The Reviar School of

tTel. No. 735-9807{

AUDITING PROBLEIIIS I RET{EO/ ESPENI LLA I IA]II ES

CASH,AND RECEIVABLES

PROBLEM 1: You gathered the following information in relation to your audit of SAP CORP.for
the.year ended December31, 2008:
br(a TaeA &A*
L Traveler's check P150,0001
'/
l/ 2. Bank drafts and money orders 90,00q
3. Unused postage stamps 3,000
4. Employeecheck dated 2009, recorded as 2008 12,0O0
/ . 5. I,OUfrom a key officer 30,000
/ 6. Current account at PNB Bank 6,OO0,OOO,I
7. Cuirent account at EquitableBank (300,000)
r' B. .Curent account at BPI - fayroll Account 1,500,000r1
9. I,eFtrictedforeign bank qccount (in USD)*x 60,000
10. Credit memo from a vendor for a purchase return 60,000
^11. Customer'S check returned by the bank marked DAUD, return not
yet recorded in 2008 45,000
int 12. .Changefund
10,0004
13. Bond sinking fund t6 be used to settle bonds payable due 2015 1,OOO,0OO
'( 14. Petty cash fund (P12,000 in currency and expense vouchers for 30,o001
18,000)
f 15. fireasurybills, due 3l3Ll09 (purchasedtzl3Ll0e) 600,0001
a 16. Treasury bifls; due tl3Ll0g (purchasedL/l/08) 900,o00
L7. Other trade accountsreceivable- unassigned 2,250,OAO
-. r/ta. Trade accountsreceivable- factored in 20O8,amount received
from factorlngis 1,200,000,factoringnot recordedyet in 2OO8 1,500,00O1
{ 19. Tradeaccountson whichpost-datedchecksar"eheld (no entries
were made on receiptsof checks) 225,AOO
( 20. Trade r€ceivablesfrom officers drc cr,rmtly 67,500
?r, #l*rce patgn€ftsto €*lrfuson F rdre or-ebrs,M 459-ago
22. Advancesto an associatedcompany 7,125,offi
23. Credit balanceson customers'accountdue to salesreturn (675,OO0)
\t 24. Interest receivableon investmentin bonds 450"OOO
25. Interest payableon bonds 500,000
26. Subscriptlonsreceivablefrom ordinary shares due in 30 days -,i-r 2,475,OOO
27. Trade note receivables 1,OOO,OOO
**current exchangerate as of December31, 2008 is at P50 for every USDI.

1. What is th€ tota! iash and cashequivalentto be reportedby the comparryas of -DBcember
31, 2008? dw,W

2 . What is the total trade receivables

to be reportedas of December31, 20OB?

3. How much is the total other receivablesas of December31, 2008?

PRQBLEI'| 2: You were able to gather the following from the December 31, 2008 trial balance
of RHEAINC. in connectionwith your audit of the company:
t
Petty cash fund 50,000 w
Cash on hand 1,500,00p IrTo@
Cash in bank - Metrbbank current 4,000)0004lbo@
Cash'in bank - BDO Acct No. 1
Cash in bank - BDO Acct No. 2
Cash in bank - Coco bank savings
iit3r,3ts3!u'w
4,500,000'
Time deposits - BPI 2,ooo,00Q
 fuSAr The Review Schoolof Amuntancy
The petty cash fund consisted of the iollowing items as of Decembei3l, 2008:
Currency and colns P10,000q
/ Empfoyees'vales 10.t,vuivatdt 8,000.'
Currency in an envelope m6rked "collectionsfor charity" , ,
with names attached 6,000
n Unreplenishedpetty cash vouchers 6,500
Check drawn by RHEA,payable to the petty cashier. 20,000{
v.d.\44 " "51'aialrat,ht,(_LrIQg_
' Unused Postage stamps tt1vrut, alttrraq
- P52,000

Cash on hand represents undeposited collections as of December 31, ?008 and includes the
follbwing items:
a. Customer's check for P160,000 returned by bank on December 26,20O8 due to
insufficient fund but subsequently redeposited and cleared by the bank on January 3,
zoo9.
b. Customer's check for P80,000 dated January 2,2OgO, received on December 29,2008.
c. A customer check for P90,000 dated June 1, 2008 received on the same date and yet to
be deposited since the same has been missing.
d. Postal money orders received from customers, P100,0O0.

Included among the checks drawn by RHEA against the Metrobank current account and
recorded in December 2OO8are the following:
a. Check writteri'on Dilcember 29, 2OAA dated January 2, 2OOg, delivered to payee on
December 29, 2OO8,P160,000.
b. Check written and dated'December 29, 2008 and delivered to payee on January 2,
2OO9,P200,000.

The credit balance in the BDO Current Account No. 2 represents checks drawrt in excess of the
deposit bal4nce. These checks werb stilt outstanding at December 31, 2008.

The savings account deposit in Coco Bank has been set by the board of directors fior acquisition
of new computers. This account is expected to be disbursed in the next 3 months from the
balancesheet date,

The time depositwith BPI was purchasedon lrlorrember1, 2008 and shall rnatureon Noverfiber
1, 2OO9.

DeJermine the audted balancesof the following:

A r. Petty cashfund
a. 30,000 b. 36,000 c, 10,000 d. 24FAO
0 2. Petty cash.shortage/ov€rage
a. 4,000 short b. 5,5OOshort c. 2,0Ooover d. 500 over
8 3 . Cashon hand
a. 1,070,000 . b. 1,170,000 c. 1,260,000 d. 1,500,000 ,r
9 4. CashIn bank - Metrobankcurrent
a. 4,000,000 b. 4,160,000 c. 4,200,000 d. 4,360,000 .i
-
A 5. Cash and cash equivalentsto be reportedin the 2006 batancesheet
o. 8,560,000. b. 8,566,000 c. 10,560,000 d, 15,060,000

eBAEliEE3i A count of the Petty Cash Fund having an imprest balanceof P10,000of Reyes
Corp. showedits compositionas follows:

Coinsand currency................ P 2,g0q

'7 Paidvouchers:

3,000

11000

?44-
c_lgqr
' cash r-eceiPtvoucher ' 500,'.
a#r:rnPettY
zlt'
/ The petty cash receipt voucher is for a return of travel expense advance.
 RgSA:T.heReview School'of Aaountancy ' ". i Page3of6

e Whatis the pettycashshortage?

a.O b. 50 0 c. 9004 d. 1,000
pttttyuh firilz .rt@
Ad$usud
A pROBLEM 4: A count of the undeposited receipts under the custody of U. Rita, cashier of Ube
-
C*p-, S-ptember 30, 20OBshowed the following composition: .\
"" <A.se e6?tsttgo eV.
currency and coins P24,62O^ 1 /
Un'usedpostage and documentary stamps /
W
Checks:
Date Payee DraWer
8fr€ - 3-24-08 Cash U. Rita 2,000^
9-20-OB Ube Corp. TamsCo. 4,7OO\ r'
9-27-O8 Ube Corp JonliInc. 3,%101. /
MERALCO UbiCorp- 1'.8OO1
";-.9-30-08
voucherspaidout of receipts
Cash'disbursements/dvance /
Total per count

Assuming the caShier'sdccountabilityto be P36,940 per the clientrs record, what was the
arhountof shofta$e/overageon Septeinber3O,2OO8?

a.'P480 shortage b. P3,22Oshortage c. P3,320overage d. .No sh6rtage/overage

pRo3liEil. 5: The Victory lrft. had poor internal control over its cash transactions. Data
pertaining to its cash position at October 31, 2008 were as follows:

The casfi book showed a balance of P197,O54.64. This included undeposited receipts. A credit
of P3,624.00 on the bank records for a customer deposit made directly through the banks for
payment of account. A PL,224.O0 bank debit also appeared in the bank statement for service
charges for the month of October, TheCe wcre not yet recorded on the bsoks, .The b8I*
statement had a balance of P173,t{18.0O.

Fur.theraudit procedures revealed the followin$ outstanding checks:

No . 0 2 1 0 P1,418.40
0218 . 1,560.00
0219 3,039.00
o223 2,?88.52
oz25 4,881.60
4227 1,983.48

Cash on hand arnountedto P32,3IO.24which appearedto be the undepositedcollectionper

books. The client suspectsthat cashiermisappropriated atl undepositedreceiptsin excessof
the arnount presefited as undeposited receipts. The cashier tried to conceal the
by
misappropriation preparingthe followingreconciliation:

Balanceper books,Octobe131,2006 PL97,O54.64

AdS: Outstandingchecks
No. 0223 P2,288.52 '
'
0225 4,881.60'
, 0227 1.983.48 9 , 1 5 3 . 60
Uncrecorded debit l;224.O4
P2O7,432.24
Less; UndeOositedreceipts 32,3LO.24
Balanceper bank,October31, 2006 P L 7 5 , t 2 2 . OC I
Unrecordedcredit 3.624.00
Corr.ectcash balance, October 31, 2006 , PIZl-s4a
1. What is the correct cash balance?
a. P|75,L22.AO b, PI79,498'24 cvPl9L,o37'24 d. Pt99,454.64
\
2. How much did the cashiermisappropriate?
a. P15,171.00 b. P9,153.60 c! P8,417.40 d. P2,400.00
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PROBLEIL|6: You obtainedthe followinginformation0n the currentaccountof BUGOYCORP.
Duringyour examinationof its financialstatementsfor the year endedDecember31, 2008.

The bank statementon November30, 2O08showeda balanceof P918,000. Amongthe bank

.credits in November was customer's note for P3OO,OOO collected for the account of the
.companywhichthe companyrecognlzedin Decemberamongits receipts. Includedin the bank
debitswere cost of checkbooksamountingto P3,600and a P120,000checkwhichwas charged
by the bank in irror againstBugoy'saccount. Also in Novemberyou ascertainedthat there
were depositsintransit amountingto P240,0O0
and out$tandingcheckstotalingP510,000.

The bank statementfor the month of Detembershowedtotal creditsof Pt,248,000and total

chargesof P612,000',The company'sbooks for Decembershowedtotal debits of P2,2A6,800,
total credits of L.,221,600and a balanceof P1,456,800. Bank debit memos for December
were: No. 121 for servicecharges,P4,800and No. 722 on a custorner'sreturned check marked
"Referto Drawer"for P72,OOO

On December31, 20Q8ihe companyplacedwith the bank a cdstomer'spromissorynote with a

face value of P360,OOOfor collection. The cgFnany treated this note as part of its receipts
althoughthe b5nk was able to collecton the note only in Janua.ry,2009.

A check fcir P'11,880was recorded in the company cash payments books in December as
P1 1 8 ,800.

1. How mtJchis the undepositedcollectionsas of December31, 2OOg?

a. 1,018,800 b. 538,800 c7 658,800 d. 418,800

2. How much is the outstanding checks as of December 31, ZOO8?

a. 575,880 b. 1,192,800 c, 1,085,880 d. 1,089,480

3. How much is the adjusted cash balance as of November 30, 2OO8?

a. 648,000 b, 768,000 c. 528,000 d. 47L,600

4, l'lowmuchis the adjustedcashbalanceas of December31, 2008?

a. t,876,92O b. 585p3€ c. 66O,OOO d. L,L.26,92O

\
PRODtlttl7: Folfowingthe information pertains to the Cash in Bank accoUntof l'tango
for
Company the month of April, 2O08;

a.. Bs*ancesper bank staternentMarch 3t, PZt,560, and April 30, p23,040.
b. Balancesof Cash in Bank accountin Company'sbooks::March31, P16,545,and April
30, P22,680.
c. Total receipt€per books were F222,190of which P1.210was paid in cash to a creditor
on April 16.
d. Total chargesin the bank statementduring April were P2L8,97O.
e. Undepositedrecciptswere: March31, P9,06Oand April 30, P10,120.
' f. Outstandingcheckswere: March 3li P2$75 and April 30, P1,930,of which a check for
P500was certified by the bank on April22.
g. NSFchecksreturned, recorde_g!_ag reductionsof cash receiptswere:
L1 ReturnedUy e +O
.2. Returnedby.Bankin April but recorded.inMay, P860.
h. Collectionsby Bank not recordedby companywere P12,150in March,and P11,640in
April.
i. . Bank servicechargesnot enteredin company'sbookswere: March 3L, P75O,and April
30 P420.
J. A checkfor P950of MarangCompanywas chargedto MangoCompanyin error.
k. Acheck drawnfor P840was erroneouslyenteredin the.booksas P480.

Preparea four-columnreconciliation of receipts,disbursements

and bank balancesfor April,
2008, usingthe form wherethe bank and book figuresare ,broughtto correctedbalances.
Preparethe journal entriesto adjustth.eCashin Bankaccountat April 30. i , :-''.
l

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,i
PROBTEM 8l The following T-accotrntsummarizes.the transactionbaifecting the accounts
receivableof Grandia Company for 2008.

nts - Trade
7Jan. L balance(after deducting Collectionsfrom customers/
credit baldnceof P3,000) P53,000 (includingoverpaymentof P620,000r.
P5,000)
,/Chargesales 625,000 Write offs 3,500(-
Chargefor goodsout on Merchandise returns 2,500L
consignment 5,000 Allowanceto customersfor
Shareholders subscriptions 3O,000 shippingdamages 1,500r
TAccountswritten off but recovered 1,000 Collectionson carrierclaims 1,000
€ash paid on customerfor Jan. 1 Collectionon subscription 15,000
credit balance 2,500
Depositon contract 15,000
Claimagainstcommoncarrierfor
shippingdamages x,500
IOUs from employees 500
Cash advance to affiliate 10,000
Advanceto supplier' 5,000

1. Prepareadjusting entries to correct accounts receivable.

(, Z. Wh.atis the correct accounts receivable- trade balance?

a. 70,000 b. 61,000 c. 59,500 d. .55,500

PROBI.EM9: In your audit of JAMESCOMPANY for the year 2008, you concludedthat the
allowanc.efor doubtful accountsshouldbe adJustedto equal the estimatedamount required
basedon agingof the accountsas of December31. Duringyouqaudit,you were ableto gather
the'followingdata:'
l(* ' Zts" Allowancefor doubtfulaccounts,Jan 1, 2OO8 P600,000
fr'ndr*\ za( Provisionfor doubtful accountsduring (2008 (3a/oof 10M Sales) 30O,OOft
Bad debts written-off in 2@8 +;- 375,009
Recoveryof bad debts written-off during 2O0b 100,bO0
Estimateddoubtfulaccountsper aging of accountson December31, 2008 400,000
Accountsreceivable,December3'1,2008 2,375,OOO

1. Basedon the result of your audit, what is the correctdoubtful accosntsexpensefor the
I year 20O8?
b. 300,000 c. 175,O00 75,000
a. 375,O00 I ? 75
2. What is the correct net book value of the receivables?
D a. 2,375,OOO b. L,775,OOO c. 2,000,000
,"
L,975,QOO

PBOQIEII l9: From inceptionof operationsto December31, 2008, PDACorporationprovided

for uncollectibfe'accounts receivableunder the allowancemethod: prwisions were made
monthly at 2o/oof credlt sales; bad debts wriften off were charged to the allowanceaccount;
recoveriesof bad debts previouslywritten off were creditedto the allowanceaqcounUand no
year-endadjustmentsto the allocationaccountwere made.PDA'susualcreditterms are net 30
days,

The balancein ther allowancefor doubtful

dou accountswas P1]$OO0at January1, 2008. During
,2008, credit salds totaled.P9,000,000,iDterim provisionsfor doubtful accountswere made at
2o/oof credit sales; P90,000 of .bad debts were written off, and recoveries of accounts
. previouslywritten off amountedto P15,000.PDA installeda computerfaciltty in November,
')2008, and an aging of accountsreceivablewas preparedfor the first time as of December31,
2008.A summaryof the agihgis as follows:

co"ilis,g' Classificationby
Monthof sale
Nov-Dec2008
Balancein
EachCategory
P1,140,000 ;-.
Estimatedo/o
Uncollectibl€
L.So/o
'8:0" 1 nn,
I Jul-Oct 600,000 Q?to'tco
',,)&. Jan-June 400,000" , 35.0 1*' ' --
:*',-ffiVtn Priorto LlI/O8 ut0.000 fun '' "
__ PL279,AOA
 ..1
, t,. .,...

RsSA:Ihe Rwkw Sdtool of Aimuntancy . Pac6o f6

Further audit procedures revealed that a P16O,OO0customer Credit balance resulUng from
overpayment was included in the "Nov-Dec. 2008'receivables and that based on the review of
collectibility of the account balances in the "prior to t/LlO9" aging categorv, additional
receivablestotaling P60,000 were written off as of December 31, 2008.

Effectivewith the year ended December 31, 2005, PDA adopted the revised accounting
standards in recognizingbad debts.

P J.. what is the correctbalanceof the allowancefor doubtfulaccountsat year end?

a. 254,100 b:256,5A0 c. 296,100^ d. 298,500
4 2 . a.What is the correct bad debt expense for the year?
261,500- b, 20 1 , 5 0 0 c. 81,500 d. 76,500
3. What is the carryihg value of the accounts receivableat year end?
9, a. 2,013,500 b. 2,10 9 , 5 0 0 e 2,113,5OO, d. 2,370,0O0

PBoq\Eil lli The'balance sheet of DWARFCORP, reported the fotlowing long-term

receivables
as of December31, 2OO7:
i Notereceivablefrom saleof plant P4,500,000
Note receivablefrom officer 1,200,000
In connectionwtth your audit, you were abie to gather the followingtransactionsduring 2OOg
and other informationpertainingto the company'slong-termreceivables:

' a. The note receivableform sale of ptant bears interest at L2o/oper annum. Th-enote is
payable in 3 annual installmentsof P1,500,000 interest on the unpaid balanCe
ey,ggAoril 1. The initialpllcrpg_|gndinterest(FEyllE\was made_ on April 1, 2008.
-Nur{il{Aev _Adi-fq[r/i---T1c
: dt*\^J .[r{ ltr*t' i,lc .. rf
rriq:ZnT---
frrg {:., ----:*---.-..._._.;= _
-""..-'..._*-;='-,:
,
b. The note receivable from officer is dated December 3!, 2OO7, earns interest at .l_o"oZj
per
annum,. and is due on December 31, zd}||. The 2O08 interest .was received qr
becember31, 2008. -w: c,"rr^t
* blofdt${0V ,- - <=-.
a4{Alr.fihJ .
- 1,\.6
'
c. The corporation sold a piece of eQuipmentto SNOW INC. (on April 1, 2008)in\exctrange
for an P6O0,000 non interest bearing note due on April 1, )Ot&--Th€-note had no ready
market, and there was no establishedexchange price for the equiprnent. The prevailing
interest rate for a note of this type at April 1, 2006 was 12olo, The present value factor
of 1 for two periods.at LZo/ois O.797 while the present value factor of ordinary annuity
of 1 for two periods at 1.2016is 1,690. _ eU hd 40.\^,rJ

d. A tract of land was sold by the corporation to WHITE CO. on July 1, 2008, for
P3,0O0,0O0,under an installment sale contract. White signed a 4-year 11olonote for
P2,100,000 on July-l, 200€,-"1nadditjgn to the down payment of P900,000. The equal
anRual payments of'principql and interesf'on the note will be P676,875 payable on Jufy
t,'2009, 20LO,2011, aiid 2Ot2. fhe land had an establishedcash price ol P3,000,00O,
and lts cost to the corporation was'P2,25O,0OO. The collection of the installments on
ttris note is reasonabryassured.
tff -- ut- _ 71-:;,,
W\
y 1. ,Howmuch is the totalnoncurrent
rlotesreceivables
as of Decemdi#n,2oo8?
a. 6,778,?:OO b. 4,832,325 c. 5,278,2AO t. 4,875,363
,
A 2. How much is the total current portion of long-term notes receivableas of December 31,
2008?
V L,945,875 b. 2,L76,975 c. 1,5OO,OOO d. O

A a. Wn'atis the accruedinterestreceivableas of 'December31, 20Og?

3gs,sao b. 428 , s 3 8 c. 270,000 d. 505,500
/.
( {.
+. What is the correctinterestincomefor the year 20OB?
a. 640,500 b. 818,538" c. 683,538 d. 756,000
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RsSA: The Review School of Accountancy ..,:,,.:,1, FaOa 7 cf,f9
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't a

1. Which of the following cash fraud activities involves the postBonement of, the recording of receipts and can
be well perpetiated wfiere there is.lack of segregation of duties between recordkeeping and custodial ,
functions?

3: IitJls,g
t*r
c. Windowdressing
d. .Salamifraud

2. An auditor susfects that a client's cashieris misappropriatingcash receiptsfor personaluse by lapplng

customerchecks receivedin the mail. In attempting to uncoverthis embezzlementscheme,the auditor
most likely would comparethe: :
a. Dates uncollectibleaccountsare authorizedto be written off with the dates the write-offs are
actually recorded.
b. Individualbank depositsstipswith the detailsof the m<inthlybank statements.
c. Daily cash summarieswith the sums of the cash receiptsjournal entries.
d. Dat€schecks.aredeBositedper bank statementswith the dates remittancecredits ale
' recorded.(x)

3. Which of the followingcontrolsrnost likely wqutd reducethe risk of diversionof customer receiptsby an
entity's employees?
a. Daily depositof cash receipds.
b. Monthlybank reconciliations.
c. Prenumbered remmitanceadvice
d. A bank lockboxsystem(x)

4. Soundinternalcontroldictatesthat, imrnediatelyupon receivingchecksfrom customersby mail, a

responsilleemployeeshould:
a. Add the checksto the daily cashsummary.
b. Verify that each check is supported.bya prenurnberedsales invoice.
c. necoid th€ checksin ttrb cash receiptsjournal.
' d. Preparea duplicatelistingof checksreceived.(x)

5. Whichof the fgllowingdescribesthe most effective preventivecontrol to bnsure proper handfingof cash
receipt
":*T*:T"nk reconciriationspreparedby an employeenot involvedwith cash coltectbns and
then.havethen reviewedby a supervisQf'.
b. Use predeterminedtotals of cash receiptsto control,postingroutines.
c. Have the ernployeewho receivescustomer'mailprepaie daily bank deposit; have another
employeeactually make the deposit.
' d. l-lave one employee lssue a prenuarbc{td,ilffaFtfor all cash collections; have another
employe€ match daity total of the prefium'btrd receipts to the bank deposits. (x)

6. Upon receipt of customers'checksin the mailroom, a reEponsibleemployeeshould preparea remittance

listing that is forwardedtb the castfier. A copy of the listing should be sent to the:
a. .Internal auditor to investigatqthe listing for unusualtransactions.
b. Treasurerto comparethe Uttlng with the monthly bank statefnent.
c. Accd{.tntsreccivable hoi:kkeeper to update the subsidiary accounts receivry records. (x) '
, d. Enlity's'b5nksto compere the listihg with the cashier'sdeposit slip.

7; Checksfrom customersare receivedin the Companymaikoom each day. Whichof the followingcontrols
should
?""1"tJ:Fjti,$"J:t"?i'r:,$* payments.
boxrorcustomer
orrice
b. . Forwarelall checks to th€ caghier upon receipt.
c. Prdvidt bondtng protection for"mail clerks.
d. Req$ffespecifi; mail clerk to list and restrictivelyendorseeach che_ck,(x)

8. For the most effective internal control, monthly bank statements should be received directly from the banks
and reviewedby the
a. Controller,
b. Cash receiptsaccountant. :
c. cash aisoir,sementaccountant.
d. lnternal auditor' (x)

9. As payments arc received,one maiiroornemployee is assignedthe responsibilityof prelistingreceipts and

preparihg the deposit slip prigr to forwaiding the receipts,-thedeposit sllp, and the rerhittanceadvices to
- accounts reiceivablefor posting. Accounts receivable pcrson$et refoot the depo€it slip, stamp a restrictive
endorsementon the back M each check, and the'n forward the receiptsand the deposit slip to the treasury
d'epartment.Whichof the followingis a reasonableassessmentof internal control on this process?
a, Internal control is adequate.
, b. Internafcontrolis inadequdtebecausemailroomemployeesshouldnot have accessto cash.
c, Internal control is inadequatebecausetreasury employeesshoufdpreparethe depositslip,
, d. 'Internal controlis inadequatebecaussof a lack of segregationof duties.(x)

10. W . of the followingassertionsdoes the auditor most likely would like to validate in decidingto render
r countS?
a. Completeness
b. Existence(x)
c. Valuation
d. Rightsand obligation
RgSA:The ReyiewSchoof,ofAccountancy * lrrp* ore
mostlikdly wouldbe indicativeof checkkiting?
11. Whichof the followingcharacteristics
a, High turnoverof employeeswho have accessto cash.
b. Manylargechecksthat are recordedon.Mondays.
c. FrequentATM checkingaccountwithdrawals.
- d. Low averagebalancdcomparedto high leveldeposits.(x)

12. Which of the followingaudit procedures'willlikely detect or uncoverkiting activitiesof the client? i
a. Sendingconfirmationto banks.
b. Vouchcheckissuaniesrepresentingdisbursements to sourcedocuments.
c. Rendercashcount on a surprisebasis.
d. Simulteineously valldate bank reconciliationssbtements. (x)

13. The usefulneqsof the standardbank tonfirmation request may be timited becausethe bank ernployeewho
completesthe form may:
a. Not believe that the bank is obligatedto verify confldentialinformatiofrto a third Barity.
b. Sign ah retwn the form without inspectingthe accuracyof the client's bank reconciliation.
, c. . Not have accesgto'the client's cutolTbank statement.
d. Be unawareof afl the fihancialrelationshipsthat the bank'haswith the client. (x)
,.
14. In validating bank reconciliationstatementsof the client, the-auditorshould trace back outstandingchecks
to the:
' a. Accountspayablevoucher.
b. iancelled-checksreturned by the bank.
.c. Bank statement of the current month.
d, Cut-offbank statementof the subsequentmonth. (1)

15. In validatingthe bank r€conciliationstatementsof the client, the auditor should trace back the unrecorded
debits, like servicechargesto th€l:'
a. Accountspayablevoucher.
b, Cancelledchecksreturned by the bank.
. c. Bank statementof the curent month. (x)
d. Cut-off bank statement of the subsequentmonth.

16, The proof of cash statementsis usually preparedby the auditor when:
a. - Internat control over.cashis strohg and control risk is placedat the maximum.
b. lnterhal control over cash is weak and control risk is place at the maxlmum. (x)
c. Cashbalanceis very significant.
d. Cash balanceis very insignificant. .

17. Which of the following proctdurcs concerning accounts rccelvable would an auditor niost'likely perform to
.obtain evidential mattdr in support of an assessedfevel of control risk below the maximum level?
i?. Obsirving an entlty's empbyec prepale tfie scheduleof past due accountsreceivable.(x)
b. Sendingconflrmationrequeststo ari entity's prlncipalcustomersto verify the exisfenceof accounts
receivable.
c. Inspectingan entify's analysisof accountsreceivablefor unusual balances.
d. Comp;;i;n ,ni6lrectiUre accounts payable to actual uncollecti.pJeaccounts receivable.
"ni'tyi
18. Which of the followingproceduresmost tikely would n<itbe an internal control designedao ,iua* the risk of
errors in the billing process?
a. Companngcontrol totals for shippingdocumentswith corlespondingtotals for salEsinvoices.
b. Using com.puterprogramm€d controls on the pricing and mathematical accuracy of sales invoices..
. c. Matchingshippingdocumentswith approvedsalesorders before invoicepreparation
d. Reconcilingthe control.totalsfor sales invoiceswith tfie accounfsreceivablesubsidiaryledger. (x)

write-offs of uncpllectible
n of write-offs
19. Prop-erauthdrization unc-ollectibleaccountsshouJtt
accounts shouJclbe approved in which of the following
departments?
a. Accounts receivable.
i b. Credit.
' c. Accountspayable. -'
d. rr*tur"rlii!-
20. An auditortests an entity's control of obtainingcreditapproval before shippinggoodsto customersin
support of panagemcnt's financial statement assertion of
a. Valuationor allocation.(x)
b. Completeness.
a- ixistence or occurrence
d. Rightsand obligations.

most likely would assurethat all billed salesare correctly posted to

21. Which of thefollowing internal_contrcils
the accountsreceivableledger?
a.-, Daily sales summariesare comparedto daily postingsto the agcoufiti receivableledger. (*)
b. Eachsales invoiceis supportedby a prenumberedshippingdocument.
c, The accountsreceivableledgeris reconcileddaily toe the controlaccountin the,generalledger.
d. Eachshipmenton credit is supportedby a prenumberedsalesinvoice.

22. W h i c h ,oth
f e fo fl o w i n g a u d i tp ro c e duresw oul d..anaudi tormostti kel yperformtotestcontrolsr elat ingt o
manageinent'sassertionconcerningthe completenessof salestransactions?
a. Verify that extensionsand footings on the entity's sales invDicesand monthly customer'statemenfs
have been recomouted.
b, Inspect the entity's reports of prenumberedshippingdocumentsthat have been recordedin the
RsSA: The Review School of Accountancy ',. ft
Paqe 9 of 9
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salesjournal. (x)
c. Comparethe invoicedpriceson prenumberedsales invoicesto the entity's authorizedprice'list.
d. Inquireabout the entityr5creditgrantingpoliciesand-theconsistentapp,lication
of ciedit checks.

23. An auditor's purposein reviewingcredit ratings of customerswith delinquentaccountsreceivablemost

likely is to obtainevidenceconcerningmanagement'sassertionsabout
a. Valuationor alJocation.(x)-
b. Presentationand disclosure.
c. Existenceor occurrence
d. Rightsand obligations.

24. 'loachievegood internalcontrol,whic.hdepartmentshouldperformthe activitiesof matchingshipping

documentswith salesordersand preparingdaitysalessummaries?
a. B l l l i n g(x )
b. Sh i p p i n g
c. Credit
d. Safesoroer

25. Whichof the followingwouldthe auditorconsiderto be an incompatibleoperationfor a cashierif the

cashierreceivesremittancesfrom the mailroom?
a. Postingthe receiptsto tlle accountsreceivablesubsidiaryledger cards. (x)
b. Makingthe daily deppsitat the local bank.
c. Preparingthe daily deposit.
d. Endorsingthe checks.

26. The most likelyresult of ineffectiveinternalcontrolsin the salescycleis that

a. Fiititiou. transactions could be recorded, causing an understatement of revenues and an
overstatementof receivables.
b. tregularities in recdrdingtransactionsin the subsidiaryaccountscould delay the shipmentof goods.
c. Omissionof shippingdocumentscould go undetected,causingan understatenlentof inventory.
d. Final authorizationof credit memos by personnelin the sales department could permit an employee
defalcationscheme. (x)

27. fsr effectiveinternal control, employeesmaintainingthe accountsreceivablesubsidiaryledger should not

also approve
. a, Employeeovertimewages,
b. Credit granted to cuitomers.
. c. Write-offsof custorneraccounts.(x)
d. eash disbursements.

28. During an audit of the accountsreceivabl€function, you found that the accountsreceivableturnover rate
had fallen from 7.3 to 4.3 over the last three y'ears.What is the most likely causeof the decrease?
a. An increasein th€ discountoffered for early payment
b, A more liberal credit policy (x)
c. A changeform net 30 net 25
d. Greatercash Sales

29. Shippingdocumentsshould be traces to and comparedwith sales recordsor invoices6

. a, Determinewhether paymentsare properly appliedto customeraccounts. l
b. Ensurethilt shipmentsare billed to customers.(x)
c. Determinewhether unit pricesbilled are in accordancewith salescontrads.
d. Ascertainwhether afl salesare supportedby shippingdocuments.

30. An auditor noted that the accountCreceivabledepartment is separatefrom other accauntingactivities.

Credit is approved by a s€paratecredit department.Control accountsand subsidiaryledgersare balanced
monthly: Similarly, accountsare aged monthly. The accountsreceivablemanagerwrites off delinquent
accountsafter one year or sooner, if a bankrupt€yor other unusualcircumstanceis involved.Credit
rnemorandaare prenumberedand must correlatewlth receivingreiDorts.Which of the following areas could
be viewed as an internal control weaknessof the above organization?
a. Write-cjffsof delinguentaccounts(x)
b. Credit approvals
c. Monthly aging of receivables
d. Handlingof credit memos

31. Sendingaccountsreceivableconfirmationletters tij the client's customersis consistentwith the auditor's

objectiveof validatingclient'sreceivableassertionon:
a. ExisteFceand rights (x)
b: Completenessand valu€ition
c. Completeness and rights ')
d. Existenceand valuation

32. The auditors'analysisof the clientsaged accountsreceivablescheduleis consistentwith the auditor's

objective of validatingclient's receivableassertionon:
a. Existence
b. Completeness
c. Rightsand obligation
d. Valuation(x)

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