AUDIT OF Cash

College of Accounting Education
3/F F. Facundo Hall, B & E Bldg.

Matina, Davao City Philippines
Phone No.: (082) 305-0645
Applied Auditing
Audit of Cash and Cash Equivalents
Importance of Audit of Cash and Cash Equivalents
The audit of cash is considered an important part of an audit mainly due to these following reasons:
• Almost all business transactions will be ultimately settled through the cash accounts, the audit
of cash accounts also assists in the verification of other asset and liability accounts as well as
revenue and expenses.
• Cash is the highly liquid asset in a company and it is an area of high inherent risk since there is
a relatively high risk of misappropriation
• Liabilities, revenues, expenses and most other assets flow through the cash account
• Cash is the most liquid of assets, thus the most susceptible to theft, embezzlement, and
misappropriation
• Errors in cash accounts may indicate errors elsewhere
Audit Objectives
There are adequate internal control structure policies and procedures for cash
• All cash should be in the custody of the client is actually on hand or deposited at the bank
(EXISTENCE)
• All of the cash in the custody of the client is properly recorded (COMPLETENESS)
• The cash in the custody of the client is properly disclosed in the financial statements
(PRESENTATION & DISCLOSURE)
Internal Control over Cash Transactions
Ideally, the functions of the finance and accounting departments should provide assurance that:
• All cash that should have been received was in fact received, recorded accurately, and
deposited promptly
• Cash disbursements have been made only for authorized purposes and have been properly
recorded
• Cash balances are maintained at adequate, but not excessive, levels by forecasting expected
cash receipts and payments related to normal operations
To avoid the likelihoods of the material misstatement, the entity would:

• Not permit any one employee to handle a transaction from beginning to end
• Separate cash handling from record keeping
• Centralize receiving of cash as much as possible
• Record cash receipts immediately
• Encourage customers to obtain receipts and observe cash register totals
• Deposit each day’s cash receipts intact
• Make all disbursements by check, with the exception of small expenditures from petty cash
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• Have monthly bank reconciliations prepared by employees not responsible for the issuance of
checks or custody of cash. The completed reconciliation should be reviewed promptly by an
appropriate officer
Audit Working Papers for Cash
1. Lead schedule
2. Cash count sheets
3. Bank reconciliations
4. Proof of cash
5. Lists of outstanding checks
6. Lists of checks being investigated
7. Bank transfer schedule
8. Bank confirmations
9. Recommendations to the client for improving internal control, and
10. Notes concerning proper presentation of cash in the client’s balance sheet
Audit Procedures for Cash
Existence or Occurrence
• Count all cash on hand simultaneously
• Follow up subsequent dispositions of items included in the count
• Obtain or prepare reconciliations of bank accounts as of the balance sheet date
• Trace all bank transfers for the last week of the audit year and the first week of the following
year
• Confirm bank deposit and loan balances and other arrangements with bank
Valuation
• Trace a sample of entries in the Cash Receipts Journal to the Accounts Receivable subsidiary
ledgers, bank validated deposit slips and general ledger
Presentation and Disclosure

• Determine proper financial statement presentation and disclosure of cash
Substantive Testing—Cash and Cash Equivalents
Obtaining Analyses of Cash Balances and Reconcile them to the General Ledger
The auditor will obtain a schedule (lead schedule) that lists all of the client’s cash account. This
schedule will typically list the bank, the account number and other relevant information, and the year-
end balance per books. This list will also include cash on hand and the sources of this cash on hand.
The auditor will trace and reconcile all the accounts to the general ledger as necessary.
Cash Count
Steps in Cash Count Problems

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1. Identify the accountability:
a. If petty cash fund, the accountability is the imprest balance per general ledger.
b. If undeposited collections, the accountability is total undeposited collections per
books/records adjusted further for any unrecorded collections (based on the additional
information of the problem.
If there is no direct information about collections per records, the accountability is
collections per Official Receipts, Cash receipts voucher or other documents evidencing
collections.
c. Other collections (e.g. return of expense advance, collection for charities, or any other
purposes not in tact and assumed to have been included among currencies. If the said
collections for any other purpose is in tact, the same shall be ignored in the cash count.
2. Identify valid supports to the accountability as presented in the problem

a. For petty cash fund, acceptable valid support shall include:
- Bills and coins, replenishment check, encashable Accommodated checks (valid cash
item)
- Unreplenished petty cash expense vouchers (adjusted to expense account)

- Employee IOU (adjusted to receivables)
- Postdated/NSF checks
*unused postage is not a valid support where the accountability is the petty
cash fund
*return of an expense advances (e.g. excess from travel advance) is added to
the accountability and not added to valid supports.
b. For undeposited collections

- Bills and coins
- Depositable customer collections checks as of the count date (Post dated, stale, or NSF
checks as of the count date are not included as valid collection, thus should not be
included as valid support)
- Copies of expense vouchers evidencing the use of the collection to pay certain expenses
- Unused postage stamps (valid support where accountability is undeposited collections)
Special audit considerations for cash
(1) Kiting. Kiting is a form of fraud that overstates cash by causing it to be simultaneously included in
two or more bank accounts. Kiting is possible because a check takes several days to clear the bank on
which it is drawn (the “float period”). Following is an example of how kiting can be used to conceal a
prior embezzlement in a company that has two bank accounts (one in Valley State Bank and one in
First City Bank).
Date Situation
12/15 Bookkeeper writes himself a P10,000 check on the Valley account, and cashes it, no journal
entry is made
12/16 Bookkeeper loses the money gambling in Bullhead City
12/31 Bookkeeper, fearing the auditors will detect the fraud, conceals the shortage by
1. Writing a P10,000 unrecorded check on First City account and depositing it in the Valley
account. This will cover up the shortage because Valley will credit the account for the
P10,000, and the check will not clear the First City account until January, no journal entry
is made until after year end.
2. When the First City bank reconciliation is prepared at 12/31, the check is not listed as
outstanding.
Kiting may be detected by preparing a bank transfer schedule, by preparing a four-column bank
reconciliation for the Valley account, or by obtaining a cutoff statement for the First City account.

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(2) Bank transfer schedule . A bank transfer schedule shows the dates of all transfers of cash
among the client’s various bank accounts. Know that its primary purpose is to help auditors to detect
kiting. The schedule is prepared by using bank statements for the periods before and after year-end
and by using the firm’s cash receipts and disbursements journals.
(3) Bank reconciliations . Auditors generally prepare either a two- or a four-column bank
reconciliation for
the difference between the cash per bank and per books. The four-column approach (also called a
proof of
cash) will allow the auditor to reconcile
(a) All cash receipts and disbursements recorded on the books to those on the bank statement
and
(b) All deposits and disbursements recorded on the bank statement to the books.
A four-column reconciliation will not allow the auditor to verify whether

(a) Checks written have been for the wrong amounts and so recorded on both the books and
the bank statement and
(b) Unrecorded checks or deposits exist that have not cleared the bank.
(4) Bank cutoff statements . A cutoff statement is a bank statement for the fi rst 8-10 business
days after yearend. Know that its primary purpose is to help auditors to verify reconciling items on
the year-end bank reconciliation. Tests performed using a cutoff statement include verifying that
outstanding checks have been completely and accurately recorded as of year-end, and that deposits in
transit have cleared within a
reason able period. The statement is sent directly by the bank to the auditor. In the above kiting
example, the cutoff statement for the First City account will allow the auditor to detect the fraud since
it will include the December 31 unrecorded check.
(5) Standard confirmation form . Auditors use a standard form to obtain information from financial
institutions (Standard Form to Confirm Account Balance Information with Financial Institutions). The
form requests information on two types of balances—deposits and loans . The form requests
financial institutions to indicate any exceptions to the information noted, and to confirm any additional
account or loan balance information that comes to their attention while completing the form. Know
that the form is designed to substantiate evidence primarily on the existence assertion, and not to
discover or provide assurance about accounts not listed on the form (evidence on the completeness
assertion is not elicited).
Typical substantive audit procedures for cash
1. Review disclosures for compliance with generally accepted accounting principles.

2. Inquire of management concerning compensating balance requirements and restrictions on
cash. A compensating balance is an account with a bank in which a company has agreed to
maintain a specified minimum amount; compensating balances are typically required under
the terms of bank loan agreements. Such restrictions on cash, when material, should be
disclosed in the financial statements.
3. Send confirmation letters to financial institutions to verify existence of the amounts on

deposit.
4. Count cash on hand at year-end to verify its existence.
5. Prepare a bank transfer schedule for the last week of the audit year and the first week of the
following year to disclose misstatements of cash balances resulting from kiting.
6. Review the cutoff of cash receipts and cash disbursements around year-end to verify that
transactions affecting cash are recorded accurately and in the proper period.
7. Review bank statements to verify that book balances represent amounts to which the client
has rights.
8. Perform analytical procedures to test the reasonableness of cash balances. Tests here may
include comparisons to prior year cash balances. These procedures help verify the existence
and completeness as well as the accuracy of cash transactions.
9. Review year-end bank reconciliations to verify that cash has been properly stated as of year-
end.
10. Obtain a bank cutoff statement to verify whether the reconciling items on the year-end bank

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reconciliation have been properly reflected.
11. Foot summary schedules of cash and agree their total to the amount which will appear on
the financial statements.
12. Reconcile summary schedules of cash to the general ledger.
13. Test translation of any foreign currencies.
CASE 1
The following are examples of audit procedures that might be undertaken on an engagement.
1. Stand by the payroll time clock to determine whether an employee clocks in just once.
2. Compare the gross profit percentage for the current year with the historical trend.
3. Examine duplicate sales invoices to determine whether an appropriate employee checked
prices and extensions and initiated the work as required by company.
4. Read the minutes of board meetings of the past year.

5. Obtain a letter from management stating that it made all books and records available to the
auditor.
6. Total the accounts receivable subsidiary ledger to determine whether it agrees with the
general ledger.
7. Inspect the year-end bank reconciliation to determine whether the internal auditor prepared it.
8. Confirm an accounts receivable balance.
Required: Identify the audit procedures performed.
CASE 2
Identify the assertion that each of the following auditing procedures would test.
a. Prepare a proof of cash.

b. Foot the client-prepared bank reconciliation.
c. Trace each of the outstanding checks on the year-end bank reconciliation to the cut-off bank
statement.
d. Count all cash on hand.

e. Prepare a schedule of interbank transfers.
f. Compare the date on checks dated on or shortly before year-end with the date of bank
cancelled the check.
g. Review minutes of the board of directors’ meetings for any restrictions placed on cash
balances.
h. Investigate all material checks listed on the year-end reconciliation but not returned with the
cut-off bank statement.
i. Trace the balance on the bank reconciliation to the confirmation received directly from the
bank.
CASE 3
The following bank reconciliation was prepared by the assistant controller of Hawkley, Inc., one of your
audit clients:
Hawkley, Inc.
First National Bank and Trust
Bank Reconciliation
December 31, 2017
12/31/17 Balance per bank statement P12,000

Add deposits in transit 23,000

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35,000
Deduct outstanding checks:
0803
2 1,600
1879
2 450
1883
2 1,100
1884
2 7,600
1885
2 323
11,073
12/31/17 Balance per general ledger P24,927
=======
Additional data:

1. You obtained a cutoff bank statement, dated 1/9/18 directly from First National Bank and
Trust and it revealed the following:
Deposits:
1/2/18 P6,000
1/3/18 4,000
1/4/18 7,000
1/5/18 6,000
1/6/18 8,000
1/9/18 5,000
Checks:
Check. No. Check Date Check Amount
21879 12/29/17 P 450
21883 12/31/17 1,100
21884 12/31/17 7,600
21885 12/31/17 323
21886 12/31/17 4,557
21887 12/31/17 8,300
21888 1/2/18 1,250
REQUIRED:

a. Without examining any additional corroborating data, what do you think is the correct
adjusted general ledger balance? Show all of your work and justify each addition or subtraction from
the general ledger balance.
b. What other questions might be raised regarding the reconciliation?
MULTIPLE CHOICE QUESTIONS
1. Which of the following is not an audit objective related to cash?
a. Reported cash exists

b. The client has ownership rights in the reported cash.
c. Compensating cash balances are reported as other assets.
d. The reported cash balance includes all cash transaction that should have been
recorded.

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2. The process of transferring money from one bank account to another and improperly recording the
transaction
a. Lapping
b. Embezzling
c. Kiting
d. Defalcation
3. An auditor who is engaged to examine the financial statements of a business enterprise will request
a cut-off 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
4. To gather evidence regarding the balance per bank in a bank reconciliation, an auditor would
examine all of the following except
a. cut-off bank statement
b. bank confirmation
c. year-end bank statement
d. general ledger
5. The auditor should ordinarily mail confirmation requests to all banks 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 would otherwise not be detected.
c. The mailing confirmation forms to all such banks are required by PSA.
d. Tis procedure relieves the auditor of any responsibility with respect to non-detection
of forged checks.
6. Which of the following sets of information does an auditor usually confirm on one form?
a. Accounts payable and purchase commitments.

b. Cash in bank and collateral for loans.
c. Inventory on consignments and contingent liabilities.
d. Accounts receivable and accrued interest receivable
7. In October, three months before year-end, the bookkeeper erroneously recorded the receipt of a
one year bank loan with a debit to cash and credit to miscellaneous revenue. Select the most effective
method for detecting this type of error.
a. Foot the cash receipts journal for October

b. Send a bank confirmation as of the year-end
c. Prepare bank reconciliation as of the year-end.
d. Prepare a bank transfer schedule as of the year-end
8. Which of the following error will be discovered as a result of the audit of the bank reconciliation?
a. Failure to record bank deposits
b. Billing customer for an improper amount
c. Payment for raw materials that were not received
d. Payment of interest to an affiliate for an amount in excess of the existing rate
9. An auditor ordinarily sends a standard confirmation request to all banks with which the client has
done business during the year under audit, regardless of the year-end balance. A purpose of this
procedure is to
a. Provide the data necessary to prepare a proof of cash
b. Request that cut-off bank statement and related checks be sent to the auditor.
c. Detect kiting activities that may otherwise no bet discovered.

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d. Seek information about other deposit and loan amounts that come to the attention
of the institution in the process of completing the confirmation
10. As one of the year-end audit procedures, the auditor instructed the client’s personnel to prepare a
standard bank confirmation request for a bank account that had been closed during the year. After the
client’s treasurer had signed the request, it was mailed by the assistant treasurer. What is the major
flaw in this audit procedure?
a. The confirmation request was signed by the treasurer
b. Sending the request was meaningless because the account was closed before the
year-end
c. The request was mailed by assistant treasurer.

d. The CPA did not sign the confirmation request before it was mailed.
11. The auditors’ count of cash should be coordinated with the:
a. Consideration of the internal controls with respect to cash.
b. Close business on the balance sheet date
c. Count of marketable securities
d. Count of inventories
12. The receipt of the completed standard bank confirmation form would provide the auditor with all of
the following items except
a. The balances in all bank accounts with that bank
b. Any restrictions on withdrawals
c. The adjusted cash balances
d. Loan balances with that bank
• Cash Lead Schedule Analysis

Problem 1
The cash and cash equivalents account in the ledger of Ajalon Company had a balance of P5,935,000
at December 31, 2014. An examination of the account, however, disclosed some of the following.
1. Current account at May bank P 200, 000
2. Current account at DBP (100, 000)
3. Payroll account 500, 000
4. Saving account in rural bank 1, 000, 000
5. Treasury warrants 200, 000
6. Treasury note, due November 30, 2015 400, 000
7. Change fund 10, 000
8. Credit memo from a vendor for purchase return 20, 000
9. Traveler’s check 50, 000
10. Customer’s checks returned by the bank marked 15, 000

“DAIF”
11. Money order 30 , 000
12. Petty cash fund 10, 000
13. Treasury note, due 2/28/15 200, 000
14. Treasury bills, due 1/31/15 300, 000
15. Cash sinking fund 500, 000
16. Preferred redemption 800, 000
Audit notes:
a. Rural Bank was closed two years ago. The company expects to recover only P0.60 for every

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peso deposited.
b. This amount includes unreplenished vouchers totaling P7, 000 as of December 31, 2014.
c. This is a two-year treasury note acquired on December 31, 2014.
d. This a 180-day treasury bill acquired on July 31, 2014.
Required:
How much should Ajalon Company report as cash and cash equivalent on its December 31, 2014
balance sheet?
Problem 2
David Company is preparing its 2018 financial statements; the accounting period ends December 31.
The following items, related to cash, are under consideration. You haven been asked to indicate how
each item should be reported on the statement of financial position.
a. A P90,000 check received from a customer dated February 1, 2019 is on hand.

b. A customer’s check for P50,000 was included in the December 20 deposit. It was returned by the
bank stamped “DAIF”. David had made an entry to reflect the return on Dec. 21.
c. A P200,000 CD on which P10,000 of interest accrued to December 31 has just been recorded by
debiting Interest Receivable and credited Interest Revenue. The chief accountant proposes to
report the P200,000 as “Cash”.
d. David has a P20,000 petty cash fund. As of December 31, the fund cashier reported expense
vouchers covering various expenses in the amount of P16,700 and cash of P3,200.
e. Postage stamps that cost P300 are in the cash drawer.
f. A company’s cashier check of P20,000 payable to David is in the cash drawer, it is dated December
29.
g. Three checks, dated Dec. 31, 2018, totaling P465,000, payable to vendors who have sold
merchandise to David on account were not mailed by December 31, 2018. They have not been
entered as payments in the check register and ledger.
h. Prior to December 30, David left a note that matures December 31, 2018, with its bank for
collection. The note is for P200,000 and bears interest at 9%, having been outstanding for three
months. As yet, David has not heard from the bank about collection but is confident of a
favorable outcome because of the high credit rating of the maker of the note. The company plans
to include the P200,000 plus interest in its cash balance.
As of December 31, 2018, the ledger showed cash balance amounting to P2,300,000.
Required: Compute the audited cash balance at year-end.
Problem 3
The controller of Ian Company is attempting to determine the amount of cash to be reported on its
December 31, 2018 statement of financial position. The following information is provided:
a. Commercial savings account of P600,000 and commercial checking account balance of P900,000
are held at Banco de Davao.
b. Travel advances of P180,000 for executive travel for the first quarter of next year. The employee
will reimburse through salary deduction.
c. A separate cash fund in the amount of P1,500,000 is restricted for the retirement of long-term
debt.
d. Petty cash fund of P10,000.
e. An IOU from Jade, a company officer, in the amount of P190,000.
f. A bank overdraft of P110,000 has occurred at one of the banks the company uses to deposit its
cash receipts. At the present time, the company has no deposits at this bank.
g. The company has two certificates of deposit, each totaling P500,000. These certificates of deposit
have a maturity of 120 days.
h. Ian Company has received a check that is dated January 1, 2019, in the amount of P125,000.
i. Ian Company has agreed to maintain a cash balance of P500,000 at all times at the Banco de
Davao to ensure future credit availability.
j. Ian Company has purchased P2,100,000 of commercial paper of ABC Company which is due in 60

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days.
k. Currency and coin on hand amounted to P7,700.

l. Ian Company has purchased P500,000 of XY Corporation’s stocks.
Required:
Compute the amount of cash and cash equivalents to be reported on Ian Company’s statement of
financial position at December 31, 2018.
Problem 4 (PhilCPA Adapted)

Ricky Company provided the following information with respect to cash and cash equivalents at year-
end:
Checking account at First Bank (200,000)

Checking account at Second Bank 5,500,000
Treasury bonds 1,000,000
Payroll account 500,000
Value added tax account 400,000
Foreign bank account (in peso equivalent) 2,000,000
Credit memo from a vendor for a purchase return 750,000
Traveler check 80,000
No sufficient fund check 300,000

Petty cash fund (P20,000 in currency and expense receipts
for P30,000) 50,000
Money order 180,000
Required: Compute the adjusted balance of cash at year-end.
• (CASH COUNT)
Problem 5 (Adapted)
Mary Jane is the cashier of Ubaran Corporation. As representative of the Zarate and Associates, CPAs,
you were assigned to verify her cash on hand in the morning of January 3, 2017. You began to count
at 9:00 AM in the presence of Mary Jane. In the course of your counting, you found currencies in
paper bills and coins together with checks, vouchers, and other items, which are mentioned below:
Bills: (2) P500; (8) P100; (12) P50; (5) P20
Coins: P 5.00 11 loose

1.00 24 loose
0.25 5 rolls and 32 loose (50 pieces to a roll)
1

Checks:
Date Maker Payee Amount

12/22/16 Vivian, Asst. Mgr Ubaran Corp. P 6,000
12/26/16 Mary Jane, cashier Ubaran Corp. 4,000

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IOUs:
Date Maker Amount

12/20/16 Yap, Janitor P 500
12/22/16 Felix, clerk 750
12/24/16 Ablay, bookkeeper 500
PETTY CASH VOUCHERS FOR REPLENISHMENT
Date Payee Accounts Charged Amount

12/16/16 Wagan, messenger Advances to employees P1,000.00
12/17/16 Maren and Co. upplies
S 545.00
12/18/16 Eeman Liner reight in
F 982.50
12/18/16 Posts Office upplies

S 00.00
3
12/20/16 Alejandre, carpenter epairs

R 2,950.00
12/21/16 Violan Miscellaneous expense 554.00
Your investigation also disclosed the following:
1. The balance of petty cash fund per books is P20,000.00.
2. Cash sale of January 2, 2017 amounted to P8,650 per sales records, while cash receipts book
and bank deposit slip showed that only P7,650 was deposited in the bank on January 3, 2017
3. The following employees’ pay envelopes had been opened and the money removed. Each
envelope was marked “Unclaimed” - Ernesto, P332.50; Secinando, P447.50.
Questions
1.
The petty cash shortage of Ubaran Corporation at December 31, 2016 is
________________.
2.
The adjusted petty cash balance of Ubaran Corporation at December 31, 2016
is__________.
3.
The undeposited sales/collection of Ubaran Corporation at December 31, 2016 is
__________.
Problem 6
Gallery Company
Audit Year – 2018
Date of Count – January 2, 2019 at 8:00 am
Bills and coins

Denomination Bundles of olls of
R
00 pcs
1 50 coins Loose
500 1 8
100 3 7
50 2 8

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20 4 7
10 75
1 20 20
Checks:
Maker Payee Date Amount
A, customer Client 12/30 11,920
B, customer Client 12/26 12,505
C, customer Client 1/ 2 5,707
D, customer Client 12/21 13,350

E, officer Cash 1/22 1,200
F, employee Cash 12/29 2,540
(return of excess travel fund)

Vouchers and IOUs:
Paid to Date Amount

PNR 1/ 2 15
Bureau of Posts 12/20 150
Marco Polo – Employees’ Christmas Party 12/23 8,300

Z, employee IOU 12/27 300

Others:
1. Cash sales invoices (all in currencies, Nos. 17903 – 18112), P94,300

2. Official Receipts
umber
N mount
A orm of Collection
F
1250
3 560 ash
C
1251
3 2,505
1 heck
C
1252
3 1,200 ash
C
1253
3 1,920
1 heck
C
1254
3 3,350
1 heck
C
3. Stamps of various denominations, P80

4. A notation on a sheet of paper as follows:
“Proceeds of employees’ contribution for the Christmas Party, P10,400”
5. Petty cash per ledger, P20,000
Questions:
1. The cash short/over of the petty cash fund at December 31, 2018
is ( 19,785)
2. The adjusted balance of the petty cash fund at December 31, 2018 is 18,350

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3. The net adjustment of cash account at December 31, 2018 is 116,590
4–5. Entry to correct the petty cash fund is
(Bank Reconciliations)
Problem 7 (Adapted)
The bank reconciliation of Viduya Company as of January 31 of the current year is shown below:
Bank balance 300,000

Add: Deposit in Transit 600,000
Total 900,000
Less: Outstanding checks:
No. 114 240,000

No. 115 160,000
No. 116 60,000 460,000
Adjusted bank balance 440,000
All receipts of cash are deposited in the bank account. The bank statement for the month of February
is presented below:
Philippine Bank
Checks Deposit Date Balance
Balance forwarded Jan. 31 300,000
240,000 600,000 eb. 1

F 660,000
2,000,000 3 2,660,000
200,000 5 2,460,000
900,000 400,000 7 1,960,000
160,000 9 1,800,000
,000,000
1 10 2,800,000
500,000 13 2,300,000
,200,000
1 16 3,500,000
,300,000
1 21 4,800,000
550,000 23 4,250,000
5,000 SC 24 4,245,000
1,000,000 550,000 27 3,795,000
500,000 270,000 28 3,265,000
The following information was taken from the credit memo of February 28:
Face of the note 250,000

Interest on the note 30,000
Maturity value of the note 280,000

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Collection charge 10,000
Credit to your account 270,000

The data below were taken from the cash journals of Viduya Company.
Cash Receipt Journal Cash Disbursement Journal

Date Debit Cash heck No.
C redit Cash
C
Feb. 2 2,000,000 17
1 00,000
2
6 400,000 118 00,000

9
9 800,000 119 00,000

8
10 200,000 20
1 00,000
5
15 1,200,000 21
1 50,000
5
20 1,300,000 22
1 80,000
1
24 550,000 23
1 1,000,000
28 450,000 24
1 20,000
1
Total 6,900,000 25
1 50,000
2
Total 4,500,000
Questions:
1. How much is the correct cash balance of Viduya Company on February 28?
2. What are the necessary entry/ies to correct the recorded cash of the company on February
28?
Problem 8
You are auditing the cash account of Ivie Incorporated for the fiscal year ended July 31, 2014. The
client has not prepared the July 31 bank reconciliation. The following information were made
available:
General Ledger Bank Statement

Beginning balances 140,330 172,590
Deposits 751,680
Cash receipts journal 763,680
Checks clearing the bank (708,450)
Cash disbursements journal (654,330)
July bank service charge (2,610)
Note paid by the bank (183,000)
NSF check ______ (9,330)
Ending balances 49,680

2 20,880
Audit Notes:
a. Bank reconciliation in June included the following information: Bank statement balance, June,
P172,590; Deposits in transit, P18,000; Outstanding checks, P52,260; and Balance per
general ledger, June, P140,330.

Page 14 of 24
b. Checks clearing the bank in July, outstanding by the end of June was at P50,760.
c. Checks clearing the bank in July and were recorded in the July cash disbursement journal was
at P614,010.
d. A check for P31,800 cleared the bank, but had not been recorded in the cash disbursement
journal. It was for a payment of an accounts payable.
e. A check for P11,880 was erroneously charged by the bank to Ivie Incorporated.
f. Deposits included P18,000 from June and P733,680 from July.
g. The bank charged Ivie Incorporated’s account for a non-sufficient fund check totaling to
P9,330. The credit manager concluded that the customer intentionally closed its account and
the owner left the city. The check was turned over to a collection agency.
h. A note for P174,000, plus interest, was paid directly by the bank under an agreement signed
four months ago. The note payable was recorded at P174,000 on Ivie Incorporated books.
Required:
1. How much is the total outstanding checks as of July 31?

2. How much is the deposit in transit as of July 31?
3. What is the correct cash in bank as of July 31?
4. How much is the cash in bank as of June 30?
Problem 9 (Adapted)
You are auditing the financial statements of Asidor Corporation for the year ended December 31,
2017. The internal control procedures surrounding cash transactions were not adequate. Marcela
Ramos, the bookkeeper-cashier, handles cash receipts, maintains accounting records, and prepare the
monthly reconciliations of the bank account.
The bookkeeper-cashier prepared the following reconciliation at the end of the year.
Balance per bank statement P350,000

Add: Deposit in transit P175,250
Note collected by bank 15,000 190,000
Balance P540,250
Less: Outstanding checks 246,750
Balance per general ledger P293,500
In the process of your audit, you gathered the following:
a. At December 31, 2017, the bank statement and the general ledger showed balances of
P350,000 and P293,500, respectively.

Page 15 of 24
b. The cut-off bank statement showed a bank charge on January 2, 2018 for P30,000
representing a correction of an erroneous credit.
c. Included in the list of the outstanding checks were the following:

➢ A check payable to a supplier, dated December 29, 2017, in the amount of P14,750
released on January 5, 2018.
➢ A check representing advance payment to a supplier in the amount of P37,210, the
date of which is January 4, 2018, and released in December, 2017.
d. On December 31, 2017, the company received and recorded customer’s postdated check
amounting to P50,000.
Required:
1. The adjusted deposit in transit at December 31, 2017 is _________________.

2. The adjusted outstanding checks as at December 31, 2017 is _________________.
3. The adjusted cash to be presented in the balance sheet as at December 31, 2017 is
_________________.
4. The cash shortage is _________________.
5. The net adjustments to cash account is _________________.
• (Proof of Cash)
Problem 10 (Adapted)
You obtained the following information on the current account of Itaas Company during your
examination of its financial statements for the year ended December 31, 2017.
The bank statement on November 31, 2017 showed a balance of P76,500. Among the bank credits in
November was customer’s note for P25,000 collected for the account of the company which the
company recognized in December among of its receipts. Included in the bank debits were cost of
checkbooks amounting to P300 and a P10,000 check which was charged by the bank in error against
Itaas Co. account. Also in November You ascertained that there were deposits in transit amounting to
P20,000 and outstanding checks totaling P42,500.
The bank statement for the month of December showed total credits of P104,000 and total charges of
P51,000. The company’s books for December showed total receipts of P183,900, disbursements of
P101,800 and a balance of P121,400. Bank debit memos for December were: No. 143 Service
charges, P400 and No. 145 on a customer’s returned check marked “DAIF” for P6,000.
The bank error in November was corrected by the bank in December.
On December 31, 2017, the company placed with the bank a customer’s promissory note with a face
value of P30,000 for collection. The company treated this note as part of its receipts although the
bank was able to collect on the note only in January 2018.
A check for P990 was recorded in the company cash payments books in December as P9,900.
Questions:
Based on the application of the necessary audit procedures and appropriation of the above data, you
are to provide the answers of the following:
1. How much is the undeposited collections as of December 31, 2017?

2. How much is the outstanding checks as of December 31, 2017?

Page 16 of 24
3. How much is the adjusted cash balance as of November 30, 2017?
4. How much is the adjusted bank receipts for December?
5. How much is the adjusted book disbursements for December?
6. How much is the adjusted cash balance as of December 31, 2017?
The senior auditor instructed you to prepare a four-column proof of cash receipts and disbursements
for the month of August 2018.
The bank reconciliation prepared by Palapar Company at July 31 is reproduced below: (All book
adjustments were recorded in August)
Bank Balance 52,000 Book Balance 40,000

Add: Proceeds of note
receivable collected by
Add: Deposit in transit, July 31 900 ank in July
b 8,000
Deposit made in bank

on July 31 not recorded
______ n books until August
o 1,000
Total 2,900
5 otal
T 49,000
Less: Outstanding checks ess: Bank Service Charge
L 100
No. 436 200
o. 450
N 1,800
o. 451
N 1,400
o. 454
N 600 4,000 ______
Adjusted balance 8,900
4 djusted balance
A 8,900
4
Upon inquiry about the client’s August 31 bank reconciliation, you were informed that it has been lost
and that no client is too busy at this time to prepare another. Your senior auditor told you to get the
August bank statement and paid checks and to prepare the August 31 reconciliation so that you may
complete the August proof of cash.
The August bank statement is reproduced below:
Tagupo Bank
Account name: Palapar Company
Date Debits Credits
July 31
August 1 1,800 900
August 8 1,400
August 9 600 10,000
August 12 EC 140 EC 140
August 15 1,000
August 20 700 14,000
August 27 1,440
August 29 EC 100 EC 100
August 31 SV 440

Page 17 of 24
August 31 DM 300
August 31 1820

SV – Service Charges; DM – Debit Memo; EC – Error Corrected; CM – Credit Memo
The paid checks accompanying this bank statement (all clearing in August) were (checks listed in
order of payment by bank).
No. 450 P1,800 No. 455 P1,000 No. 458 P1,440
451 1,400 456 700 459 1,820
454 600
The check register revealed that the last check issued on August was no. 460 for P1,000 and that
check no. 457 was for P2,400.
Cash received for the period August 21 through 31 of P9,400 was deposited in the bank on September
1.
The debit memo on August 31 was customer NSF checks returned by the bank. The check on August
12 was immediately redeposited without entry. The check returned on August 31 was redeposited by
the client in the bank on September 1 without entry.
Questions:
Based on the application of the necessary audit procedures and appropriation of the above data, you
are to provide the answers to the following:
1. How much is the unadjusted book receipts for August?
2. How much is the unadjusted book disbursements for August?
3. How much is the adjusted book receipts for August?
4. How much is the adjusted book disbursement for August?
5. How much is the adjusted cash balance as of August 31, 2018?
Problem 12
Your audit senior instructed you to prepare a four column proof of cash receipts and disbursements for
the month of December 2018.
The bank reconciliation prepared by Aenon Prince Company at November 30 is reproduced below:
Unadjusted bank balance P96,800 Unadjusted book balance P58,640

Add: deposit in transit 18,000 Add: CM – note collected 40,320
Total 114,800 otal

T
98,960
Less Outstanding checks: Less: DM bank charges
160
No. 276 P2,400
282 7,200
284 4,800
285 1,600 16,000 _______

Page 18 of 24
Adjusted bank balance P 98,800 Adjusted
balance P98,800
The December bank statement, which has a beginning balance of P96,800, is reproduced below:
Tense Bank
Account Name: Aenon Prince Company
Date Debits Credits
December 01 P 18,000
December 02 P 7,200 40,000

December 04 4,000
2
December 06 48,000
December 08 400,000 CM83
December 10 40,000 DM97
December 11 56,000
December 16 20,000
December 18 64,000
December 21 72,400
December 28 36,000 80,000
December 31 4,000 DM 98 64,000 CM84
Totals P 131,200 P842,400
DM97-Customer’s DAIF check CM83-Note collected by the bank

DM98-Service Charges CM84-Account collected by the bank
The company’s cash receipts and cash disbursements journals for the month of December 2018 are
provided below:
Cash Receipts Journal Cash Disbursements Journal
Date OR No. Amount Date Check

No. Amount
Dec. 01 415 P 40,000 Dec.
01 286 P16,000
05 416 48,000
03 287 24,000
10 417 56,000
10 288 32,000
17 418 64,000 14
289 20,000

Page 19 of 24
20 419 72,000
20 290 28,000
30 420 80,000
23 291 36,000
31 421 88,800
26 292 40,000

28 293 44,000
.
31 294 48,000
Total P440,800 Total P30
4,000
The company’s Cash in Bank Ledger appears below:
Cash in Bank
Balance P 58,640
12/31/2018 CDJ P304,000
12/01/2018 J
G 40,320
12/10/2018 J (CM83)
G 400,000
12/31/2018 RJ
C 440,800
Questions:
Based on the application of the necessary audit procedures and appreciation of the above data, you
are to provide the answers to the following:
1. How much is the outstanding checks as of December 31, 2018?
2. How much is the adjusted book receipts for December, 2018?
3. How much is the adjusted book disbursements for December, 2018?
4. How much is the adjusted cash balance as of December 31, 2018?
5. How much is the cash shortage as of December 31, 2018?
• (Reconstruction of Accounts)
Anay Corporation organized on March 1, 2017, has a very poor internal control system. The company’s
cashier is also its accountant. After 9 months of operations, the company’s manager suspects that the
cashier accountant has been misappropriating company collections. You have been engaged to audit
the company’s accounts to determine the extent of fraud, if any.

Page 20 of 24
You started the audit on November 15. On that date, the cash on hand per your surprise count was
P5,140. Also on that date, the bank confirmed that the balance of the company’s current account was
P26,328. Your examination of the records reveals that a check for P1,852 was outstanding on
November 15. The company’s mark-up is 40% of sales.
Further examination of the company’s records reveals the following balances at November 15, 2017:
Common stock P300,000
Additional paid-in capital 20,000

Real property purchased for cash 200,000
Mortgage payable 80,000

Furniture and fixtures (of the acquisition cost,
6,000 remains unpaid as of Nov. 15)
P 29,000
Notes payable – Bank 32,000
Accounts payable – Trade 6,284
4
Expenses paid (excluding purchases) 60,756

Merchandise inventory at cost 93,920
Accounts Receivable – Trade 5,380
8
Total sales 340,000
Questions:
1. Payments for purchases
2. Collections from sales
3. Total Cash receipts
4. Cash shortage, if any

You are engaged to audit the books of Yanguas Enterprise. From the records of the company, you
gathered the following information:
Yanguas Enterprises started its operation on October 2, 2017 with Tropico 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 Tropico’s initial investment and
a bank loan, details of which are in the additional data. The bank statement in December 2017
showed an ending balance of P30,380.
Examination of the paid checks disclosed that checks totaling P4,500 were issued by the company in
December, 2017, and were presented for payments only in January 2018. 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 28, 2017, deposited on January 3, 2018. The balance, in currency and
coins, represents petty cash fund.
Additional data:

Page 21 of 24
a. Accounts receivable subsidiary ledgers had a total balance of P70,000 at December 31, 2017.
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, 2017 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, 2017.
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 2017.
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.

Questions:
1. The unaccounted cash receipt is ________________.

2. The unsupported and unrecorded disbursement is ________________.
3. Total shortage is ________________.
4. The cash per ledger before adjustment is ________________.
5. The adjusted cash balance is ________________.
• (Comprehensive)
You have substantially completed the audit of Dimpas Corporation for the fiscal year ended June 30.
You are now consolidating your working papers and reviewing the adjusting journal entries you will
make.
Data regarding your audit of specific accounts are described below. You are expected to formulate the
appropriate adjusting journal entries and be aware of their impact on the accounts.
CASH LEAD SCHEDULE

Petty cash fund 5,000
Cash on hand 15,000
Banco de Oro, current 205,000
PNB Bank – CA # 1 90,000
PNB Bank – CA # 2 (15,000)
UCPB – savings and time deposits 105,000

Total 405,000
You conducted a count of the petty cash fund and cash on hand at 8:00 am, July 1, the first working
day of the new fiscal year. Results of the count are shown below:

Page 22 of 24
Count of Petty Cash Fund
Currency 1,500
Officer’s check cash out of petty cash fund with
management approval 800
Employee’s vales (duly approved) 1,200

Unreplenished petty cash voucher for various exp. 1,500
Total counted 5,000
Count of cash on hand
Undeposited collections
Currency 2,400
Postal Money Order 3,000
Customer’s check (including check for P1,500 dated July 12) 8,100
Check drawn by office manager in settlement of
cash advance returned by bank marked DAIF 1,500
Total counted 15,000
Banco de Oro – Current Account

The supporting schedule for BDO current contains the following bank reconciliation.
Dimpas Corporation
Bank Reconciliation with BDO Current
June 30
Balance per bank 234,100 (i)
Bank charges 600
Outstanding checks (22,700) (ii)
Deposit of Neth Corporation credited by the bank
in error to company account ( 5,000)
Check for an Accounts Payable, erroneously recorded

in Company’s books as P8,500 but drawn and paid
by bank as P6,500. ( 2,000) (iii)
Balance per book 205,000
i – Checked against June bank statement, confirmed by bank.

ii – Traced to cash disbursements books and to July cutoff bank statement (as of July 10).
Included in outstanding checks is a P4,000 company check payable to a supplier, dated and recorded
as of June 29, but not delivered to payee until July 14.
iii - Traced to cash disbursements book and reviewed cancelled checks.
PNB Current Account
Audit notes:
1. PNB current account #1 includes a P20,000 compensating balance against short-term
borrowing arrangements at June 20. The compensating balance is not legally restricted as to
withdrawal by Cleenent Corporation.
2. The credit balance in PNB current account #2 represents check drawn in excess of the deposit

Page 23 of 24
balance. The checks are still outstanding on June 30.
UCPB – saving and time deposits

The UCPB deposit consists of:
Savings account deposit #20010 50,000

Savings account deposit #20151 30,000
Time deposits – 3 months 25,000
Total 105,000
Audit notes:
1. Savings account #20010 has been set aside by the Board of Directors for the acquisition of
new equipment.
2. Savings account deposit #20151 represents temporary idle cash.
3. The time deposit matures July 24.
Questions:
1. The balance per audit of petty cash fund is _________________.

2. The balance per audit of cash on hand is _________________.
3. The balance per audit of cash in bank – BDO current is _________________.
4. PNB current account Nos. 1 and 2 should be reported in the audited balance sheet as follows:
a. P90,000 as part of cash, P15,000 as a current liability because the credit balance can
not be offset against current account no. 1
b. P75,000 as part of cash.
c. P70,000 as part of cash, P15,000 as a current liability; P20,000 compensating balance
as part of a current assets.
d. None of the above.
5. The adjusted amount of UCPB deposits that should be reported as part of cash in the audited
balance sheet is ________________.
6. Total cash per audit amounted to __________________.
Page 2 of 2

Page 24 of 24

AUDIT OF Cash

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AUDIT OF Cash

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College of Accounting Education

3/F F. Facundo Hall, B & E Bldg.

Importance of Audit of Cash and Cash Equivalents

Internal Control over Cash Transactions

To avoid the likelihoods of the material misstatement, the entity would:

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Audit Working Papers for Cash

Audit Procedures for Cash

Presentation and Disclosure

Substantive Testing—Cash and Cash Equivalents

Steps in Cash Count Problems

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2. Identify valid supports to the accountability as presented in the problem

- Unreplenished petty cash expense vouchers (adjusted to expense account)

b. For undeposited collections

Special audit considerations for cash

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A four-column reconciliation will not allow the auditor to verify whether

Typical substantive audit procedures for cash

1. Review disclosures for compliance with generally accepted accounting principles.

3. Send confirmation letters to financial institutions to verify existence of the amounts on

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4. Read the minutes of board meetings of the past year.

a. Prepare a proof of cash.

d. Count all cash on hand.

12/31/17 ​Balance per bank statement ​P12,000

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​b. What other questions might be raised regarding the reconciliation?

MULTIPLE CHOICE QUESTIONS

1. Which of the following is not an audit objective related to cash?

a. ​Reported cash exists

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a. ​Accounts payable and purchase commitments.

a. ​Foot the cash receipts journal for October

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c. ​The request was mailed by assistant treasurer.

• Cash Lead Schedule Analysis

2. ​Current account at DBP (100, 000)

3. ​Payroll account 500, 000

4. ​Saving account in rural bank 1, 000, 000

5. ​Treasury warrants 200, 000

6. ​Treasury note, due November 30, 2015 400, 000

7. ​Change fund 10, 000

8. ​Credit memo from a vendor for purchase return 20, 000

9. ​Traveler’s check 50, 000

10. ​Customer’s checks returned by the bank marked 15, 000

12. ​Petty cash fund 10, 000

13. ​Treasury note, due 2/28/15 200, 000

14. ​Treasury bills, due 1/31/15 300, 000

15. ​Cash sinking fund 500, 000

16. ​Preferred redemption 800, 000

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a. A P90,000 check received from a customer dated February 1, 2019 is on hand.

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k. Currency and coin on hand amounted to P7,700.

Problem 4 (PhilCPA Adapted)

Checking account at First Bank ​ ​ ​ ​ ​(200,000)

Credit memo from a vendor for a purchase return ​ 750,000

Traveler check ​ ​ ​ ​ ​ ​ 80,000

No sufficient fund check ​ ​ ​ ​ 300,000

​for P30,000) ​ ​ ​ ​ ​ ​ 50,000

Money order ​ ​ ​ ​ ​ ​ ​ 180,000

Required: Compute the adjusted balance of cash at year-end.

Bills: ​ ​(2) P500; ​(8) P100; ​(12) P50; ​(5) P20

12/31/17 Balance per bank statement P12,000

b. What other questions might be raised regarding the reconciliation?

a. Reported cash exists

a. Accounts payable and purchase commitments.

a. Foot the cash receipts journal for October

c. The request was mailed by assistant treasurer.

2. Current account at DBP (100, 000)

3. Payroll account 500, 000

4. Saving account in rural bank 1, 000, 000

5. Treasury warrants 200, 000

6. Treasury note, due November 30, 2015 400, 000

7. Change fund 10, 000

8. Credit memo from a vendor for purchase return 20, 000

9. Traveler’s check 50, 000

10. Customer’s checks returned by the bank marked 15, 000

12. Petty cash fund 10, 000

13. Treasury note, due 2/28/15 200, 000

14. Treasury bills, due 1/31/15 300, 000

15. Cash sinking fund 500, 000

16. Preferred redemption 800, 000

Checking account at First Bank (200,000)

Credit memo from a vendor for a purchase return 750,000

Traveler check 80,000

No sufficient fund check 300,000

for P30,000) 50,000

Money order 180,000

Bills: (2) P500; (8) P100; (12) P50; (5) P20

Coins: P 5.00 11 loose

0.05 14 rolls and 20 loose (40 pieces to a roll)

Date Maker Payee Amount

Date Maker Amount

12/24/16 Ablay, bookkeeper 500

Date Payee Accounts Charged Amount

12/18/16 Posts Office upplies

12/20/16 Alejandre, carpenter epairs

D, customer Client 12/21 13,350

F, employee Cash 12/29 2,540

(return of excess travel fund)

Paid to Date Amount

Bureau of Posts 12/20 150

Marco Polo – Employees’ Christmas Party 12/23 8,300

Bank balance 300,000

No. 114 240,000

240,000 600,000 eb. 1

Face of the note 250,000

Credit to your account 270,000

Cash Receipt Journal Cash Disbursement Journal

6 400,000 118 00,000

9 800,000 119 00,000

General Ledger Bank Statement

July bank service charge (2,610)

Note paid by the bank (183,000)

NSF check ______ (9,330)

Ending balances 49,680

Balance per bank statement P350,000

Bank Balance 52,000 Book Balance 40,000

Deposit made in bank

No. 450 P1,800 No. 455 P1,000 No. 458 P1,440

451 1,400 456 700 459 1,820

Unadjusted bank balance P96,800 Unadjusted book balance P58,640

Total 114,800 otal

285 1,600 16,000 _______

December 02 P 7,200 40,000

December 10 40,000 DM97

DM97-Customer’s DAIF check CM83-Note collected by the bank

Cash Receipts Journal Cash Disbursements Journal

Date OR No. Amount Date Check

2. How much is the adjusted book receipts for December, 2018?

4. How much is the adjusted cash balance as of December 31, 2018?