Audit of Cash and Cash Equivalents

AUDIT PROGRAM FOR CASH

Audit Objective:

To determine that:
1. Cash balances at the end of the reporting period represent cash and cash items on
hand, in transit to, or in depository banks.
2. Cash transactions have been properly recorded.
3. Cash balances are properly described and classified, and adequate disclosureswith
respect to amounts restricted as to withdrawal are made in the financial statements.

AUDIT PROCEDURES:
1. Conducts a cash count of undeposited collections ,petty cash , and other
funds.

● Obtain custodian’s signatureto acknowledge return of items countend

●Reconcile I

●Trace undeposited collections counted to bank reconciliation.>

●Follow up dispositions of items in cash counted:

> Undeposited collections should be traced to bank deposits.

>Checks accommodate in pettycash should be deposited after the count to

establish their validity.

>IOUs in the petty cash should be confirmed and traced to allocations in the next
payroll period.

>Expense vouchers should be traced to the succeeding replenishment voucher.

●Coordinate cash count with count of marketable securities and other negotiable assets
of the client .

● Obtain confirmation of year-end fund balances of cash not founded in branches or

other offices.
 2. Confirm bank balance by direct correspoandence with all banks in which the clients
has had deposits and loans during the year.

3. Obtain bank reconciliation.

● Check arithmeticaly accuracy of reconciliation .

● Trace balance per book to the general ledger balance of cash account .

●Trace balance per bank to bank statement and compare with amount confirmed by
bank .

●Establish authenticity of reconciling items by reference to their respective sources,

like:

> Bank debit or credit advices.

> Duly approved journal vouchers .

●Investigate checks outstanding for a long period of time.

> Consider adjustments, especially if the check is already stale.

>Consider the possibility of an erroneous preparation of the check.

●Investigate any anusual reconciling items.

●Where internal control over cash is weak, consider preparing a proof of cash
reconciliation.

4. Obtain cutoff bank statement showing the client’s transactions with the bank atleast
one weak after the reporting date and:

●Trace year-end reconciling items like:

>Deposit of the year-end undeposited collections .

>Completeness of year-end outstanding checks.

>Corrections of bank errors.

●Examine supporting documents of year-end outstanding checks that did not clear in
the cutoff bank statement.

5. Obtain a list of interbank transfers of funds a few days before and after the reporting
date.
●Vouch supporting documents .

●Ascertain that the related receipts and disbursements were book by the client within
the same day or atleast within the same month .

6. Test reasonableness of cutoff by:

●Comparing dates of checks of recording in the cash disbursement register.

●Tracing receipts recorded a few days before the reporting date to the bank deposits

7.Inspect savings account passbook and certificates of deposits .

●Reconcile with book balances.

●Update interest earned posting on passbooks , if necessary.

●Compare balances with the bank confirmation reply.

8. Determine any restrictions on availability of cash.

9. Determine propriety of financial statement presentation and adequacy of disclosures.

PROBLEM 1-1
Cash and Cash Equivalents

The accountant of SANTIAGO COMPANY is in the process of preparing the company’s financial
statement for the year ended December 31, 2016. He is trying to determine the correct balance
of cash and cash equivalents to be reported as a current assets on the statement of financial
position. The following items are being considered:

● Balances in the company’s accounts at the Metropolitan Banks:

>Current account 81,000

>Savings account P132,600

● Undeposited customer checks of P22,200 (including a customer check dated January

2, 2017 , for P3000).

● Currency and coins on hand of P3, 480 .

● Savings account at the Northern Philippines Bank with a balance of P2,400,000. This
account is being used to accumulate cash for future plant expansion (in 20170.

● Petty cash of P4, 000(currency of 1, 200 unreplenished vouchers for P2, 800).

● P120, 000 in a current account at the Northern Philippines Bank. This represents a20%
compensating balance for P600,000 loan with the bank . Santiago Company is legally restricted
to withdraw the funds until the loan is due in 2019.

● Treasury bills:

Two-month maturity bills P90, 000

Seven-month bills 120, 000

●Time deposit (placement term is 2 months) 100, 000

What is the correct balance of cash and cash equivalent to be reported in the current
assets section of the statement of financial position?

A. P547, 480 C. P430, 280

B. P427, 480 D. P327 , 480
PROBLEM 1-2

The following information has been extracted from the accounting records of the URSULA
COMPANY at December 31, 2016:

a. Cash on hand (see note below ) P230, 000

b. Impukan Bank savings account (the required
minimum Monthly Average Daily Balance (MDAB) is P10,000 9, 500
c. 364-day Treasury bills purchased March 1, 2016 400, 000
d. Petty cash fund (see note below ) 20, 000
e. Tipid Bank current account (see note below ) 160, 000
f. Time deposit placements:
Date Term

Dec. 15, 2016 30 days 30, 000

Oct. 31, 2016 90 days 40, 000

Nov. 30, 2016 180 days 25, 000

g. Employee travel advances 7,000

h. Cash in bond sinking fund 500, 000
i. Customer’s note receivable 45, 000
j. Postage stamps 2, 400

The followingare include in cash on hand:

● A customer check for P43, 000 returned by the bank on December 28, 2016. It was
redeposited and cleared the bank on January 2, 2017.

● A customer check for P75, 000 dated January 3, 2017, received December 27, 2016.

● PHL Post money orders received from customers, P30, 000.

The petty cash fund consists of the following:

Currency and coins P13, 500

IOUs from officers and employees 3, 000

Unreplenished petty cash disbursements 1, 500

Currency in envelope with the notation:

“We were Bang Quay’s co-workers. Words may not be adequate

To express how sorry we feel. Please accept our heartfelt symphathies

on the loss of your loved one .” 1, 500

20, 000

The following information pertains to Tipid Bank current account:

● A check for P13, 000 was dated and recorded on December 29, 2016, but was delivered
to payee on January 5, 2017.

● A check for P5, 000 dated January 10, 2017, Payable to a supplier was recorded and
released to payee on December 19, 2016. Tipid Bank requires current accounts depositors
to maintain a monthly average daily balance of P50, 000.

What is the correct amount of cash and cash equivalents that Ursula Company should
report on it’s December 31, 2016, statement of financial position?

A. P383, 000 C. P378, 000

B. P373, 500 D. P408, 000

PROBLEM 1 – 3
The controller of the LYRIC CO. is trying to determine the amount of cash and cash
equivalents to be reported on it’s December 31, 2016, statement of financial position. The
following is provided:

1. Balances in the company’s accounts at the Monte Banks:

● Checking account – P540, 000
● Savings account – P884, 000

2. Undeposited customers checks of P208, 000.

3. Currency and coins on hand P23, 000.

4. Savings account at the Naic Bank with the balance of P350, 000.
 This account is being used to accumulate cash for future plant expansion (in 2018)

1. P800, 000 balance in a checking account at the Naic Bank.

2. Treasury bills: 30-day maturity bills totaling P600, 000, and 180 days bills totaling P800, 000.

What total amount of “cash and cash equivalents “ should be reported in the current asset section
of the 2016 statement of financial position?

A. P3,055,200 C. P2,955,200
B. P2,455,200 D. P2,355,200

PROBLEM 1-4
The following facts apply to OTO COMPANY during 2016:

1. Saving s account of P900, 000 and a checking account balance of P1, 200,000 are held at
Manila Bank.
2. Money market placement with maturity of 3 months, P7, 500,000.
3. Currency and coins on hand amounted to P11, 550.
4. Travel advances of P270, 000 for the first quarter of next year (employee
reimbursement will be through salary deduction).
5. Oto company has purchased P3,150,000 of commercial paper of Mendez Corp. which is
due in 60 days.
6. A separate cash fund amounting to P2, 250,000 is restricted for the retirement of long-
term debt.
7. Petty cash fund an employee of P1, 500.
8. An IOU from an employee of Oto Company in the amount of P2, 000.
9. Two certificates of deposit, each totaling P500, 000. These CDs have a maturity of 120
days.
10. Oto Company has received a check from a customer in the amount of P187, 500 dated
January 15, 2017.
11. On January 1, 2016, Oto Company purchased marketable equity securities to be held as
“trading” for P 3,000,000. On December 31, 2016, its marketable value is P4, 300,000.

What amount should be reported as cash and cash equivalent on December 31, 2016?
A. P13,763,050 C.P12,751,500
B. P12,575,550 D. P12,763,050
PROBLEM 1-5
Your audit of the December 31, 2016, financial statements of DIONISIO CORP. reveals the
following:

Current account at Prime Bank P (30, 000)

Current account at Prudent Bank 135, 000

Treasury bills (acquired 3 months before maturity) 300, 000

Treasury bills (maturity date is Dec. 31, 2017 1, 500, 000

Payroll account 390, 000

Foreign Bank account – restricted (translated using the

Dec. 31 ,2016, exchange rate) 2, 000,000

Postage stamps 1, 250

Employee’s postdated check 4, 500

IOU from the vice-president 8, 000

Credit memo from a supplier for a purchase return 8, 100

Traveler’s check 21, 000

Money order 12, 900

Petty cash fund (P 3, 000 in currency and expense receipts

For P12, 000) 15, 000

What amount would be reported as “cash and cash equivalents” in the statement of
financial position on Dec. 31, 2016?

A. P840, 050 C.P849,400

B. P873, 900 D.P861, 900
PROBLEM 1-6
The cash account of the BEA CORPORATION as of December 31, 2016, was composed of
the following :

On deposit in current account with the Bank of PI P900, 000

Cash collection not yet deposited to the bank 350, 000

A customer’s check returned by the bank for insufficient fund 150, 000

A check drawn by the Vice-President of the company dated

January 15, 2017 70, 000

A check drawn by a supplier dated Dec. 28, 2016, for goods

Returned by the company 60, 000

A check dated May 31, 2016, drawn by the company against

The Bank of Manila in payment of customs duties. Since the

Importation did not materialize, the check was returned by the

Customs broker. This check was an outstanding check in the

Reconciliation of the Bank of Manila. 410, 000

Petty cash fund of which P10, 000 is in currency; P7, 200

tIn form of employees’ IOUs; and P2, 800 is supported by

Approved petty cash vouchers for expenses all dated

Prior to closing of the books on Dec. 31, 2016 20, 000

Total P 1,960, 000

Less: Overdraft with the Bank of Manila secured by a

Chattel mortgage on the inventories 300, 000

Cash balance per ledger P1,660,000

 What is the amount of cash to be reported on the Dec. 31, 2016, statement of financial
position of Bea Company?

Problem 1-7
In connection with your audit of the financial statements of ONOR COMPANY for the year
ended Dec. 31, 2016, you gathered the following information.

1. The company maintains its current account with Tsunami Bank. The bank statement on
Dec. 31, 2016, showed a balance of P638, 340.

Your audit of the company’s account with Tsunami Bank disclosed the following:

● A check P22,500 received from a customer whose account is current had been
deposited and then returned by the bank on Dec. 28, 2016. No entry was made for the
return of this check. The customer replaced the check on January 15, 2017.

● A check for P5, 720 was cleared by the bank as P7, 520. The bank made the correction
on January 2, 2017.

● A check for P 3, 500 representing payment of an employee advance was received and
deposited on Dec. 27, 2016, but was not recorded until January 3, 2017.

● Postdated checks totaling P67, 300 were included in the deposits in transit. These
represent collections of current accounts receivable from customers. The checks were
actually deposited on January 5, 2017.

● Various debit memos for drafts purchased for payment of importation of equipment
totaling P230, 000 were not yet recorded. These purchases were previously set up as
accounts payable. Said equipment arrived in Dec. 31, 2016.

● Interest earned on the bank bal. for the 4th quarter of 2016, amounting to P1, 260
were not recorded.

● Deposit in transit and outstanding checks at December 31, 2016, totaled P 136, 250
and P 276, 380, respectively.

2. Various expenses from the company’s imprest petty cash fund dated December 2016,
totaled P 16, 250, while those dated January 2017, amounted to P5, 903. Another
disbursement from the fund dated December 2016 was a cash advance to an employee
 amounting to P3, 500. A replenishment of the petty cash fund was made on January 8,
2017.
3. The company’s trial balance on December 31, 2016, includes the following accounts;
Cash in bank – Tsunami Bank P 743, 320
Cash in bank- earthquake Bank (restricted account
for plant expansion, expected to be disbursed in 2017) 700,00
Petty cash fund 30, 000
Time deposit, placed December 20, 2016 and due
March 20, 2017 1, 000,000
Money market placement- Prudential Bank 4, 000,000

1. What is the adjusted petty cash fund balance on December 31, 2016?
A. P4, 347 C. P30,000
B. P10, 250 D. P24, 097
2. The petty cash shortage on December 31, 2016, is
A. PO C.P 3, 500
B. P5, 903 D.P 4, 347
3. What is the adjusted Cash in bank – Tsunami Bank balance on December 31,
2016?
A. P500,010 C. P432, 710
B. P748, 320 D.P429, 110
4. The entry to adjust the Cash in bank – Tsunami Bank account should include
a debit to
A. Accounts receivable for P89, 800.
B. Accounts receivable for P86, 300.
C. Accounts payable for P228,200.
D. Interest expense for P1,950.
5. The December 31, 2016, statement of financial position should show “ Cash
and cash equivalent” at
A. P6,142,960 C. P4, 442,960
B. P5,439,360 D. P5,442,960

PROBLEM 1-8
The auditor for SAMANTHA, INC. examined the petty cash fund immediately after the
close of business, July 31, 2016, the end of the company’s natural business year. The petty cash
custodian presented the following during the count:
 Currency P1, 650

Petty cash vouchers:

Postage 420

Office supplies expense 900

Transportation expense 340

Computers repairs 800

Advance to office staff 1, 500

A check drawn by Samanth , Inc.

Payable to the petty cash custodian 7, 200

Postage stamps 300

An employee’s check, returned by bank,

Marked NSF 1, 000

An envelope containing currency of P1, 890

For a gift for a retiring employee 1, 890

P16, 000

The general ledger shows an imprest petty cash fund balance of P16, 000.

1. How much is the petty cash shortage or average?

A. P2, 190 overage C.P 1, 890 shortage
B. P2, 190 shortage D. P1, 890 overage
2. What is the adjusted balance of the petty cash fund at July 31, 2016?
A. P10, 740 C. P7, 200
B. P3, 540 D. P8, 850

PROBLEM 1-9
On January 1, TANYA CO. establishes a petty cash account and designate Orly Reyes as petty
cash custodian. The original amount included in the petty cash fund is P10, 000. The following
disbursements are made from the fund:

Office supplies P3, 460

 Postage 2, 240

Entertainment 840

The balance in the petty cash box is P3, 200.

1. The person responsible, at all times , for the amount of the petty cash fund is the
A. Chairman of the board of Directors
B. President of the company
C. Petty cash custodian
D. General cashier
2. The following are appropriate procedures for controlling the petty cash fund, except
A. To monitor variations in different types of expenditures, the petty cash custodian
files petty cash vouchers by category of expenditures after replenishing the fund.
B. To replenish the fund, the general cashier issues a company check to the petty cash
custodian, rather than cash.
C. To determine that the fund is being accounted for satisfactorily, surprise counts of
the fund are made from time to time by the internal auditor or other responsible
official.
D. Each individual to whom petty cash is paid is required to present signed receipts to
the petty cash custodian.
3. The entry to replenish the fund is
A. Office supplies expense 3, 460
Postage expense 2, 240
Entertainment expense 840
Cash 6, 540
B. Office supplies expense 3, 460
Postage expense 2, 240
Entertainment expense 840
Cash over and short 260
Petty cash 6, 800
C. Office supplies expense 3, 460
Postage expense 2, 240
Entertainment expense 840
Cash over and short 260
Cash 6, 800
D. Office supplies expense 3, 460
Postage expense 2, 240
Entertainment expense 840
 Petty cash 6, 540
4. The objective of establishing a petty cash fund is to
A. Cash checks for employees
B. Account for all cash receipts and disbursements
C. Account for cash sales
D. Facilitate payment of small, miscellaneous items
5. What is the effect of not replenishing the petty cash at year-end and not making the
appropriate adjusting entry.
A. A detailed audit is essential
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

PROBLEM 1-10
COUNT OF PETTY CASH FUND AND UNDEPOSITED COLLECTIONS

In connection with your audit of the financial statements of BENJAMIN CORP. for the year
ended December 31, 2016, you conducted a surprise count of the company’s petty cash fund
and undeposited collections at 8:20 a.m on January 3, 2017. Your count disclosed the
following:

Bills and coins

Bills Coins

P100.00 5 Pieces 5.00 18 Pieces

50.00 40 pieces 1.00 206 Pieces

20.00 48 pieces 0.25 32 Pieces

Postage stamps (unused)- P365

CHECKS

Date Payee Maker Amount

Dec. 30 Cash Custodian P1, 200

Dec. 30 Benjamin Corp. SLV, Inc . 14, 000

 Dec. 31 Benjamin Corp. Mario Lansang,

Sales manager 1, 680

Dec. 31 Benjamin Corp. MSU Corp. 17, 800

Dec. 31 Benjamin Corp. Ateneo, Inc . 8, 300

Dec. 31 Taiwan Corp. Benjamin Corp. 27, 000

Unreimbursed vouchers

Date Payee Description Amount

Dec. 23 Mario Lansang, Advance for trip to P20, 000

Sales manager Tagaytay City

28 Central Post Office Postage stamps 1, 620

29 Messengers Transportation 150

29 Byte, Inc. Computer repair 800

Others items found inside the cash box:

1. Unclaimed pay envelope of Juan McDonut. Indicated on the pay slip is his net salary of
P7, 500. Your inquiry revealed that Juan’s salary is mingled with the petty cash fund.
2. The sales manager’s liquidation report for his Tagaytay City trip.
Cash advance received on Dec. 23 P20, 000
Less: Hotel accommodations, meals, etc. P16, 000
Bus fare for two 1, 200
Cash given to Pablo, salesman 1, 000 18, 200

Balance P1, 800

Accounted for as follows:

Cash returned by Pablo to the sales manager P120

Personal check of the sales manager 1, 680

Total P1, 800

Additional information:

1. The custodian is not authorized to cash checks.

2. The last official receipt included in the deposit on Dec. 30 is No.4351 and the last official
receipt issued for the current year is No. 4355. The following official receipts are all
dated December 31, 2016.
OR NO. AMOUNT FORM OF PAYMENT
4352 P13, 600 Cash
4353 17, 8 00 check
4354 3, 600 Cash
4355 8, 300 Check

3. The petty cash balance per general ledger is P25, 000. The last replenishment of the
fund was made on December 22, 2016.

t1. What is the amount shortage due from the sales manager?

A. P240 C. P120

B. P1, 800 D. P0

2. What is the amount of the undeposited collections on December 31, 2016?

A. P44, 300 C. P57, 300

B. P84, 300 D. P41, 000

3. The adjusting entries on December 31, 2016, should include a net debit to Travel
expenses of

A. P17, 320 C. P18, 200

B. P18, 320 D. 18, 080

4. The cash count should include total checks of

A. P69, 980 C. P41, 780

B. P42, 980 D. P41, 300

5. What is the total cash shortage?

A. P22, 166 C. P22, 406

B. P8, 166 D. P20, 486