 26,167 32,317
1 Check No. 179 250 32,567
4 Check No. 180 10,672 21,898
27 Deposits 11,774 33,672
29 Check No. 181 13,217 20,490
Solution 1-13
Book Bank
Unadjusted balances 20,490 30,426
Outstanding checks:
Check No. 178 2,150
Check No. 181 13,217 (15,367)
Deposit in trasit 11,774
Error in recording deposits (26,417-26,167) 250
Automatic loan 8,150
Interest 82
NSF check (1,000)
Bank service charge (600)
Arithmetic error for:
Check No. 179 (32,567-32,067) (500)
Check No. 180 (21,898-21,894) (4)
Check No. 181 (20,490-20,455) (35)
Adjusted balances 26,833 26,833
Answer: A
Problem 1-14
The cash balance in the books of Charmaine Company on December 31, 2011, is:
A. P26,020 C. P22,200
B. P32,100 D. P26,100
Solution 1-14
Answer: D
Problem 1-15
Computation of outstanding checks
The bank reconciliation for December for Donnie Co. included the following information:
Solution 1-15
Answer: A
Problem 1-16
Elaine Inc.’s newly hired accountant prepared the following cash reconciliation as of June
30, 2011:
BANK BOOK
Unadjusted balance 268,367 79,367
Deposits in transit (15,000)
Bank service charge 1,000
Check written and recorded on
June 30 but was released on July (12,000)
Outstanding checks 36,000
NSF check 17,000
Loan proceeds (company not informed) 200,000
Erroneous bank debit 15,000
Customers' check received on June 29
(all dated July 6) included in DIT 9,000
Certified check 11,000
Unlocated difference 345,000
Total 477,367 477,367
The adjusted cash balance of Elaine Inc. on June 30, 2011, should be
A. P265,367 C. P273,367
B. P253,367 D. P264,367
Solution 1- 16
BOOK BANK
Unadjusted balance 79,367 268,367
Deposits in transit, net of postdated checks 6,000
Bank service charge (1,000)
Unreleased check 12,000
Outstanding checks, net of certified check (25,000)
NSF check (17,000)
Loan proceeds (company not informed) 200,000
Erroneous bank debit 15,000
Postdated checks (9,000)
Total 264,367 264,367
Answer: D
Problem 1-17
CHECK REGISTER
December 2011
Date Payee No. Vouchers Payable Discount Cash
Dec. 1 San Beda, Inc. 4342 10,000 500 9,500
3 Miriam Corp. 4343 4,200 - 4,200
7 UE Enterprise 4344 3,755 - 3,755
12 PSBA Corp 4345 12,000 120 11,880
15 Payroll 4346 96,000 - 96,000
16 BU, Inc. 4347 6,300 - 6,300
18 New Era Co. 4348 14,200 142 14,058
21 UST, Inc. 4349 7,000 - 7,000
22 Petty cash fund 4350 10,000 - 10,000
28 Payroll 4351 98,000 - 98,000
Total 261,455 762 260,693
BANK STATEMENT
BANKABLE BANK
PERIOD: NOVEMBER 30, 2011- DECEMBER 31, 2011
No: 001-43-44
Solution 1- 17
1.
Dec. 5 Deposit 49,000
8 Deposit 14,000
31 Deposit in transit 49,000
Total collections/Book receipts 112,000
Answer: D
2.
Cash balance, November 30 432,825
Add: December receipts (see no.1) 112,000
Total 544,825
Less: Disbursement per check register 260,693
Cash balance, December 31 284,132
Answer: A
3.
Outstanding checks, December 31:
Check no. 4321 6,000
4340 1,700
4345 11,880
4347 6,300
4348 14,058
4349 7,000
Total 46,938
Answer: A
The balance per books as determined and shown on the November 30 reconciliation is also
the adjusted cash balance on that date. Notice that there are no book reconciling items in
November
Answer: C
5.
Book Bank
Unadjusted balances 275,132 273,620
Deposits in transit 49,000
Outstanding check (46,938)
Service charge (1,000)
Interest 1,550
Adjusted balances 275,682 275,682
Answer: B
Problem 1-18
Edgardo Co. was organized on January 2, 2011. The following items are from the
company’s trial balance on December 31, 2011.
Solution 1-18
1. Sales P6,235,200
Less: Accounts receivable 165,400
Collections from customer P6,069,800
Answer: D
Answer: C
Answer: C
4. Land P1,000,000
Building 1,400,000
Furniture and fixtures 367,000
Operating expense, net of dep’n 605,150
Payment for Purchases 4,043,990
Total cash disbursement per books P7,416,140
Answer: B
Answer: B
6.
Book Bank
Unadjusted balances 803,660 892,000
Deposits in Transit 384,660
Service charge (2,000)
Outstanding check (475,000)
Adjusted balances 801,660 801,660
Answer: A
Problem 1-19
In connection with your audit of cash account of Annie Corp., you gathered the following
information.
Solution 1-19
1.
Bank receipts in December 346,000
Less: Deposits in transit,November 30 39,458
NSF check redeposited in December 11,143 50,601
Book receipts in December 295,399
Answer: A
2.
Bank balance, December 1, 2011 145,000
Add: Bank receipts in December 346,000
Total 491,000
Less: Bank balance, December 31, 2011 114,500
Bank disbursement in Decemer 376,500
Answer: B
3.
Bank disbursement in December 376,500
Add: Book disbursement in December but
not in December bank disbursement:
check issued in December, outstanding
at December 31:
Outstanding checks, Dec 31 94,162
Less: Check issued in Nov.,
still outstanding at Dec. 31
(67000-12000) 55,000 39,162
Total 415,662
Less: Bank disbursement in December
but not in the book disbursement in Dec.
November outstanding checks
paid by bank in December 12,000
NSF check 11,143 23,143
Book disbursement in December 392,519
Answer: D
Problem 1-20
Your audit of the cash account of Junie Corp. disclosed the following information:
Solution 1-20
2.
Book Bank
Unadjusted Balances 35,000 60,000
Note collected by bank 27,600
Debit memo for checkbook (100)
Deposit in transit 15,200
Transposition error in recoding deposit
(54000-45000) (9,000)
Erroneous bank debit 26,700
Petty cash fund (10,000)
Erroneous bank credit (11,000)
Outstanding check, net of certified check (29,400)
Adjusted balances 52,500 52,500
Answer: A
Answer: D
Answer: B
Answer: C
Problem 1- 21
Presented below is the November 30, 2011, reconciliation of the cash account of Ram, Inc.:
Additional information:
Solution 1-21
Answer: B
PROBLEM 1-23
Fermin Company’s check register shows the following entries for the month of December:
Date 2010 Check Deposit Balance
Dec Beginning Balance P 89,300
1
5 Deposit P 65,000 154,300
7 Check # 14344 P 32,500 120,800
11 Check # 14345 14,000 106,800
26 Deposit 49,000 155,800
29 Check # 14346 8,600 147,200
Fermin’s bank reconciliation for November revealed one outstanding check (# 14343) for
P12,000 (written on November 28), and one deposit in transit for P5,550 (made on November
29).
The following is from Fermin’s banks statement for December 2010:
Date Checks Deposits Balance
2010
Dec Beginning Balance P 95,750
1
1 Deposit P 65,000 101,300
4 Check # 14344 P 32,500 68,800
5 Deposit 26,000 124,800
14 Check # 14345 14,000 110,800
15 Loan Proceed 500,000 610,800
20 NSF Check 7,600 603,200
29 Service Charge 1,000 602,200
31 Interest 3,600 605,800
Assume that all errors were committed by Fermin Company, not the Bank.
Problem 1-24
The accountant of Narcisa Co. provided the following data in recording the April 30 cash in bank
balance
Problem 1-25
The following information is included in Emil Corporation’s bank statement for the month of
March:
A costumer’s check has been marked “NSF” by
the bank and returned P 13,000
Bank service charge for the March 1,200
In comparing the bank statement to the company’s cash records, you found:
Outstanding checks on March 31 P 184,000
Deposit made but are not yet shown in April
Bank statement 14,000
The deposit in transit and outstanding checks have been correctly taken up in the company’s
books. You also found a costumer’s check for P17,400 that had not yet been deposited and had
not yet been recorded in Emil’s books. Your clients books shows a cash balance of P36,420
Problem 1-26
The following information to the checking account of a company at June 30,2010.
Problem 1-27
A company is reconciling its bank statement with internal records. The cash balance per
company’s books is P45,000. There are P5,00 of bank charges not yet recorded, P7,500 of
outstanding checks, P12,500 of deposit in transit, and P15,000 of bank credits and collections
not yet taken up in the company’s books.
Problem 1-28
A company shows a cash balance of P175,000 on its bank statement stated June 3. As of June
30, there are P55,000 of outstanding checks and P37,500 of deposit in transit.
What is the correct cash balance on the company books as of June 30?
a. P212,500 c. P120,000
b. P267,500 d. P157,500
Problem 1-29
The cash account shows a balance of P225,000 before reconciliation. The bank statement does
not include a deposit of P11,500 made on the last day of the month. The bank statement shows
a collection by the bank of P4,700 and a customer’s check for P1,600 was returned because it
was NSSF. A customer’s check for P2,250 was recorded on the books as P2,700 and a check
written for P395 was recorded as P485.
Problem 1-30
On July 5, 2010, Emilia Corp, received its bank statement for the month ending June 30. The
statement showed a P209,500 balance while cash account balance on June 30 was P35,000. In
reconciling the balances, the auditor discovered the following
1. The June 30 collections of P176,000 were recorded on the books but were not deposited until
July.
2. The bank service charges for the month June totaled P3,000.
3. A paid check for P24,300 was entered incorrectly in the cash payment journals as P34,200.
Problem 1-31
In connection with an audit you are given the following bank reconciliation.
BANK RECONCILAITION
December 31,2010
Balance per ledger, December 31, 2010 P 34,350
Add: Collection received on the last day of December and charged to
Cash in Bank on books but not deposited 5,325
Debit memo for the customer’s returned unpaid (check is on
hand but no entry has been made on the books) 4,000
Debit memo for the bank service charge for December 1,000
P 46,675
Deduct: Outstanding checks (see listed below) P 18,625
Credit memo for the proceeds of a note receivable which had
been left at the bank for the collection but which has not been 8, 000
recorded as collected
Check for an account payable entered on books as P12,625 but
drawn and paid by bank as P16,225 3,600
32,225
Computed balance P 14,450
Unlocated difference 36,600
Balance per bank (checked to confirmation) P 51,050
4. The cash in Bank to be shown on the company’s December 31, 2010 statement of financial
position is ?
a. P34,750 c. P33,750
b. P37,350 d. P37,750
5. The journal entry to adjust the Cash in bank account as of December 31 should be
a. Dr to Cash in Bank for P8,000 c. Net Cr to Cash in Bank of P600
b. Cr to Cash in Bank for P8,600 d. Net Dr to Cash in Bank of P600
Problem 1-32
In connection with you audit of the Marcelo Company at December 31,2010 the following bank
reconciliation was submitted to you by employee of your client:
Balance per Bank P 30,534
Deposit in Transit 37,856
P 68,390
Outstanding Check 42,756
Balance per books P 25,634
As part of your verification, you obtain the bank statement and canceled checks from the bank
on January 15, 2011. According to the records of the company, checks issued from January 1 to
January 15, 2011, amounted to P22,482. Checks returned by the bank on January 15,2011,
totaled P58,438. Of the checks outstanding on December 31, 2010, P9,600 were not returned by
the bank with January 15,2011, bank statement; and of those issued, according to the records of
the company, in January 2011, P7,200 were not returned by the bank.
Based on the above data, calculate the disbursements per company records
1. The difference between the disbursement per books as company and reported is
a. P61,912 c. P10,000
b. P2,800 d. P29,874
2. Suggest three possible explanations for the difference between the disbursement per
company as computed an as reported.
Problem 1-33
In auditing Hector Company, you obtained the bank statement canceled checks, and other
memoranda which related to the company bank account for December 2010. In reconciling the
bank balance with that shown on the company’s books, you observed the facts set forth below:
1. What is the principal amount of the loan obtained by the bank in December?
a. P50,000 c. P48,125
b. P47,750 d. P49,625
2. What amount of the prepaid interest should be shown on Hector’s December 31,2010
statement of financial position?
a. P2,250 c. P375
b. P 0 d. P1,875
5. The cash in bank per ledger as of December 31,2010, should be increased (decreased) by
a. P4,945 c. P(4,945)
b. P5945 d. P(5,945)
SOLUTIONS
Problem 1-22
1. Deposit in Transit, April 30
April 29 collection per CR P 53,000
April 30 collection per CR 16,850
Total P 69,850
Answer: B
2 Outstanding checks, April 30:
Check no. 4119 P 31,6000
Check no. 4120 83,750
Check no. 4121 5,000
Check no. 4122 120,650
Total P 241,000
Answer: A
5 Book Bank
Unadjusted balances, April 30 P 78,250 P 304,000
Deposit in Transit 69,850
Outstanding checks
Error in check no. 4115
(P96,500 – P69,500) ( 241,000 )
EFT – rent 27,000
Bank collection 16,300
Unauthorized signature check 68,400
EFT – insurance ( 45,150 )
Service charge ( 10,950 )
Adjusted balances, April 30 P 132,850 P 132,850
Answer B
Problem 1-23
1. Balance per Bank, Nov 30 P 95,750
Outstanding check (# (12,000)
14343)
Deposit in Transit 5,550
Adjusted bank Balance, P 89,300
Nov. 30
Answer A
2. Outstanding Check on
December 31
Check # 14343 P 12,000
Check # 14646 8,600
Total P 20,600
Answer D
3. Deposit in Transit on
December 31
Dec. 26 collection P 49,000
Answer B
5. Book Bank
Unadjusted balances P 147,200 P 605,800
Deposit in Transit 49,000
Outstanding check (20,000)
Error in recording deposit ( (9,000)
65,000 – 56,000)
Error in arithmetic for Check 1,000
# 14344
Loan Proceeds 500,000
NSF check (7,600)
Interest 3,600
Service charge (1,000)
Adjusted Balance P 634,200 P 634,200
Answer B
Problem 1-24
1. Book Bank
Unadjusted balances P 85,000 P 13,350
Deposit in Transit 49,000
Outstanding check (17,650)
Transposition error ( 16,358 – (2,700)
13,358)
Collection of note 136,000
Erroneous bank debit 54,600
Bank Service charge (2,000)
Adjusted Balance P 216,300 P 216,300
Answer C
Sales 2,700
Cash in bank 2,700
Problem 1-24
Balance per books P 36,420
Unrecorded and undeposited 17,400
costumer’s check
Bank service charge (1,200)
NSF check (13,000)
Adjusted cash balance P 39,620
Answer D
Problem 1-26
Balance per bank statement P 200,000
Outstanding checks (15,000)
Deposit in transit 25,000
Interest earned (500)
NSF Check 5,000
Balance per books at June 30, P 214,500
2010
Answer A
Problem 1-27
Balance per books P 45,000
Bank charges (5,000)
Outstanding checks 7,500
Deposit in transit (12,500)
Bank credits and collections 15,000
Balance per bank P 50,000
Answer D
Problem 1-28
Balance per bank statement P 175,000
Outstanding checks (55,000)
Deposit in Transit 37,500
Adjusted cash balance P 157,500
Answer D
Problem 1-29
Balance per books P 225,000
Bank collection 4,700
Customer’s NSF check (1,600)
Overstatement of Cash (450)
receipt (2,700-2,250)
Overstatement of Cash 90
disbursement (485-395)
Adjusted cash balance P 227,740
Answer A
Problem 1-30
Balance per books, June3 0 P 35,000
Bank service charges (3,000)
Overstatement of 9,900
disbursement (34,200-
24,300)
Adjusted cash balance P 41,900
Problem 1-31
1. Outstanding checks December 31 (correct total of the list ) P 22,625
Answer B
2. No journal entry is necessary. There is no information in the problem that will dictate
that those included in the list of outstanding checks were not taken up properly on the
books
Answer D
3. A correct reconciliation (see no. 4) shows that there is actually no unloctaed difference.
Answer D
4 Book Bank
Unadjusted balances P 34,350 P 51,050
Deposit in Transit 5,325
Customer’s Check returned (4,000)
Bank service charge (1,000)
Outstanding checks (22,625)
Credit memo for note 8,000
collected
Understatement of books (3,600)
disbursement
Adjusted balances P 33,750 P 33,750
Answer C
Problem 1-32
1.
Outstanding checks, January
15:
From December or before P 9,600
From January 7,200 P 16,800
Add: Disbursements per bank 58,348
statement
Total 75,238
Less: Outstanding checks, 42,756
December 31
Disbursement per books as P 32,482
computed
Problem 1-33
1. = Principal – Interest
Proceeds
47,750 = P – (P x 18% x 3/12)
47,750 = P – 0.045P
47,750 = 0.955 P
P = 47,750 / 0.955
P = P 50,000
Answer A
3. Principal P
25,000
Interest Income 1,125
Maturity Value 26,125
Collection fee (SQUEEZE) (500)
Proceeds P 25,625
Answer C
4. Book Bank
Unadjusted balances P 19,289 P 47,147
Outstanding Checks (63,000)
Receipts of 12/31/10 and, 6,260
deposited 1/2/11
Service charge for November (1,0000
Proceeds of Bank loan 47,750
Deposit of 12/22/10, omitted 9,170
from bank statement
Check of Milano Company, (77,320)
charge back
Error in entering deposit of 1,440
12/18/10
Check No. 021261 of Yek
Company charge in error to 13,600
Hector Company
Proceeds of note of Harthur 25,625
Co.
Erroneous debit memo of
12/28/10, to charge by bank
in settlement of bank loan 5,000
which was paid by check no.
112170
Error in entering deposit of (1,800)
12/4/10
Deposit of Bunso Co. of
12/02/10, credited in error to (3,500)
Hector company
ADJUSTED BALANCES P 14,344 P 14,344
Answer A
5.
Adjusted Cash in bank P 14,344
balance (see no. 4)
Cash in bank balance per 19,289
ledger
Net credit adjustment - P 4,945
Decrease
Answer B
Problem 1 – 34
Bank Reconciliation
You are auditing general cash for the DION COMPANY for the fiscal year ended July 31,
2010. The client has not prepared the July 31 bank reconciliation. After a brief discussion
with the owner you agree to prepare the reconciliation, with assistance from one of Dion
Company’s clerks. You obtain the following information:
4. Which of the following audit procedures would be used to verify the payment of
note in July?
A. Examine checks returned with July bank statement.
B. Check for absence of note on July 31 bank confirmation.
C. Trace payment to duplicate deposit slip.
D. Obtain cutoff bank statement.
5. The auditor would perform the following procedures to verify the umrecorded
check of P10,600, except
A. Obtain cutoff bank statement.
B. Examine checks returned with July bank statement.
C. Trace check number to absence in July cash disbursement journal and
recording in August.
D. Examine supporting document.
Solution
1. C
Outstanding checks, June 30 P 17,420
Add: checks issued in July (P218, 110 per cash disbursement
journal + P10,600 unrecorded check) 228,710
Total 246, 130
Less: checks paid by bank in July (P236, 150 - P3,960
erroneous check charged by bank) 232, 190
Outstanding checks, July 31 P 13,940
Alternative computation:
2. B
Deposit in transit, June 30 P 6,000
Add: July deposits per cash receipts journal 254,560
Total 260,560
Less: deposits credited by bank in July 250,560
Deposits in transit, July 31 P 10,000
3. A
Book Bank
Unadjusted balances P 82,560 P 6,960
Outstanding checks (see no. 1) (13,940)
Deposits in transit (see no. 2) 10,000
Bank service charge (870)
Unrecorded check (10,600)
Check erroneously charged to Dion 3,960
NSF check (3, 110)
Note payment (P58,000 principal +
P3,000 interest) (61,000)
Adjusted balances P 6,980 P 6,980
4. B
The following audit procedures would be performed to verify the note payment:
a. Examine cancelled check.
b. Recompute interest.
c. Check for absence of note on July 31 bank confirmation.
5. A
The following audit procedures would be performed to verify the unrecorded check:
a. Examine check returned with July bank statement.
b. Trace number to absence in July cash disbursements journal and recording in
August.
c. Examine supporting documentation
d. Investigate why it was unrecorded.
The cutoff bank statement will no longer show the unrecorded check because it was
already paid by bank in July.
Problem 1 – 35
Cash Transfers
In the audit of the DENISSE SUPPLY COMPANY, a large branch that maintains its own
bank account, cash is periodically transferred to the central account in Makati City. On the
branch account’s records, bank transfers are recorded as a debit to the home office clearing
account and a credit to the branch account. Similarly, the home office account is recorded
as a debit to the central bank account and a credit to the branch office clearing account.
Ram V. is the head bookkeeper for both the home office and the branch bank accounts.
Since he also reconciles the bank account, the senior auditor, Hershey de Jesus, is
concerned about the internal control weakness.
As part of the year-end audit of bank transfers, Hershey asks you to schedule the transfers
for the last few days in 2010 and the first few days of 2011. you prepare the following list:
1. In verifying the bank transfers, which of the following audit procedures should be
performed?
A. List bank transfers made a few days before and after the end of the reporting period.
B. Trace bank transfers included in the schedule of bank transfers to the appropriate
accounting records, bank reconciliations, and bank records to determine propriety of
recording.
C. Both A and B.
D. A only
Solution
1. C
The following procedures should be performed to verify the bank transfers:
a. List bank transfers made a few days before and after the end of the reporting period.
b. Trace these bank transfers to the appropriate accounting records, bank reconciliations,
and bank records to verify propriety of recording.
2. D
There are no deposits in transit on December 31. The list of transfers does not disclose
transfers recorded in December 2010 on Home Office cash receipts journal but deposited in
January 2011.
3. C
Transfers no. 4 P110,000
Transfers no. 6 280,000
Total P390,000
These checks were issued ( i.e., deposited in the Home Office bank account) in December
2010 but cleared the Branch Office bank account in January 2011.
4. B
Transfers no. 3 P140,000
Transfers no. 5 150,000
Transfers no. 6 280,000
Total P570,000
These transfers were deposited in the Home Office bank account in December 2010 but
recorded in January 2011.
5. D
Transfer no. 2 P260,000
Transfer no. 5 150,000
Transfer no. 6 280,000
Total P690,000
These checks were issued (i.e., deposited in the Home Office bank account) in December
2010 but recorded in the Branch Office cash disbursement journal in January 2011.
Problem 1 – 36
CASH BOOKS
RECEIPTS PAYMENTS
Date OR No. Amount Check No. Amount
Dec. 1 110-120 P 11,000 801 P 2,000
2 121-136 21,300 802 3,000
3 137-150 20,000 803 1,000
4 151-165 56,000 804 3,000
5 166-190 39,000 805 12,000
8 191-210 66,000 806 19,000
9 211-232 88,000 807 26,000
10 233-250 77,000 808 30,000
11 251-275 21,000 809 61,000
12 276-300 30,000 810 7,000
15 301-309 55,000 811 8,000
16 310-350 8,000 812 16,000
17 351-390 19,000 813 20,000
18 391-420 9,000 814 22,000
19 421-480 17,000 816 36,000
22 481-500 21,000 817 11,000
23 501-525 32,000 818 50,000
23 - - 819 7,000
23 - - 820 4,000
26 526-555 74,000 821 3,000
28 556-611 5,000 822 12,000
28 - - 823 13,000
29 612-630 38,000 824 29,000
29 - - 826 2,000
29 - - 827 11,000
Totals P 707,300 P 408,000
BANK STATEMENT
Date Check No. Charges Credits
Dec. 1 792 P 2,500 P 8,500
2 802 3,000 11,000
3 - - 21,300
4 804 3,000 20,000
5 EC 81,000 81,000
8 805 12,000 95,000
9 CM 16 - 12,000
10 799 7,050 154,000
11 DM 57 1,300 77,000
12 808 30,000 21,000
15 803 1,000 -
16 809 61,000 85,000
17 DM 61 60 8,000
18 813 20,000 19,000
19 CM 20 - 48,500
22 815 6,000 -
23 816 36,000 47,000
23 811 8,000 -
23 801 2,000 -
26 814 22,000 32,000
28 818 50,000 74,000
28 DM 112 120 -
29 821 3,000 5,000
29 CM 36 - 12,000
29 820 4,000 -
Totals P 353,030 P 831, 300
Additional information:
Solution
1. A
Outstanding checks November 30:
Check no. 792 P2,500
799 7,050
Total P9,550
2. C
Outstanding checks, December 31:
Check no. 806 P19,000
807 26,000
810 7,000
812 16,000
817 11,000
819 7,000
822 12,000
823 13,000
824 29,000
825 2,000
826 11,000
Total P153,000
3. A
Deposits in transit, November 30 P8,500
4. D
Deposit in transit, November 30 (see no. 3) P 8,500
Add: Collections per cash receipts book 707,300
Total 715,800
Less: Deposits credited by bank:
Bank receipts P 831,300
Correction of erroneous bank charge in
December (81,000)
Correction of erroneous bank charge in
November (12,000)
Loan proceeds (48,500)
Note collected (12,000) 677,800
Deposit in transit, December 31 P 38,000
PROOF OF CASH
December 1-31
Balance Balance
Nov. 30 Receipts Disbursements Dec. 31
Balances per bank P 114,000 P 831,300 P 353,030 P 592,270
Bank error corrected the
same date (81,000) (81,000)
Erroneous bank charge in
November 12,000 (12,000)
Deposit in transit:
November 30 8,500 (8,500)
December 31 38,000 38,000
Outstanding checks:
November 30 (9,550) (9,550)
December 31 153,000 (153,000)
Adjusted bank balances P 124,950 P 767,800 P 415,480 P 477,270
Balance Balance
Nov. 30 Receipts Disbursements Dec. 31
Balances per book P 115,000 P 765,800 P 409,410 P 471,390
Bank service charges:
November 30 (50) (50)
December 31 120 (120)
Notes collected by bank:
November 30 10,000 (10,000)
December 31 12,000 12,000
Unrecorded disbursement
– check no. 815 6,000 (6,000)
Adjusted bank balances P 124,950 P 767,800 P 415,480 P 477,270
5. B
6. D
7. C
8. B
Problem 1 – 37
Shown below is the May 31, 2010, bank reconciliation prepared by your client’s staff.
RECONCILIATION
May 31, 2010
Bank balance P 652,000
Add: Deposit in transit 10,000
Total 662,000
Less: Outstanding checks
No. 640 P 10,000
652 8,000
653 2,000 20,000
Adjusted bank balance 642,000
Pasig Bank
Period covered: May 31, 2010 – June 30, 2010
Account No.: 0021261
The check register reveals that the last check issued in June is No. 659 for P5,000 and that
check no. 656 is for P2,600.
Cash received for the period June 22 through June 30 of P70,000 was deposited in the bank
on July 1.
The debit memos on June 13 and 30 represent customers’ NSF checks returned by the
bank. The June 13 NSF check was immediately redeposited without entry. The June 30
NSF check was redeposited on July 1 without entry.
Solution
1. B
Bank receipts in June (arrived at by footing the Deposits column of the bank statement)
P88,000
2. D
Bank disbursements in June (arrived at by footing the checks column of the bank
statement) P63,200.
3. A
Bank balance, May 31 P652,000
Add: Bank receipts in June 88,000
Total 740,000
Less: Bank disbursements in June 63,200
Bank balance, June 30 P676,800
PROOF OF CASH
June 1 – 30, 2010
Balance Balance
May 31 Receipts Disbursements June 30
Bank balances P 652,000 P 88,000 P 63,200 P 676,800
Deposits in transit:
May 31 10,000 (10,000)
June 30 70,000 70,000
Outstanding checks:
May 31 (20,000) (20,000)
June 30 17,600 (17,600)
Bank service charges:
May 31 800 800
June 30 (200) 200
Bank collection in May (70,000) 70,000
May deposit recorded
by the company in June (2,000) 2,000
NSF checks:
Already redeposited (1,000) (1,000)
Not yet redeposited (3,000) 3,000
Bank error corrected on
the same date (1,000) (1,000)
Book balances P 570,800 P 218,000 P 56,400 P 732,400
4. D
5. C
6. C
Problem 1 – 38
The following information was obtained in an audit of the cash account of CHELSEE
COMPANY as of December 31, 2010. Assume that the CPA has satisfied himself as to the
propriety of the cash book, the bank statements, and the returned checks, except as noted:
3. Included with cancelled checks returned with the December bank statement were the
checks listed below.
4. The Chelsee Company discounted its own 60-day note for P90,000 with the bank on
December 1, 2010. The discount rate was 6 percent. The accountant recorded the proceeds
as a cash receipt at the face value of the note.
7. December bank charges were P200. In addition, a P100 service charge was made in
December for the collection of a note receivable in November. These charges were not
recorded on the books.
8. Check no. 144 listed in the November outstanding check was drawn in 2008. Since the
payee cannot be located, the president of Chelsee Company agreed to the CPA’s suggestion
that the check be written back into the accounts by a journal entry.
9. Outstanding checks at December 31, 2010, totaled P49,400, including checks 1434 and
1584.
10. The cutoff bank statement disclosed that the bank had recorded a deposit of P24,000 on
January 2, 2011. The accountant had recorded this deposit on the books on December 31,
2010, and then mailed the deposit to the bank.
1. D
Outstanding checks, Dec. 31 ( P49,400 – P1,400 – P8,000) P40,000
PROOF OF CASH
Balance Balance
Nov. 30 Receipts Disbursements Dec. 31
Per bank statement P 194,000 P 1,487,000 P 1,325,000 P 356,000
Outstanding checks:
Nov. 30 (23,000) (23,000)
Dec. 31 40,000 (40,000)
Deposit in transit:
Nov. 30 11,000 (11,000)
Dec. 31 24,000 24,000
Interest on note
discounted
P90,000x6%x60/360 900 900
NSF checks (4,000) (4,000)
Bank service charge (300) 300
Cancellation of check
no 1434 1,400 (1,400)
Error in recording
check no. 1562
P7,500 – P750 6,750 (6,750)
Cancellation of check
no. 1584 8,000 (8,000)
Counter check drawn
by president (2,000) 2,000
Check of Chelsee
charge in error (3,000) 3,000
Postdated check
presented for payment (100,000) 100,000
Per book balances P 182,000 P 1,496,900 P 1,248,850 P 430,050
2. A
3. D
4. C
5. A
Book Bank
Unadjusted balances P 430,050 P 356,000
Outstanding checks (40,000)
Deposits in transit 24,000
Interest on note discounted (900)
Bank service charge (300)
Cancellation of check no. 1434 1,400
Error in recording check no 1562 6,750
Cancellation of check no. 1584 8,000
Counter check (2,000)
Check of Chelsee charged in error 3,000
Postdated check presented for payment (100,000)
Adjusted balance P 343,000 P 343,000
Problem 1-39
Proof of Cash: Book to Bank Balances Format
The following information was obtained in connection with the audit of PINKY
COMPANY’s cash account as of December 31, 2010.
Solution 1-39
1. Deposit in transit, November 30 P12,500
Add: Company collection in December 152,500
Total 165,000
Less: Deposits credited by bank in December 145,000
Deposit in transit, December 30 P20,000
Answer: B
2. Bank service charges per December bank statement P3,250
Less: December bank service charges recorded
On company books in December
(P2,500-P1,500) 1,000
Unrecorded December bank service charges P2,250
Answer: B
Answer: A
4. Outstanding checks, December 31 P12,500
Add: checks paid by bank in December 130,000
Total 142,500
Less: Outstanding checks, November 30 16,250
Outstanding checks in December P 126,250
Answer: D
Pinky Co.
PROOF OF CASH
For the month of December 2010
Problem 1-40
Proof of Cash: Unadjusted to Adjusted Balances Format
In your audit of HARRY INC.’s cash account as of December 31,2010, you ascertain the
following information:
The bookkeeper’s bank reconciliation on November 30,2010,is as follows:
Balance pre bank statement, Nov 30 P24,298
Add: Deposit in transit 3,648
Total P27,946
Less: Outstanding checks
No. 3408 P440
No. 3413 300
No. 3414 6,820
No. 3416 3,924
No. 3417 800 12,284
Balance P15,662
Add: Bank service charge for November 36*
Balance per General Ledger Nov 30 P15,698
The Cash Receipts Journal shows total receipts for December of P371,766. The
Check Register reflects total checks issued in December of P377,632. A collection
of P5,912 was recorded on company books on December 31 but was not deposited
until January 2, 2011.
The balance per bank statement at December 31,2010,is P17,516. This statement
shows total receipts of P373,502 and checks paid of P380,284.
a) Check No. 3413 datd November 24, 2010,was entered in the Check Register as
P300. Your examination of the paid checks returned with December bank
statement reveals the amount of this check is P30.
b) Check No. 3417 was mutilated and returned by payee. A replacement check
(no.3453) was issued. Both checks were entered in the Check Register but no
entry was made to cancel check no. 3417.
c) The December bank statement includes an erroneous charge of P480.
d) On January 3, 2011, the bank informed your client that a December bank
service charge of P42 was omitted from the statement.
e) Your examination of the bank credit memo accompanying the December bank
statement discloses that it represents proceeds from note receivable collection
in December for P4,000.
f) Outstanding checks at December 31, 2011, are as follows:
No. 3408 P440
No. 3417 800
No. 3418 2814
No. 3419 5788
Answer: A
Answer: D
Answer: C
Problem 1-41
Proof of Cash: Unadjusted to Adjusted Balances Format
The following data are assembled by the accountant of the HAROLD COMPANY:
Nov.30, 2010 Dec. 31,2010
Cash account balance 41,175 100,712.50
Bank statement balance 267,705 344,542.50
Deposits in transit 20,502.50 32,200
Outstanding checks 69,295 75,280
Bank service charges 1,800 1,500
NSF checks* 20,625
Company’s NR collected 179,537.50 202,250
*Redeposited in the same month. No entries made to take up the return and redeposit.
The bank statement and the company’s cash records show the following totals:
Cancelled checks and debit memos P545,932.50
Cash receipts per cash book 411,592.50
Checks written per cash book 529,792.50
Deposits and credit memos per bank statement 622,770
Solution 1-41
1. Cash receipts per cash book P411,592.50
Add: Notes collected by the bank in November 179,537.50
Total book receipts in December P591,130.00
Answer: B
2. Checks written per cash book P529,792.50
Add: Bank service charge in November 1,800.00
Total book disbursements in December P531,592.50
Answer: A
Problem 1-42
Proof of Cash: Book to Bank Balances Format
The auditor of Tsikoy Company gathered the following information:
a. The November 30 bank statement balance include bank service charges of
P2,000.
b. The November 30 cash balance in the general ledger was P244,500.
c. Outstanding checks o November 30 were P63,000 while undeposited receipts
were P36,000.
d. The bank service charges as shown on the bank statement totaled P3,000.
e. The December 31 cash balance in the general ledger was P319,750, which
recognizesP482,750 for December receipts and P405,500 for checks written
during December . in transit to the bank were receipts of P28,750. Checks of
P15,000 written prior to December and checks of P60,500 written in December
had not yet cleared the bank.
Solution 1-42
1. Checks written during December P405,500
Add: November bank service charges recorded on
Company books in December 2,000
Total book disbursements in December P407,500
Answer: C
Problem 1-43
Proof of Cash: Unadjusted to Adjusted Balances Format
RODELIO CO., has current account in Pinoy Bank. Your audit of the company’s cash
account reveals the following:
a. Balances taken from the company’s general ledger:
In the checks returned with the Dec. bank statement 36, 080
Solution 1-43
1. Book balance, Nov. 30
P637,860
Add: Book receipts in December 306,220
Total 944,080
Less: Book disbursements in December (squeeze) 367,660
Book balance, December 31 P576, 660
Answer: A
Answer: B
3. Checks issued prior to Dec. (P64,140-P26,140) P38,000
Checks issued in December 36,080
Collections of notes:
Dec. 2,060 2,060
Book balances P637, 800 P307,500 P365,840 P579,460
(Adjusted)
Problem 1-44
Proof of Cash: Unadjusted to Adjusted Balances Format
Data for Annabelle, Inc are shown below:
Nov.30, 2010 Dec. 31,2010
Cash account balance P20, 340 P48, 540
Bank statement balance 107, 060 137,820
Deposits in transit 8,200 12,880
Outstanding checks 27,700 30,100
Bank service charges for the mo.
not shown on company books 720 600
NSF checks returned by bank, not
Shown in company books 4,300 8,240
NR collected 72,240 80,900
Additional information:
a. Deposits and credit memos per bank statement P249,100
a. P172,880
b. P245,120
c. P253,780
d. P181,540
a. P 211,900
b. P216,200
c. P211,180
d. P216,920
a. P89,000
b. P87,560
c. P71,160
d. P96,160
a. P120,600
b. P94,840
c. P137,080
d. P155,040
a. P253,780
b. P236,460
c. P244,420
d. P270,180
a. P215,940
b. P220,740
c. P248,440
d. P204,260
Solution 1-44
1. Cash receipts per cash book P172,880
Answer: D
Answer: B
4. Adjusted cash balance, December 31 P120,600
Answer: A
Answer: A
Answer: B
Problem 1-45
Cash Shortage Computation
The bookkeeper-cashier of the TANYING COMPANY absconded on the evening of April 16,
2011, apparently with a large portion of the company’s cash. He had taken with him
certain accounting records, including the cash journals and the general ledger. You are
called upon to ascertain, if possible, the shortage with which the missing employee may
be charged.
You obtained the following information from the available subsidiary journals, ledgers,
and other data.
A check for P100,000 had been cashed by the bookkeeper shortly before his departure.
Although the signature on the check had been obviously forged, it was paid by the
bank and returned with other cancelled checks.
A statement of financial position prepared from the books and other files follows:
Tanying Company
Statement of Financial Position
December 31, 2010
ASSETS
Cash P 32,670
Accounts Receivable 226,230
Inventory (at cost) 440,350
Furniture P74,560
Less: Accumulated Depreciation 31,800 42,760
Total Assets P742,010
3. What is the total amount of cash disbursements from January – April 1, 2011?
a. P5,524,090
b. P5,202,070
c. P5,431,510
d. P5,432,510
4. What is the cashier’s accountability (correct cash balance before shortage) on April
15, 2011?
a. P242,680
b. P98,830
c. P143,850
d. P43,850
Solution 1-45
1-46
Computation of Cash Shortage
The JUNNEL COMPANY had weak internal controls over its cash transactions.
Facts about it cash position at November 30, 2010 were as follows:
The cash books showed a balance of P94, 508, which included undeposited
receipts. A credit of P500 on the bank’s records did not appear on the books of the
company. The balance per bank statement was P77,750. Outstanding checks
were no. 8420 for P581, no. 8422 for P750, no. 8430 for P1,266, no. 8621 for
P954, no.8623 for P1,034, and no. 8632 for P726.
The cashier stole all undeposited receipts in excess of P18,972 and prepared the
following reconciliation:
Balance per books, Nov. 30, 2010 P94,508
Add: Outstanding check
8621 P 954
8623 1,034
8632 726 __2,214
96,722
Less: Undeposited receipts _18,972
Balance per bank, Nov. 30 77,750
Less: Unrecorded credit ___500
True cash, Nov. 30, 2010 P77,250
1. What is the correct amount of cash that should be on hand for deposit on November
30, 2010?
A. P23,069 C. P22,569
B. P18,972 D. P22,069
4. Taking only the information given, which of the following internal control deficiencies
allowed the cashier to steal cash and conceal his theft?
A. The cashier is also responsible for preparing the reconciliation.
B. No one other than the cashier is responsible for tracing cash receipts to the
deposit in the bank.
C. Both A and B.
D. Neither A nor B.
Answer: C
Answer: A
Answer: A
Answer: C
5.
Book Bank
Unadjusted
balances P94,508 P77,750
Unrecorded
credit 500
Outstanding
checks (5,311)
Undeposited receipts 18,972
Corrected
balances 95,008 91,411
Cash storage (amount of theft) (3,597)
Adjusted cash balances P91,411 P91,411
Answer: B
1-47
Computation of Cash Shortage
Presented below is the cash receipts book of APPLE, INC.:
The following are the company’s accounts receivable subsidiary ledgers. All the
debits represent sales. The credit terms are 2%-10days, net 30 days.
BA BO
June 3 3,200 June 10 3,200 June 2 6,000 June 15 6,000
4 4,800 30 800 9 4,000 26 4,000
30 3,600
BU BE
June 2 6,000 June 25 10,800 June 15 4,800 June 20 4,800
10 4,800 16 12,000 26 12,000
1-47
*To balance, the following extensions to the “Cash” column are understated.
Correct Amount
Amount Extended Understatement
June 20 (P4,800-P96) P 4,704 P 4,664 P 40
June 25 (P10,800-P216) 10,584 10,504 80
June 26 (P12,000-P240) 11,760 11,680 80
Total P200
Answer: C
2.
Cash receipts as corrected P48,000
Cash receipts per book 47,464
Cash shortage, June 30 P 536
Answer: D
1-48
Computation of Cash Shortage
You started the audit of the financial statements of ARCHIE, INC. on January 15,
2011, for the year ended December 31, 2010. The general ledger shows cash
account balance of P247,200 as at December 31, 2010.
The following items are included in the December 31, 2010, reconciliation prepare
by the cashier:
Cash per records, December 31, 2010 P247,200
Cash per bank statement, December 31, 2010 264,095
Outstanding checks 25,325
Check of Tsikoy Co., charged by bank in
error on December 28, 2010;corrected by
bank on January 2, 2011 750
Deposit in transit 3,500
From January 2, 2011, to January 15, 2011,the date of your cash count, total cash
receipts appearing in the cash records amounted to P53,500.During the same
period, the bank has credited total deposits of P47,965. The following cash and
cash items were on hand at the close of business on January 15, 2011:
Currency P1,425
Customer's checks 1,950
Expense vouchers 375
P 3,750
12/15/201
0 P3,500 Not recorded
c. The cashier presented receipts for collections from customers on January 10,
2011, totaling
P4,500; these were unrecorded and undeposited.
1. What adjusting entries would you provide for items (a) through (c)?
2. What is the total cash shortage as of December 31, 2010?
A. P21,180 C. P14,680
B. P16,180 D. P4,180
1-48
1. ADJUSTING JOURNAL ENTRIES:
a. 1.
Cash 4,000
Allowance for bad
debts 3,000
2.
Cash 3,000
Inventory 3,000
3.
Cash 3,500
Accounts receivable 3,500
b. 4.
Cash 2,000
Accounts receivable 2,000
c. 5.
Cash 4,500
Accounts receivable 4,500
2. Book Bank
Unadjusted
balances P247,200 P264,095
Outstanding
checks -25,325
Bank
error 750
Deposit in transit 3,500
AJE 1 4,000
2 3,000
3 3,500
Corrected
balances P257,700 P243,020
SHORTAGE as of Dec. 31,
2010 (14,680)
Adjusted balances P243,020 P243,020
Answer: C
3.
Deposit in transit, Dec. 31,
2010 P3,500
Add: Company collections, Jan. 2-15,
2011
Per records P53,500
AJE 4 P2,000
5 4,500 6,500 60,000
Total 63,500
Less: Deposits credited by bank, Jan.2-15, 2011 47,965
Deposit in transit, Jan, 15, 2011 15,535
Cash and cash items per count on Jan. 15, 2011 (3,750)
Cash shortage, Jan 2-15, 2011 P11,785
Add: Cash shortage as of Dec. 31, 2010(see no 2) 14,680
Total shortage as of January 15, 2011 P26,465
Answer: A
1-49
Computation of Cash Shortage
The LEINOR COMPANY does not have adequate controls over its cash
transactions. During an audit, you found the following data concerning its cash
position at December 31, 2010.
Answer: A
2. Concealment of shortage:
1-50
Computation of Cash Shortage
The following table summarizes the cash receipts and disbursements of LOI COMPANY
for the last six months of 2010:
Additional information:
Answer: D
NOTES:
1. Because there were no book and bank reconciling items on July 1, the balance on that date was also
the cash
balance per books.
2. The receipts column of the table of cash receipts and disbursements is underfooted by P40,000
(P1,004,000
correct total – P964,000) while the disbursements column is overfooted by P36,000 (P668,000 –
P632,000
correct total.)
1-51
Computation of Cash Shortage
In connection with the audit of the financial statements of JEM COMPANY for the
year ended October 31, 2010, you have conducted a surprise count of undeposited
receipts on October 31, 2010. It was witnessed by the company’s cashier whose
accountability on October 31 was determined to be P80,000. Your count revealed
the following:
2. A cash shortage may be concealed by transporting funds from one location to another
or by converting negotiable assets to cash. Because of this, which of the following is vital?
A. Simultaneous confirmations
B. Simultaneous bank reconciliations
C. Simultaneous verification
D. Simultaneous surprise cash count
1-51
1. Cashier's accountability P80,000
Accounted for as follows:
Total per count P80,520
Less: Cashier's stale check P4,000
Unreleased
disbursement check 3,600 7,600 72,920
Cash Shortage P 7,080
Answer: A
2. Simultaneous verification
Answer: C
1-52
Computation of Working Capital &Current Ratio
Jam Company’s unadjusted trial balance at December 31, 2010, included the
following accounts:
Debit Credit
Cash P69,200
Accounts receivable 102,650
Merchandise inventory 947,160
Accounts payable P789,715
Accrued expenses 13,214
Jam Co.‘s year-end is December 31. At the end of 2010, it held its cash book
open so that its statement of financial position would show a more favorable
financial condition. Your audit revealed the following items:
1. The December cash book include January cash receipts of P65,460, of which
P36,010 represents cash sales and P29,450 represents collections from
customers, net of 5% cash discounts.
1. What are Jam’s working capital and current ratio at December 31, 2010, based
on balances per company books?
Working Current
Capital Ratio
A. P316,081 1.42
B. 316,081 1.39
C. 329,295 1.42
D. 329,295 1.39
2. What are Jam’s correct working capital and current ratio at December 31,
2010?
Working Current
Capital Ratio
A. P244,381 1.29
B. 278,831 0.33
C. 330,835 1.40
D. 280,381 1.33
1-52
ADJUSTING JOURNAL ENTRIES
December 31, 2010
Current liabilities:
Accounts payable (P789,715 +
P37,240) P789,715 P826,955
Accrued
expenses 13,214 13,214
Total P802,929 P840,169
1. Answer: B
2. Answer: D
1-53
Computation of Cash Shortage
Fe Company, organized on March 1, 2010, has a very poor internal control system.
The company’s cashier is also its accountant. After 9 months of operations, the
company’s manager suspects that the cashier accountant has been
misappropriating company collections. You have been engaged to audit the
company’s accounts to determine the extent of fraud, if any.
You started the audit on November 15. On that date, the cash on hand per your
surprise count was P5,140. Also on that date, the bank confirmed that the balance
of the company’s current account was P26,328. Your examination of the records
reveals that a check for P1,852 was outstanding on November 15. The company’s
mark up is 40% of sales.
Further examination of the company’s records reveals the following balances at
November 15, 2010:
Ordinary share capital P300,000
Share premium 20,000
Real property purchased for cash 200,000
Mortgage payable 80,000
Furniture and fixtures (of the acquisition cost,
P6,000 remains unpaid as of Nov.
15) 29,000
Notes payable - bank 32,000
Accounts payable - trade 46,284
Expenses paid (excluding purchases) 60,756
Merchandise inventory at
cost 93,920
Accounts receivable - trade 85,380
Total sales 340,000
1-53
1. Cost of sales (P340,000 total sales ×
60%) P204,000
Add: Merchandise inventory, November 15 93,920
Purchases 297,920
Less: Accounts payable - trade, November 15 46,284
Payments for purchases P251,636
Answer: D
2. Sales P340,000
Less: Accounts receivable-trade, November 15 85,380
Collection from sales P254,620
Answer: B
3. Cashier's Accountability:
Receipts:
Issuance of ordinary shares
(P300,000 + 20,000) P320,000
Mortgage payable 80,000
Note payable - bank 32,000
Collections from sales (see
no.2) 254,620
Total 686,620
Disbursements:
Real property P200,000
Furniture and
fixtures
(P29,000 - P6,000) 23,000
Expenses 60,756
Purchases (see no.1) 251,636 535,392
Cash balance P151,228
Answer: D
P151,
5. Cashier's accountability ( see no.3) 228
Cash Accounted (see no.4) (29,616)
Cash shortage as of Nov. 15, 2010 P121,612
Answer: A
1-54
Computation of Cash Shortage
Your client, a successful small business, has never given much attention to a sound
internal control. In its employ is Alex Coopit, the company’s cashier bookkeeper. Alex
handles cash receipts, makes small disbursements from the cash receipts, maintains
accounting records, and prepares the monthly bank reconciliation.
The bank statement for the month ended March 31, 2010, shows a cash balance of
P590,000. The following checks are outstanding on March 31:
No. 7163 P8,623
No. 7282 7,320
No. 7285 10,612
No. 8722 6,322
No. 8724 12,280
No. 8733 6,200
The company’s general ledger shows a cash balance of P696,469 on March 31, 2010.
Realizing that being the cashier – accountant of the company he can easily misappropriate
collections and conceal it, Alex removed all the cash on hand in excess of P127,301, and
then prepared the following reconciliation in an effort to conceal this theft.
BANK RECONCILIATION
Balance per accounting records P696,499
Add: outstanding
checks
No. 8722 P6,322
No. 8724 12,280
No. 8733 6,200 20,802
Total 717,302
Deduct: Cash on hand 127,301
Balance per bank statement, March 31 P590,000
2. What is the amount of cash that should be on hand at November 15, 2010?
A. P127,301 C. P157,856
B. P131,301 D. P30,555
1-54
1.
Book Bank
Unadjusted
balances P696,499 P590,000
Outstanding
checks:
No. 7163 P8,623
No. 7284 7,320
No. 7285 10,612
No.8722 6,322
No. 8724 12,280
No. 8733 6,200 (51,357)
Undeposited collections 127,301
Corrected balances P696,499 P665,994
CASH
SHORTAGE (30,555)
Adjusted balances P665,994 P665,944
Answer: A