Auditing Practice I Third Term, AY 2013-2014

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UNIT2
AUDITOFCASHANDCASHTRANSACTIONS
EstimatedTime:6.0HOURS
*UseLouwers4
th
edition

Discussionquestions2-1
1. Describethefollowingcash-relatedterms.Showpro-formaschedulesorexamplesto
theclass.
a. Cashcountsheet
b. Bankreconciliation
c. Standardbankconfirmation
d. Proofofcash
e. Kiting
f. Lapping
g. Windowdressing
2. What should be considered in classifying cash items? What are those items that
shouldbeaccountedforascashandcashequivalents?Howshouldweaccountfor
thoseitemsthatarenotcash?

Discussionquestions2-2Controlsoverthereceiptanddisbursementofcash
RefertoLouwers6-9and6-10.

DiscussionQuestions2-3Substantiveauditproceduresfortheauditofcash
RefertoLouwers6-15,6-16,6-17,and6-18.

Problem2-1Analysisandclassificationofcashbalances
The valuation of cash shown on the balance sheet as of end of 2012 was P3,264,400.
Yourexaminationofcashshowedthebreakdowntobe:

Coinsandcurrency P60,000
Checksreceivedfromcustomers 560,000
Certificateofdeposit,term:2months 245,000
Pettycashfund 6,000
Postagestamps 400
BDO,checkingaccountbalance 2,000,100
Post-datedcheck,customer 12,000
Post-datedcheck,employee 8,000
Moneyorderfromcustomer 15,000
Cashinsavingsaccount 117,000
Bankdraftfromcustomer 45,000
Utilitydeposittogascompany,refundable 5,000
Cashadvancereceivedfromcustomer 8,000
NSFcheck,customer 20,000
Cashadvancetocompanyexecutive,collectible
ondemand

180,000
MBTC,checkingaccount,overdraft(OD) (25,000)
IOUsfromemployees 7,900
Total P3,264,400

Computeforthecorrectamountofcashandcashequivalentsanditscompositionasof
December31,2012.
Auditing Practice I Third Term, AY 2013-2014
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Problem2-2Analysisandclassificationofcashbalances
Boyet Dee, the controller for Fort Bonifacio Company, determined P10,542,700 as the
amountofcashandcashequivalentsthatwouldbereportedonitsDecember31,2012
financialstatements(FS).Asperyouraudit,thefollowingwasthebreakdownofBoyets
scheduleofcashandcashequivalents:

a. CommercialsavingsaccountofP1,200,000andcommercialcheckingaccount
balancesofP1,800,000heldatUCPB.
b. Traveladvancesof360,000forexecutivetravelforthefirstquarterofnextyear
(employeetoreimbursethroughsalarydeduction).
c. AseparatecashfundintheamountofP3,000,000restrictedfortheretirement
oflong-termdebt.
d. PettycashfundofP10,000(inclusiveofunreplenishedvouchersintheamount
ofP4,560).
e. AnIOUfromacompanysupervisorintheamountofP190,000.
f. AbankoverdraftofP250,000whichoccurredatoneofthebanksthecompany
uses to deposit its cash receipts. The company had no deposits at this bank
andtheBoyethadthisamountdeductedfromcashandcashequivalentsinhis
schedule.
g. Two certificates of deposit, each totaling P1,000,000. These certificates of
deposit had a maturity of 90 days from the FS date. Date of purchase:
December30,2012.
h. AcheckdatedJanuary12,2013intheamountofP125,000.
i. A cash balance of P400,000 at all times at UCPB to ensure future credit
availability(alreadyincludedinitemA).Foundouttobenotlegallyrestrictedas
towithdrawal.
j. P2,100,000commercialpaperofPLDTCo.whichisduein190days.
k. CurrencyandcoinsonhandamountingtoP7,700.

The2012financialstatementsofFortBonifacioshouldinclude(computefortheamounts
orprovidethejournalentries,asapplicable):
1. Cashonhand.
2. Cashinbank.
3. AdjustingentryforitemG.
4. AdjustingentryforitemH.
5. Cashandcashequivalents.

Auditing Practice I Third Term, AY 2013-2014

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Problem2-3Cashfundcount
You conducted a surprise cash count of the imprest petty cash fund of LLL Cosmetics
CorporationonJanuary5,2013.TheledgerbalanceforpettycashisP5,000.00withPer
Dyasthepettycashcustodian.Resultofyourexaminationrevealedthecashiersdrawer
tocontainthefollowing:
Bills P1,350.00
Coins 874.75
Pettycashvouchers(PCV):
Deliverycharges(12.14.2012) 420.00
Computerrepairs(12.18.2012) 700.00
Messengersfare(12.23.2012) 120.00
Advancestoemployees(12.27.2012) 900.00
Checks(includingCheck30108) 2,600.00
Salesinvoices 1,400.00
Envelopetaggedasemployeescontribution 760.00
Additionalinformation:
1. Check30108,issuedbyMr.A,anemployee,amountingtoP1,200.00wasreturned
bythebankasNSFcheck.
2. The envelope tagged as employees contribution has not been opened and still
intact.

Case1
1. Howmuchisthetotalunreplenishedvoucherscountedinthepettycashfund?
2. Howmuchisthetotalitemscountedinthepettycashfund?
3. Howmuchisthetotalaccountabilityofthecashier?
4. Howmuchisthecashshortage/overage?
5. HowmuchisthepettycashfundasofDecember31,2012?

Case2
In addition to information given above, you found another PCV dated January 3, 2013
spentforphotocopyingamountingtoP24.50.Moreover,youfoundoutthattheenvelope
taggedasemployeescontributionhasbeenopenedandthemoneyremoved.
6. Howmuchisthetotalunreplenishedvoucherscountedinthepettycashfund?
7. Howmuchisthetotalitemscountedinthepettycashfund?
8. Howmuchisthetotalaccountabilityofthecashier?
9. Howmuchisthecashshortage/overage?
10. HowmuchisthepettycashfundasofDecember31,2012?

Auditing Practice I Third Term, AY 2013-2014

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Problem2-4Cashfundcount
As an associate member of the team that audits Oak Tree Foods Incorporated for the
year ended December 31, 2012, when the United States (US) dollar ($) to Philippine
pesois$1=P41.50,youwereassignedtoconductasurprisecashcountinthemorning
ofJanuary5,2013.YoufoundthefollowingitemsinsidethepettycashdrawerofPretty,
thecashcustodian:

Pettycashvouchers:
OvertimemealfortheChristmasParty12.19.2012 P725.00
AdditionalexpensesChristmasParty12.21.2012 965.00
Purchaseofhandsanitizer12.21.2012 96.25
Transportation12.22.2012 34.00
Purchaseofprinterinkandfolders12.26.2012 375.00
Gasolineforthevan12.27.2012 690.00
MealsofmaintenanceleftduringNewYearsDay01.01.2013 460.00
Protectivelotionusedbythepersonwhocollectedthecontribution
forMulanaydenguepatients01.03.2013 25.00
FloorwaxandLysol01.03.2013 175.00
Checks
No.0069212.28.2012fromAustralianBazaar,customer 1,400.75
No.1230012.29.2012fromMonina,employee 1,493.50
No.1023601.02.2013fromNeliaMaga,customer 3,150.60
No.4520101.03.2013fromArcticFever,customer 3,700.45
No.7809001.04.2013fromStella,anemployee 1,000.10

Paperbills
2pcs,P1,000;3pcs,P500;2pcs,P100;14pcs,P20;1pc,$5.50 ?
Coins
6loose,P10;34loose,P5;17loose,P1 ?
Envelopecontainingcontributionsforthedenguepatientsof
Mulanay,amountindicatedP1,400)butpercountisP1,375.Inside
theenvelopewasanofficialreceiptnamedtothecompany
amountingtoP25fortheprotectivelotionboughtbyanemployee
whopassedaroundtheenvelopearoundtheoffices.

Additionalinformation:
1. TheclientmaintainsanimprestpettycashbalanceofP10,000.
2. FurtherinvestigationalsodisclosedthattheofficialreceiptsfromDecember28to
January 3 totaled P8,251.80. These were already recorded in the cash receipts
journal.
3. CheckNo.78090wasencashedbeforeyear-end.

1. Prepareacashcountsheetindicatinganyoverageorshortage.
2. Determine the adjusted balance of petty cash fund as of December 31, 2012
supportedbyaproof.

Problem2-5Proceduresforauditingaclientsbankreconciliation
RefertoLouwers6-47.

Problem2-6Manipulatedbankreconciliation
RefertoLouwers6-50.

Auditing Practice I Third Term, AY 2013-2014

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Problem2-7Bankreconciliation
TopCatCorporationhadpoorinternalcontroloveritscashtransactions.Datapertaining
toitscashpositionatOctober31,2012wereasfollows:

The cash book showed a balance of P76,634.77, which included undeposit receipts. A
creditofP950onthebankrecordsforadepositmadedidnotappearonthebooksofthe
company.

The bank statement had a balance of P68,835.99. The outstanding checks were as
follows:
No.0210667 P462.80
0210671 490.00
0210693 1,053.00
0210734 789.94
0210737 1,648.20
0210749 643.15

The cashier misappropriated all undeposited receipts in excess of P10,880.07 and

preparedthefollowingreconciliation:

Balanceperbooks,October31,2012 P76,634.77
Add:Outstandingchecks
No.0210734 P789.94
0210737 1,648.20
0210749 643.15 3,081.29
P78,966.06
Less:Undepositedreceipts 10,880.07
Balanceperbank,October31,2012 P68,835.99
Unrecordedcredit 950.00
Correctcashbalance,October31,2012 P67,885.99

Howmuchdidthecashiermisappropriateandexplainhowdidithappen?

Problem2-8Bankreconciliation
YouareauditingthegeneralcashforDaisyDuckCompanyforthefiscalyearendedJuly
31, 2012. The client has not prepared the July 31 bank reconciliation. After a brief
discussionwiththeowner,youagreetopreparethereconciliation,withassistancefrom
oneofDaisyDucksclerks.Youobtainthefollowinginformation:

General
Ledger
Bank
Statement
Beginningbalance P49,610 P61,030
Deposits 250,560
Cashreceiptsjournal 254,560
Checkscleared (236,150)
Cashdisbursementsjournal (218,110)
Julybankservicecharge (870)
Notepaiddirectly (61,000)
NSFcheck (3,110)
Endingbalance P86,060 P10,460

Auditing Practice I Third Term, AY 2013-2014

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June30BankReconciliation
InformationinGeneralLedgerandBankStatement

Balanceperbank P57,530
Depositsintransit 6,000
Outstandingchecks 17,420
Balanceperbooks 46,110

Additionalinformationobtained:
a. ChecksclearingthatwereoutstandingonJune30totalledP16,920.
b. Checks clearing that were recorded in the July disbursements journal totalled
P204,670.
c. A check for P10,600 cleared the bank, but had not been recorded in the cash
disbursements journal. It was for an acquisition of inventory. Daisy Duck uses the
periodicinventorymethod.
d. AcheckforP3,960waschargedtoDaisyDuckCompanybuthadbeenwrittenona
differentcompanysbankaccount.
e. DepositsincludedP6,000fromJuneandP244,560forJuly.
f. The bank charged Daisy Duck Companys account for a non-sufficient check with a
totalamountofP3,110.Thecreditmanagerconcludedthatthecustomerintentionally
closed its account and the owner left the city. The check was turned over to a
collectionagency.
g. AnoteforP58,000,plusinterest,waspaiddirectlytothebankunderanagreement
signedfourmonthsago.ThenotepayablewasrecordedatP58,000onDaisyDuck
Companysbooks.
1. ComputetheamountofchecksoutstandingonJuly31.
2. HowmuchisthedepositsintransitonJuly31?
3. HowmuchistheadjustedcashbalanceonJuly31?

Problem2-9Interbanktransfersschedule
RefertoLouwers6-49.

Problem2-10Proofofcash
RefertoLouwers6-48.

Problem2-11Proofofcash
WhileperforminganopinionauditofthefinancialstatementsofMalaberCompanyasof
December31,2012,youhaveextractedthefollowingdataregardingthecashaccount:

November30 December31
a. Balancesperbooks P619,304 P670,392
b. Balancesperbank 742,800 774,696
c. Outstandingchecks 254,096 320,184*
*AcheckofP20,000wascertifiedbythebank.

d. The cash receipts book showed a total of P9,341,780 while the bank statement for
themonthofDecembershowedtotalcreditsofP5,401,800.
e. Malaber records NSF checks as reduction of cash receipts. However, NSF checks
whicharelaterredepositedarethenrecordedasregularreceipts.Thedataaboutthe
NSFchecksareasfollows:
1. ReturnedbythebankinDecemberandrecordedbythecompanyinJanuary
2011,P9,200.
Auditing Practice I Third Term, AY 2013-2014
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2. Returned by the bank in December and recorded by the company in
December,P25,000.
3. Returned by the bank in November and recorded by the company in
December,P1,000.
f. AbankcreditmemodatedDecember27,2012wasreceivedbyMalaberstatingthat
thecompanysaccountwascreditedforthenetproceedsofanoteforP8,060.Thisis
notyetrecordedinthebooks.
g. A check of Malabey Company amounting to P9,292 was charged to the company
accountbythebankinerroronDecember30.
h. The company has hypothecated its accounts receivable with the bank under an
agreementwherebythebanklendsthecompany80%ofthehypothecatedaccounts
receivable. The company performs accounting and collection of the accounts.
Adjustmentsoftheloanaremadefromdailysalesreportsanddeposits.
i. Thebankcreditsthecompanyaccountandincreasestheamountoftheloanfor80%
of the reported sales. The loan agreement states specifically states that the sales
report must be accepted by the bank before the company is credited. Sales reports
areforwardedbythecompanytothebankonthefirstdayfollowingthedateofsales.
The bank allocates each deposit 80% to the payment of the loan, and 20% to the
company account. Thus, only 80% of each days sales and 20% of each collection
deposits are entered in the bank statement. The company accountant records the
hypothecation of new accounts receivable (80% of sales) as a debit to Cash and a
credittotheBankLoanasofthedateofsales.Onehundredpercentofthecollection
onaccountsreceivableisrecordedascashreceipt;80%ofthecollectionisrecorded
in the cash disbursements books as a payment on the loan. In addition with the
hypothecation,thefollowinginformationwerediscovered:
1. Collection on accounts receivable deposited in December, other than
depositsintransit,totaledtoP4,800,000.
2. Included in the undeposited collections is cash from the hypothecation of
accounts receivable. Sales were P162,000 on November 30, and P169,000
on December 31, the balance was made up from collections of P128,440
whichwasenteredinthebooksinthemannerindicatedabove.
j. ForthemonthofDecember,theinterestonthebankloanamountingtoP24,560was
charged by the bank against the account of Malaber. This was not recorded in the
books.

Prepare a four-column proof of cash of the cash receipts and cash disbursements
recordedonthebankstatementandonthecompanysbooksforthemonthofDecember
2012. The reconciliation should agree with the cash figure that will appear in the
companysfinancialstatements.Thereafter,determinethefollowing:
1. CashbalanceasofNovember30.
2. CashbalanceasofDecember31.
3. BookreceiptsforDecember31.
4. BookdisbursementsforDecember31.
5. CashshortageatDecember31,iftheresany.

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Problem2-12Comprehensiveproblem
YouwereabletogatherthefollowingfromtheDecember31,2012trialbalanceofBugs
BunnyCorporationinconnectionwithyourauditofthecompany:

Cashonhand P530,000
Pettycashfund 10,450
GoldKeeperBankcurrentaccount 1,230,000
DiamondBankcurrentaccountno.01 1,080,000
DiamondBankcurrentaccountno.02 (80,000)
BronzeBanksavingsaccount 1,200,000
BronzeBanktimedeposit(three-month) 500,000

Cashonhandincludesthefollowingitems:
a. Customers check for P40,000 returned by bank on December 26, 2012 due to
insufficientfundbutsubsequentlyre-depositedandclearedbythebankonJanuary8,
2013.
b. Customers check for P20,000 dated January 2, 2013, received on December 29,
2012.
c. Postalmoneyordersreceivedfromcustomers,P30,000.

ThepettycashfundconsistedofthefollowingitemsasofDecember31,2012.
Currencyandcoins P2,350
Unreplenishedpettycashvouchers 1,300
Currencyinanenvelopemarkedcollectionsforcharitywith
namesattached
1,200
Employeesvales 1,600
CheckdrawnbyBugsBunnyCorporation,payabletothepetty
cashier
4,000
Total P10,450

IncludedamongthechecksdrawnbyBugsBunnyCorporationagainsttheGoldKeeper
currentaccountandrecordedinDecember2012arethefollowing:

a. Check written and dated December 29, 2012 and delivered to payee on January 2,
2013,P80,000.
b. CheckwrittenonDecember27,2012,datedJanuary2,2013,deliveredtopayeeon
December29,2012,P40,000.

ThecreditbalanceintheDiamondBankcurrentaccountNo.2representschecksdrawn
in excess of the deposit balance. These checks were still outstanding at December 31,
2012.

The savings account deposit in Bronze Bank has been set aside by the board of directors for
acquisition of new equipment. This account is expected to be disbursed in the next four months
fromthebalancesheetdate.

Basedontheaboveandtheresultofyouraudit,determinetheadjustedbalancesofthefollowing
asofDecember31,2012:
1. Cashonhand.
2. Pettycashfund.
3. GoldKeeperBankcurrentaccount.
4. Cashandcashequivalents.