AUDITING PROBLEMS

AP.401 AUDIT OF CASH AND CASH EQUIVALENTS

INTERNAL CONTROL MEASURES FOR CASH

1. Cash receipts should be deposited intact – that is, in f. disbursing cash

the same amount and form as they are received. 5. Bank reconciliation statement should be prepared
monthly.
2. All disbursements should be authorized and made by
check except those involving small amounts which 6. Provide physical protection for cash.
should be paid from petty cash fund.
7. Minimize cash on hand in the office.
3. Both receipts and disbursements should be properly
8. Cash actually present in the office – petty cash,
accounted for in the records.
change fund and undeposited receipts can be
4. There should be separation of personnel duties for periodically counted and compared with the company
a. receiving cash records.
b. recording receipts
9. Adopt imprest fund system for petty cash.
c. depositing cash collections
d. reconciling bank account
e. authorizing disbursement

SUBSTANTIVE AUDIT PROCEDURES FOR CASH

Cash Balances Cash Collections

Existence: Cash recorded on the books exist Completeness: All receipts of cash and checks are
recorded
1. Count cash on hand.
2. Confirm bank balances. For a sample of days, verify that all cash receipts are
3. Examine interbank transfers. recorded by reconciling daily listing(s) of cash receipts and
4. Perform analytical procedures. validated deposit ticket to cash receipts journal.
Occurrence: Recorded receipts represent actual
Completeness: All of the entity’s cash is included collections of cash from customers
5. Perform cash cutoff test. For a sample of entries in cash receipts journal, trace to
6. Prepare proof of cash. the prelisting of cash receipts and to remittance advice.
For a sample of entries, reconcile daily deposit to validated
deposit ticket.
Rights and obligations: Any restrictions on cash have
been identified Classification: Cash receipts transactions have been
recorded in the proper accounts
7. Examine standard bank confirmations and read the
minutes of the board of directors’ meetings to Review account coding for a sample of entries in the cash
determine whether any restrictions have been placed receipts journal.
on cash.
Accuracy (Valuation): Debits to cash and credits to
Valuation and allocation: Cash is correctly valued. accounts receivable are valued at amounts received
8. Obtain bank cutoff statements directly from the bank For a sample of entries in cash receipts journal, examine
and use them to test the bank reconciliation as of the remittance advice and verify that discount taken was
balance sheet date. appropriate. Foot accounts receivable subsidiary ledger
and reconcile to general ledger.

Presentation and disclosure: Cash is presented and Cash Payments

disclosed properly.
9. Review financial statements and perform analytical
procedures to determine whether accounts are
classified and disclosed in accordance with GAAP.
Completeness: All cash payments made are recorded
Reconcile cash payments per books with cash payments
per bank. Prepare or test bank reconciliation.

Occurrence: Recorded cash payments occurred

Page 1 of 9
AP.401
Examine paid checks for appropriate endorsements.
Examine documents underlying payments. Accuracy (Valuation): Debits to various accounts and
credits to cash are valued at proper amounts
Classification: Cash payments transactions have been
Recalculate invoices paid.
recorded in the proper accounts
Check accuracy of accounts on invoices by reference to - end -
chart of accounts.
PROBLEM NO. 1 3. BPI current account
a. P1,086,000 c. P1,000,000
You were able to gather the following from the December
b. P 914,000 d. P 950,000
31, 2010 trial balance of Peso Corporation in connection
with your audit of the company: 4. Cash and cash equivalents
a. P2,914,700 c. P2,614,700
Cash on hand P 372,000
b. P2,954,700 d. P3,414,700
Petty cash fund 10,000
PROBLEM NO. 2
BPI current account 950,000
Security Bank current account No. 01 1,280,000 In connection with the audit of the financial statements of
Security Bank current account No. 02 (40,000) Rupee Company for the year ended December 31, 2010,
PNB savings account 500,000 you performed a surprise count of the petty cash fund and
PNB time deposit 300,000 undeposited collections under the custody of Ms. Jessie at
8:15 a.m. on January 3, 2011. Your count disclosed the
Cash on hand includes the following items: following:
Bills and Coins
a. Customer’s check for P60,000 returned by bank on
Bills Coins
December 26, 2010 due to insufficient fund but
P100 10 pieces P1.00 410 pieces
subsequently redeposited and cleared by the bank on
50 80 pieces 0.50 324 pieces
January 8, 2011.
20 70 pieces 0.25 64 pieces
b. Customer’s check for P30,000 dated January 2, 2011,
10 54 pieces
received on December 29, 2010.
c. Postal money orders received from customers,
Unused postage stamps – P730
P36,000.

The petty cash fund consisted of the following items as of Checks

December 31, 2010. Date Payee Drawer Amount
Dec. 30 Cash Ms. Jessie P 2,400
Currency and coins P 2,100 Dec. 30 Rupee Company Robert 28,000
Employees’ vales 1,600 Dec. 31 Rupee Company Jay Ar, sales
Currency in an envelope marked “collections manager 3,360
for charity” with names attached 1,200 Dec. 31 Rupee Company Francis 35,600
Unreplenished petty cash vouchers 800 Dec. 31 Rupee Company Ryan 16,600
Check drawn by Peso Corporation, payable Dec. 31 German Corp. Rupee
to the petty cashier 4,600 (not endorsed) Company 54,000
P10,300
Expense Vouchers
Included among the checks drawn by Peso Corporation Date Payee Description Amount
against the BPI current account and recorded in December Dec. 23 Jay Ar, Cash advance for
2010 are the following: sales manager trip to Baguio
a. Check written and dated December 29, 2010 and City P14,000
delivered to payee on January 2, 2011, P50,000. Dec. 27 Central Post Postage stamps
b. Check written on December 27, 2010, dated January Office 3,240
2, 2011, delivered to payee on December 29, 2010, Dec. 29 Messengers Transportation 300
P86,000. Dec. 29 PC Express Computer repair 1,600

The credit balance in the Security Bank current account Other items found inside the cash box:
No. 2 represents checks drawn in excess of the deposit a) Two pay envelopes which had been opened and the
balance. These checks were still outstanding at December contents aggregating P15,000 representing unclaimed
31, 2010. salaries had been removed.
The savings account deposit in PNB has been set aside by b) The sales manager’s liquidation report for his Baguio
the board of directors for acquisition of new equipment. trip:
This account is expected to be disbursed in the next 3
Cash advance received on
months from the balance sheet date.
Dec. 23 P14,000
Less: Hotel accommodation P9,000
QUESTIONS:
Bus fare for two 800
Based on the above and the result of your audit, compute Cash given to Roy,
for the adjusted balances of following: salesman 600 10,400
Balance P 3,600
1. Cash on hand
a. P282,000 c. P408,000 Accounted for as follows:
b. P246,000 d. P342,000 Cash returned by Roy to the sales
2. Petty cash fund manager P 240
a. P6,700 c. P 2,100 Personal check of sales
b. P9,100 d. P10,000 manager 3,360
Total P 3,600
Additional information:
a) The custodian is not authorized to cash checks.
b) The last official receipt included in the deposit on
December 30 is No. 351 and the last official receipt
issued for the current year is No. 355. The following
official receipts are all dated December 31, 2010.
O.R. No. Amount Form of payment
352 P27,200 Cash
353 35,600 Check
354 7,200 Cash
355 16,600 Check
c) The Petty Cash balance per general ledger is P20,000.
The last replenishment of the fund was made on
December 22, 2010.
REQUIRED:
1. Computation of shortage or overage, if any
2. Adjusting entries as of December 31, 2010
PROBLEM NO. 3
The bank statement for the account of Rial Company as
of December 31, 2010 showed a credit balance of P20,000,
while the company’s ledger balance of the cash account as
of November 30, 2010 was a debit of P40,000. During
December 2010, the ledger showed two postings; a debit
of P60,000 and a credit of P39,000 from the cash receipts
and cash disbursements journal, respectively.
Your examination revealed that the cash column of the
receipts book was under footed by P6,400. The receipts
book recorded only the collections from customers and did
not include a bank credit in December for P8,000,
representing loan proceeds of a P10,000 promissory note.
An examination of the customers’ subsidiary ledgers
showed total credits to individual accounts amounting to
P70,400. The December check disbursements journal
which was over footed by P500, records only the checks
issued by the company. In the month of December, 2010,
the bank charged the company for P5,000 representing a
loan guaranteed by the client but was dishonored by the
maker, the company vice president. The December bank
service charges of P1,200 were erroneously charged by the
bank to the account of Saudi Company. The bank made
the correction in January, 2011. The outstanding checks
as of December 31, 2010 amounted to P5,600.
On the following morning of January 2, 2011, a cash count
conducted produced the following:
Bills and coins P5,200
Checks 2,900
Three (3) duplicate copies of Rial official
receipts, all dated Jan. 2, 2011 1,800
PROBLEM NO. 4
You were engaged to audit the books of Dinar Company.
From the records of the company, you gathered the
following information:
Dinar Company started operations on October 2, 2010 with
the owners investing P150,000 cash. Monthly bank
reconciliation statements have not been prepared;
however, bank statements for October, November, and
December were made available to you. Your analysis of
these bank statements showed total bank credits
(deposits) of P575,000 including the owners’ initial
investment and a bank loan, details of which are in
additional data. The bank statement in December, 2010
showed an ending balance of P30,200.
Examination of the paid checks disclosed that checks
totaling P4,500 were issued by the company in December,
2010, and were presented for payment only in January,
2011. Cash count of the cashier’s accountability amounted
to P6,300. You were told by the cashier that P5,000 of
these, in checks, were cash sales on December 29, 2010,
deposited on January 3, 2011. The balance, in currency
and coins, represents petty cash.
Additional information are as follows:
a. Accounts receivable subsidiary ledgers had a total
balance of P70,000 at December 31, 2010. P5,000 of
this was ascertained to be uncollectible.
b. Suppliers’ unpaid invoices for merchandise totaled
P15,000; while an account for store fixtures bought for
P50,000 had an unpaid balance of P5,000.
c. Merchandise inventory at December 31, 2010
amounted to P30,000 but P5,000 of these were spoiled
with no resale value.
d. The bank statement in October showed a bank credit
for P98,000, dated October 2, 2010. Inquiry from the
cashier disclosed that the amount represents proceeds
of a 90-day, discounted bank note. P80,000 of this
loan was paid by check in December, 2010.
e. Operating expenses paid during the period totaled
P180,000; while merchandise purchases amounted to
P250,000.
f. The gross profit rate is 120% of cost.
REQUIRED:
Compute for the cashier’s shortage at December 31, 2010.

REQUIRED:
a. Computation of the cash shortage as of December 31,
2010.
b. Computation of maximum probable shortage as of
December 31, 2010.
 - 12/31
NSF check–11/30
- 12/31
NSF check red.
Adjusted bal.

PROBLEM NO. 6

PROBLEM NO. 5 You were able to obtain the following information in

connection with your audit of the Cash account of the Piso
You were able to obtain the following information during Company as of December 31, 2010:
your audit of Euro Company:
November 30 December 31
Reconciling items: Balances per bank P742,800 P774,696
Balances per books 619,304 670,392
Nov. 30 Dec. 31 Outstanding checks 254,096 300,184
Undeposited collections P200,000 P120,000
Outstanding checks 80,000 60,000 d. The bank statement for the month of December
Customer’s notes collected by showed total credits of P5,401,800 while the cash
bank 100,000 120,000 receipts per books totaled P9,341,780.
Bank service charges 2,000 3,000 e. NSF checks are recorded as a reduction of cash
Erroneous bank debits 10,000 20,000 receipts. NSF checks which are later redeposited are
Erroneous bank credits 40,000 30,000 then recorded as regular receipts. Data regarding NSF
NSF checks not redeposited 5,000 7,000 checks are as follows:
Customer's check deposited 1. Returned by the bank in Nov. and recorded by the
December 10, returned by company in Dec., P1,000.
bank on December 16 2. Returned by the bank in Dec. and recorded by the
marked NSF, and company in Dec., P25,000.
redeposited immediately; 3. Returned by the bank in Dec. and recorded by the
no entry made on books for company in Jan., P9,200.
return or redeposit 10,000
f. Check of Sopi Company amounting to P9,292 was
Unadjusted balances: charged to the company account by the bank in error
on December 31.
Books ? 90,000
Bank 230,000 ? g. A bank memo stated that the company’s account was
credited for the net proceeds of TM’s note for P8,060.
December Transactions: This is not yet recorded on the books.
Bank Books h. The company has hypothecated its accounts receivable
Receipts P420,000 P270,000 with the bank under an agreement whereby the bank
Disbursements 500,000 407,000 lends the company 80% of the hypothecated accounts
receivable. The company performs accounting and
REQUIRED: collection of the accounts. Adjustments of the loan are
1. Prepare a 4-column bank reconciliation for the month made from daily sales reports and deposits.
of December, using the form that reconciles both the
book and bank balances to a correct cash amount.
2. Adjusting entries as of December 31, 2010.
SOLUTION GUIDE: i. The bank credits the company account and increases
the amount of the loan for 80% of the reported sales.
Bank The loan agreement states specifically that the sales
report must be accepted by the bank before the
(B) (R) (D) (E) company is credited. Sales reports are forwarded by
11/30 Dec. Dec. 12/31 the company to the bank on the first day following the
Unadjusted bal. date of sale. The bank allocates each deposit 80% to
DIT – 11/30 the payment of the loan, and 20% to the company
- 12/31 account. Thus, only 80% of each day’s sales and 20%
OC – 11/30 of each collection deposits are entered on the bank
- 12/31 statement. The company accountant records the
Error, Dr.–11/30 hypothecation of new accounts receivable (80% of
- 12/31 sales) as a debit to Cash and a credit to the bank loan
Error, Cr.–11/30 as of the date of sales. One hundred percent of the
- 12/31 collection on accounts receivable is recorded as a cash
NSF check red. receipt; 80% of the collection is recorded in the cash
Adjusted bal. disbursements books as a payment on the loan. In
connection with the hypothecation, the following facts
were determined:
Books
 Included in the undeposited collections is cash
(B) (R) (D) (E) from the hypothecation of accounts receivable.
11/30 Dec. Dec. 12/31 Sales were P162,000 on November 30, and
Unadjusted bal. P169,000 at December 31, the balance was made
Note coll.– 11/30 up of from collections of P128,440 which was
- 12/31 entered on the books in the manner indicated
BSC – 11/30 above.
  Collections on accounts receivable deposited in confirmation. You have found that there are no errors in
December, other than deposits in transit, totaled addition or subtraction in the client’s books.
P4,800,000. 11/30/10 12/31/10
j. Interest on the bank loan for the month of December Balance, bank statement P344,420 P275,020
charged by the bank but not recorded in the books, Balance, company records 271,260 226,010
amounted to P24,560. Deposits in transit 35,000 ?
Outstanding checks 88,240 ?
QUESTIONS: 12/1-31/10 1/1-12/11
Based on the above and the result of your audit, answer Receipts, cash records P 963,230 P 292,500
the following: Credits, bank statement 941,010 321,490
Disbursements, cash records 1,008,480 177,570
1. How much is the adjusted cash balance as of Charges, bank statement 1,010,410 230,180
November 30, 2010?
a. P618,304 c. P514,624 The following information also was obtained:
b. P488,704 d. P359,104
a) Check no. 804 for P340 cleared by the bank in
2. How much is the adjusted book receipts for December, December as P1,340. This was found in proving the
2010? bank statement. The bank made the correction on
a. P5,427,488 c. P9,370,240 January 8, 2011.
b. P9,505,440 d. P9,350,260
b) A note of P20,000, sent to the bank for collection on
3. How much is the adjusted book disbursements for November 15, 2010, was collected and credited to the
December, 2010? account on November 28, 2010, net of a collection fee
a. P9,255,992 c. P9,246,700 of P80. The note was recorded in the cash receipts on
b. P9,349,452 d. P5,406,700 December 21, 2010, at which date the collection fee
4. How much is the adjusted cash balance as of was entered as a disbursement.
December 31, 2010? c) The client records returned checks in red in the cash
a. P509,492 c. P612,244 receipts journal. The checks listed in the table were
b. P602,952 d. P636,804 returned by the bank.
Amount Returned Recorded Redeposited
Co. A P3,270 12/6/10 No entries 12/8/10
SOLUTION GUIDE:
Co. B 6,730 12/27/10 1/3/11 1/15/11
Bank d) Two payroll checks for employee’s vacations totaling
P5,500 were drawn on January 3, 2011, and cleared
(B) (R) (D) (E)
the bank on January 8, 2011. These checks were not
11/30 Dec. Dec. 12/31
entered in the clients records because semi-monthly
Unadjusted bal.
payroll summaries are entered only on the 15 th and the
OC – 11/30 last day of each month.
- 12/31
Error, Dr.– Dec. QUESTIONS:
Deposits with
loan payment Based on the above and the result of your audit, compute
DIT – 12/31 for the following:
Adjusted bal. 1. Deposits in transit as of December 31, 2010
a. P40,570 c. P37,220
b. P40,490 d. P57,220
Books 2. Outstanding checks as of December 31, 2010
(B) (R) (D) (E) a. P93,960 c. P97,230
11/30 Dec. Dec. 12/31 b. P86,310 d. P97,310
Unadjusted bal. 3. Adjusted cash balance as of December 31, 2010
NSF checks (1) a. P219,280 c. P218,280
(2) b. P217,280 d. P246,930
(3)
4. Deposits in transit as of January 12, 2011
Note coll.– Dec.
a. P19,310 c. P19,230
Anticipated loan
b. P15,960 d. P12,500
proceeds:
- 11/30 5. Outstanding checks as of January 12, 2011
- 12/31 a. P46,850 c. P33,700
Anticipated loan b. P56,850 d. P50,120
payment:
- 12/31 SOLUTION GUIDE:
DM(Interest)Dec.
Adjusted bal. Computation of deposits in transit at period end
12/31/10 1/12/11
Deposits in transit, beg
PROBLEM NO. 7 Collections this period
The client, Yen Corporation, obtained bank statements Total
for November 30 and December 31, 2010 and reconciled Deposits credited by
the balances. You obtained directly the statements of bank this period
January 12, 2011 and obtained the necessary Deposits in transit, end
Computation of outstanding checks at period end a. 12/31 12/30 12/31 12/30
b. 1/2 12/30 12/31 12/31
12/31/10 1/12/11
c. 1/3 12/31 1/2 1/2
Outstanding checks, beg
d. 1/3 12/31 1/2 12/31
Checks issued this period
Total
7. Which of the following transfers would not appear as
Checks paid by
an outstanding check on the December 31, 2010 bank
bank this period
reconciliation?
Outstanding checks, end
Bank Account A Bank Account B
Disbursing Date Receiving Date
(Month/Day) (Month/Day)
PROBLEM NO. 8
Per Bank Per Books Per Bank Per Books
Select the best answer for each of the following: a. 12/31 12/30 12/31 12/30
b. 1/2 12/30 12/31 12/31
1. Who is responsible, at all times, for the amount of the c. 1/3 12/31 1/2 1/2
petty cash fund? d. 1/3 12/31 1/2 12/31
a. General cashier
b. President of the company
c. Petty cash custodian
d. Chairman of the Board of Directors

2. What is the effect of not replenishing the petty cash

fund at year-end and not making the appropriate
adjusting entry?
a. A detailed audit is necessary.
b. The petty cash custodian should turn over the
petty cash to the general cashier.
c. Cash will be overstated and expenses understated.
d. Expenses will be overstated and cash will be
understated.

3. The primary purpose of sending a standard

confirmation request to financial institutions with which
the client has done business during the year is to.
a. Detect kiting activities that may otherwise not be
discovered.
b. Corroborate information regarding deposit and loan
balances.
c. Provide the data necessary to prepare a proof of
cash.
d. Request information about contingent liabilities and
secured transactions.

4. The auditor should ordinarily mail confirmation

requests to all banks with which the client has
conducted any business during the year, regardless of
the year-end balance, since
a. The confirmation form also seeks information
about indebtedness to the bank.
b. This procedure will detect kiting activities which
otherwise not be detected.
c. The mailing of confirmation forms to all such banks
is required by GAAS.
d. This procedure relieves the auditor of any
responsibility with respect to non-detection of
forged checks.

5. An auditor who is engaged to examine the financial

statements of a business enterprise will request cutoff
bank statement primarily in order to
a. Verify the cash balance reported on the bank
confirmation inquiry form.
b. Verify reconciling items on the client’s bank
reconciliation.
c. Detect lapping.
d. Detect kiting.

6. Which of the following cash transfers would appear as

a deposit in transit on the December 31, 2010 bank
reconciliation?
Bank Account A Bank Account B
Disbursing Date Receiving Date
(Month/Day) (Month/Day)
Per Bank Per Books Per Bank Per Books
Use the following information for the next two questions. 9. Which of the following checks illustrate
deposits/transfers in transit at December 31, 2010?
The information below was taken from the bank transfer
a. Check Nos. 101 and 102
schedule prepared during the audit of Khaye Ting
b. Check Nos. 101 and 103
Company’s financial statements for the year ended
c. Check Nos. 102 and 104
December 31, 2010. Assume all checks are dated and
d. Check Nos. 103 and 104
issued on December 30, 2010.
10. Which of the following cash transfer results in a
No. From To Disbursements Receipts
misstatement of cash at December 31, 2010?
Per Per Per Per
Books Bank Books Bank
Disbursements Receipts
101 Pbcom HSBC 12/30 1/4 12/30 1/3 From To Per Books Per Bank Per Books Per Bank
102 UCPB MBank 1/3 1/2 12/30 12/31 a. Pbcom HSBC 12/31/10 1/4/11 12/31/10 12/31/10
103 HSBC PSBank 12/31 1/3 1/2 1/2 b. UCPB MB 1/4/11 1/5/11 12/31/10 1/4/11
104 MBank PNB 1/2 1/2 1/2 12/31 c. HSBC PBank 12/31/10 1/5/11 12/31/10 1/4/11
d. MBank PNB 1/4/11 1/11/11 1/4/11 1/4/11

8. Which of the following checks might indicate kiting?

a. Check Nos. 101 and 103
b. Check Nos. 102 and 104
c. Check Nos. 101 and 104
d. Check Nos. 102 and 103
- now do the DIY drill -

DO-IT-YOURSELF (DIY) DRILL

PROBLEM NO. 1 b. One employee issues a
prenumbered receipt for all cash collections;
GML Company had the following bank reconciliation on
another employee reconciles the daily total of
June 30, 2010:
prenumbered receipts to the bank deposits.
Balance per bank statement, June 30, 2010 P3,000,000 c. Predetermined totals (hash
Add: Deposit in transit 400,000 totals) of cash receipts are used to control posting
Total 3,400,000 routines.
Less: Outstanding checks 900,000 d. The employee who receives
Balance per book, , June 30, 2010 P2,500,000 customer mail receipts prepares the daily bank
deposit, which is then deposited by another
The bank statement for the month of July 2010 showed employee.
the following:
Deposits (including P200,000 note collected
for GML) P9,000,000 PROBLEM NO. 2
Disbursements (including P140,000 NSF In connection with your examination, the MQM Company
check and P10,000 service charge) 7,000,000 presented to you the following information regarding its
Cash in Bank account for the month of December, 2010:
All reconciling items on June 30, 2010 cleared through the
bank in July. The outstanding checks totaled P600,000 a) Balances per bank statements: November 30,
and the deposits in transit amounted to P1,000,000 on July P215,600, and December 31, P230,400.
31, 2010.
b) Balances of cash in bank account in company’s books:
November 30, P165,450, and December 31, P226,800.
QUESTIONS:
c) Total receipts per books were P2,221,900 of which
Based on the above and the result of your audit, you are
P12,100 was paid in cash to a creditor on December
to provide the answers to the following:
24.
1. What is the amount of cash receipts per books in July
d) Total charges in the bank statement during December
2010?
were P2,189,700.
a. P9,600,000 c. P9,800,000
b. P9,400,000 d. P8,400,000 e) Undeposited receipts were: November 30, P90,600
and December 31, P101,200.
2. What is the amount of cash disbursement per books in
July f) Outstanding checks were: November 30, P26,750,
a. P6,550,000 c. P7,450,000 and December 31, P19,300, of which a check for
b. P6,700,000 d. P5,950,000 P5,000 was certified by the bank on December 26.
3. What is the cash balance per books on July 31, 2010? g) NSF checks returned, recorded as reduction of cash
a. P5,400,000 c. P4,950,000 receipts, were:
b. P5,350,000 d. P4,850,000  Returned by bank on December, recorded also in
December, P10,400.
4. What is the adjusted cash balance on July 31, 2010?
 Returned by bank on December but recorded in
a. P5,400,000 c. P4,900,000
January, P8,600
b. P5,350,000 d. P5,000,000
h) Collections by bank not recorded by Company were
5. Which of the following describes the most effective
P121,500 in November and P116,400 in December.
preventive control to ensure proper handling of cash
receipt transactions? i) Bank service charges not entered in company’s books
a. Bank reconciliations are prepared were: November 30, P7,500 and December 31,
by an employee not involved with cash collections P4,200.
and then are reviewed by a supervisor.
j) A check for P9,500 of QMQ Company was charged to were cost of checkbooks amounting to P300 and a P10,000
MQM Company in error. check which was charged by the bank in error against Baht
Co. account. Also in November you ascertained that there
k) A check drawn for P8,400 was erroneously entered in
were deposits in transit amounting to P20,000 and
the books as P4,800.
outstanding checks totaling P42,500.
QUESTIONS:
The bank statement for the month of December showed
Based on the above and the result of your audit, answer total credits of P104,000 and total charges of P51,000.
the following: The company’s books for December showed total receipts
of P183,900, disbursements of P101,800 and a balance of
6. How much is the adjusted cash balance as of P121,400. Bank debit memos for December were: No.
November 30, 2010? 143 for service charges, P400 and No. 145 on a customer’s
a. P215,600 c. P279,450 returned check marked “DAIF” for P6,000.
b. P151,750 d. P274,450
7. How much is the adjusted book receipts for December, On December 31, 2010 the company placed with the bank
2010? a customer’s promissory note with a face value of P30,000
a. P2,204,700 c. P2,227,200 for collection. The company treated this note as part of its
b. P2,113,900 d. P2,216,800 receipts although the bank was able to collect on the note
only in January, 2011.
8. How much is the adjusted book disbursements for
December, 2010? A check for P990 was recorded in the company cash
a. P2,169,450 c. P2,157,350 payments books in December as P9,900.
b. P2,179,850 d. P2,169,450
9. How much is the adjusted cash balance as of QUESTIONS:
December 31, 2010? Based on the application of the necessary audit procedures
a. P317,300 c. P307,800 and appreciation of the above data, you are to provide the
b. P330,400 d. P326,800 answers to the following:
10. A proof of cash is used by an auditor to 11. How much is the undeposited collections as of
a. Prove the correctness of the cash balance in the December 31, 2010?
client's year-end statement of financial position. a. P84,900 c. P54,900
b. Prove that the client's bank did not make an error b. P44,900 d. P34,900
during the period under examination.
c. Determine if there were any unauthorized 12. How much is the outstanding checks as of December
disbursements or unrecorded deposits during the 31, 2010?
reconciliation period. a. P47,990 c. P90,490
d. Comply with Philippine Auditing Practice b. P99,400 d. P90,790
Statements. 13. How much is the adjusted bank receipts for December?
a. P158,900 c. P128,900
b. P118,900 d. P108,900
PROBLEM NO. 3
14. How much is the adjusted book disbursements for
You obtained the following information on the current December?
account of Baht Company during your examination of its a. P 56,490 c. P98,990
financial statements for the year ended December 31, b. P107,900 d. P99,290
2010.
15. How much is the adjusted cash balance as of
The bank statement on November 30, 2010 showed a December 31, 2010?
balance of P76,500. Among the bank credits in November a. P156,410 c. P93,910
was customer’s note for P25,000 collected for the account b. P 55,000 d. P48,910
of the company which the company recognized in
December among its receipts. Included in the bank debits
 - end of AP.401 - 