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 client’s 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 .......................................... A-1

Standard bank confirmation – Big City National Bank ............................. A-2
Bank reconciliation – Second National Bank .......................................... A-3
Standard bank confirmation – Second National Bank ............................. A-4
Undeposited cash receipts – Big City National Bank ............................... A-6
Petty cash fund ........................................................................................ 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 year’s 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 year’s working paper, index A-1 – Bank Reconciliation – Big City National (General)
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STANDARD BANK CONFIRMATION INQUIRY
A-2
Date, January 3, 2012

Return to: Anderson, Olds, and Watershed Your completion of the following report will be
Certified Public Accountants sincerely appreciated IF THE ANSWER TO ANY ITEM
615 Big City Bank Building IS “NONE” PLEASE SO STATE. Use the enclosed
Chicago, Illinois envelope to return the original directly to our
Report : Big City National Bank accountant (see name to left)
From Main at Michigan Avenue Your Truly – Apple Blossom Cologne Co.
Bank Chicago, Illinois 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 check
Amount Account Name Account No. Remarks
Interest bearing give rate
243,620 Apple Blossom Cologne 146-2013 X No
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:

Date Interest Description of Liability,

Amount Loan/Discount Due Rate Paid to 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

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STANDARD BANK CONFIRMATION INQUIRY
A-4
Date, January 3, 2012

Return to: Anderson, Olds, and Watershed Your completion of the following report will be
Certified Public Accountants sincerely appreciated IF THE ANSWER TO ANY ITEM
615 Big City Bank Building IS “NONE” PLEASE SO STATE. Use the enclosed
Chicago, Illinois envelope to return the original directly to our
Report : Second National Bank accountant (see name to left)
From 615 Lakeway Road Your Truly – Apple Blossom Cologne Co.
Bank Chicago, Illinois 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 check
Amount Account Name Account No. Remarks
Interest bearing give rate
5,791 Apple Blossom Cologne 36-118-402 X No
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:

Date Interest Description of Liability,

Amount Loan/Discount Due Rate Paid to 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 A-6
Undeposited Cash Receipts – Big City National
12-31-2011

Payor Date Amount

Capitol Odors 12-23 3,020
Janis Deparment Stores 12-27 2,500
Body Bar 12-27 2,837
Lone Star Supply 12-27 1,871
Williams' Fragrances 12-30 3,719
Anne Charlotte Cosmetics 12-30 723

Total 14,670
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

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 --------------------------------------------------------------------------------------------------------
Apple Blossom Cologne Company A-7
Petty Cash
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
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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 Balance
12-31-2011 Balance forward 243,582
1-3-2012 135, 176 53,250 296,521
1-4-2012 10,000 14,670, 111,200 412,391
 1-6-2012 1,450, 36,000 18,000 392,941
1-7-2012 146,880 11,200 257,261
1-10-2012 25,355, 150 1,850 233,606
1-13-2012 214, 140, 874, 9,600 30,900 253,678
1-14-2012 468, 2,950, 565, 10,200, 420, 37,680 6,000 207,395

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 Date of Check Cleared Bank Payee Amount

1446 12-27 1-03 Longhorn Garbage Disposal 135
1449 12-27 1-03 Bertram Hardware 176
1451 12-30 1-03 Second National Bank 10,000
1452 12-31 1-06 Second National Bank 36,000
1445 12-27 1-06 Office Decorators 1,450
1453 1-03 1-07 Fruit Juicy Perfume Co. 146,880
1454 1-03 1-10 Hammel, Hammel, & Johnson 25,355
1458 1-06 1-10 Midtown Office Supply 150
1467 1-10 1-13 Dr. Edwar Abel 214
1444 12-27 1-13 Lawn Clippers 140
1450 12-30 1-13 Quick-Print Printers 874
1460 1-07 1-13 Apple Valley Security 9,600
1462 1-07 1-14 William F. Reimann 468
1461 1-07 1-14 Alex McBane 2,950
1466 1-10 1-14 Fulton Paper Co. 565
1457 1-03 1-14 Edwards, Overstreet & Gilley 10,200
1456 1-03 1-14 Norton Exterminators 420
1463 1-07 1-14 Roberts and Underwood 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 Checks Deposits Balance

12-31-11 Balance forward 5,791
1-3-2012 2,342, 10,000 13,449
1-4-2012 3,134 36,000 46,315
1-6-2012 15,442 30,873
1-7-2012 14,386 16,487
1-10-2012 2,742, 10,120 3,625
1-11-2012 1,545 2,080
1-12-2012 1,227 853
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 Cleare Payee Amount

Check d Bank
6890,6895,6896,6897, 6901,6902 12-31 1-03 6 hourly employee (see cash 2,342
disbursement journal for names)
6889,6891,6892,6893,6894,6898, 12-31 1-04 8 hourly employee (see cash 3,134
6899,6900 disbursement journal for names)
6904,6906,6907,6910,6911,6913, 1-03 1-06 10 salaried employees 15,442
6914, 6916,6919,6925
6903,6905,6908,6909, 6912, 1-03 1-07 8 salaried employees 14,386
6915, 6917, 6926
6918,6920,6921,6922,6923,6924 1-03 1-10 8 salaried employees 10,120
6927,6929,6931,6932,6936,6939, 1-07 1-10 7 hourly employees 2,742
6940
6930, 6933, 6937, 6938 1-07 1-11 4 hourly employees 1,545
6928, 6934, 6935 1-07 1-12 3 hourly employees 1,227

EXHIBIT 3
CASH RECEIPTS JOURNAL (Selected Portion)
CASH DEBIT DATE SOURCE CREDIT
163,093 12-24-11 Total brought forward 163,093
25,800 12-24 Various A/R – Listed 25,800
53,250 12-27 Various A/R – Listed 53,250
10,000 12-30 Big City National Bank 10,000*
36,000 12-31 Big City National Bank 36,000**
14,670 12-31 Various A/R – Listed 14,670
256,813 46,000 12-31-11 December totals 256,813 46,000
0 0 1-01-12 Beginning balance 0 0
111,200 1-03 Various A/R – Listed 111,200
18,000 1-04 Young and Beautiful 18,000
11,200 1-07 Various A/R – Listed 11,200
140,400 0 1-07-12 Totals forward to next page 140,400 0
* Cash credit is to Miscellaneous Income, account #950
** Cash credit is to Big City National Bank, account #101

EXHIBIT 4
CASH DISBURSEMENTS JOURNAL (Selected Portion)
DEBIT CASH CREDIT
CHECK
DATE PAYEE ACCOUNT BIG CITY SECOND
NUMBER
NUMBER NAT. NAT.
12-24-11 Totals brought forward 212,000 8,735
12-27 1444 Lawn Clippers 301 140
12-27 1445 Office Decorators 301 1,450
12-27 1446 Longhorn Garbage Disposal 301 135
12-27 1447 Gulf States Oil Supply 830 80
12-27 1448 United Fund 832 25
12-27 1449 Bertram Hardware 301 176
12-30 1450 Quick-Print Printers 301 874
12-30 1451 Second National Bank See cash receipts journal
12-31 6889 Bert Campo 303 416
12-31 6890 Karl Marker 303 401
12-31 6891 Earnest Jones 303 435
12-31 6892 Patricia Sanders 303 401
12-31 6893 Bruce Jones 303 342
12-31 6894 Robert Smith 303 353
12-31 6895 Milton Schaefer 303 403
12-31 6896 Antonio Salvadore 303 384
12-31 6897 Susan Billingsley 303 384
12-31 6898 Robin Botner 303 393
12-31 6899 Raymond Arthur 303 380
12-31 6900 Bill Potet 303 414
12-31 6901 David Johnson 303 365
12-31 6902 Elizabeth Robertson 303 405
12-31 1452 Second National Bank See cash receipts journal
12-31-11 December totals 214,880 14,211
1-03-12 1453 Fruit Juicy Perfume Co. 301 146,880
1-03 1454 Hammel, Hammel, & Johnson 301 25,355
1-03 6903-26 Salaried employees, Dec. Payroll 303 39,948
1-03 1455 Mid-town Office Supply 112 3,800
1-03 1456 Norton Exterminators 301 420
1-03 1457 Edwards, Overstreet, and Gilley 301 10,200
1-06 1458 Mid-town Office Supply 112 150
1-07 1459 Fruit Scents, Inc. 301 7,757
1-07 1460 Apple Valley Security 301 9,600
1-07 1461 Alex McBane 301 2,950
1-07 1462 William F. Reimann 301 468
1-07 1463 Roberts and Underwood 115 37,680
1-07 1464 Fruit Juicy Perfuem Co. 301 5,184
1-07 6927-40 Hourly employees’ weekly payroll 303 5,514
1-10 1465 Hoffmann Supply Co. 301 240
1-10 1466 Fulton Paper Co. 301 565
1-10 1467 Dr. Edward Abel 301 214
1-10 1468 Flash Freight Co. 301 404
1-10-12 Totals carried forward 251,867 45,462

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PRIOR YEAR’S WORKING PAPERS
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STANDARD BANK CONFIRMATION INQUIRY
A-2
Date, December, 2011

Return to: Anderson, Olds, and Watershed Your completion of the following report will be
Certified Public Accountants sincerely appreciated IF THE ANSWER TO ANY ITEM
615 Big City Bank Building IS “NONE” PLEASE SO STATE. Use the enclosed
Chicago, Illinois envelope to return the original directly to our
Report : Big City National Bank accountant (see name to left)
From Main at Michigan Avenue Your Truly – Apple Blossom Cologne Co.
Bank Chicago, Illinois 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:
Subject to withdrawal by check
Amount Account Name Account No. Remarks
Interest bearing give rate
483,440 Apple Blossom Cologne 146-2013 X No
A-1 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:

Date Interest Description of Liability,

Amount Loan/Discount Due Rate Paid to Collateral, Security Interests,
Liens, Endorsers, etc.
125,000 4-30-2010 4-30-2011 12 ¾% 4-30-2010 Unsecured
I-1

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
A-4
Date, December, 2011

Return to: Anderson, Olds, and Watershed Your completion of the following report will be
Certified Public Accountants sincerely appreciated IF THE ANSWER TO ANY ITEM
615 Big City Bank Building IS “NONE” PLEASE SO STATE. Use the enclosed
Chicago, Illinois envelope to return the original directly to our
Report : Second National Bank accountant (see name to left)
From Main at Michigan Avenue Your Truly – Apple Blossom Cologne Co.
Bank Chicago, Illinois 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:
 Subject to withdrawal by check
Amount Account Name Account No. Remarks
Interest bearing give rate
6,421 Apple Blossom Cologne 36-118-402 X No
A-3 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:

Date Interest Description of Liability,

Amount Loan/Discount Due Rate Paid to 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 A-6
Petty Cash 1-21-2012
12-31-2010 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

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