Audit of Cash

Bank Reconciliation

BOOK BANK
+ CM
Unrecorded DIT
( DM )
( NSF )
( PDC) ( OC )
+- BoE -+BaE
Adjusted Adjusted

PROOF OF CASH

BOOK

PRIOR RECEIPTS DISBURSEMENTS CURRENT

Unadjusted Book Balance XX XX XX XX
Credit Memo:
Prior Month XX (XX)
Current Month XX XX
Debit Memo:
Prior Month (XX) (XX)
Current Month XX (XX)
ADJUSTED BOOK
BALANCE XX XX XX XX

BANK PRIOR RECEIPTS DISBURSEMENTS CURRENT

Unadjusted Bank Balance
DIT
Prior Month XX (XX)
Current Month XX XX
OC
Prior Month (XX) (XX)
Current Month XX (XX)
Checks erroneously charged by the bank
Prior Month XX (XX)
Current Month XX
Deposit of another
company (XX)
erroneously credited by the bank
Prior Month (XX) (XX)
Current Month (XX) (XX)
ADJUSTED BANK XX XX XX XX
BALANCE
Sample Problem

https://www.studocu.com/ph/document/san-beda-university/bs-accountancy/chapter-1-audit-of-cash-
and-cash-equivalents/5364671

ASSESSMENT I

In connection with your audit of the financial statements of ARC Company for the year ended
December 31, 2018, you gathered the following information.

(1) The company maintains its current account with ALZER Bank. The bank statement on December
31, 2018, showed a balance of P638,340.

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

● A check for P22,500 received from a customer whose account is current had been deposited and then
returned by the bank on December 28, 2018. No entry was made for the return of this check. The
customer replaced the check on January 15, 2019.
● A check for P5,720 was cleared by the bank as P7,520. The bank made the correction on January 2,
2019.
● A check for P3,500 representing payment of an employee advance was received and deposited on
December 27, 2018, but was not recorded until January 3, 2019.
● Postdated checks totaling P67,300 were included in the deposit in transit. These represent
collections of current accounts receivable from customers. The checks were actually deposited on
January 5, 2019.
● 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 December 2018.
● Interest earned on the bank balance for the 4th quarter of 2018, amounting to P1,950 was not
recorded.
● Bank service charges totaling P1,260 were not recorded.
● Deposit in transit and outstanding checks at December 31, 2018, totaled P136,250 and P276,380,
respectively.

(2) Various expenses from the company’s imprest petty cash fund dated December 2018, totaled
P16,250, while those dated January 2019, amounted to P5,903. Another disbursement from the
fund dated December 2018 was a cash advance to an employee amounting to P3,500. A
replenishment of the petty cash fund was made on January 8, 2019.
(3) The company’s trial balance on December 31, 2018, includes the following accounts:
Cash in bank - Tsunami Bank P 748, 320
Cash in bank - Earthquake Bank 700,000
(restricted account for plant expansion, expected to be disbursed in 2019)
Petty Cash Fund 30,000
Time deposit, placed December 20, 2018 And due March 20, 2019 1,000,000
Money market placement - Prudential Bank 4,000,000

ASSESSMENT I

QUESTIONS: (20 pts)

1) What is the adjusted petty cash fund balance on December 31, 2018?

Solution:
Petty Cash Fund 30,000
Various expenses (16,250)
Advancement to employee (3,500)
Balance 10,250

2) The petty cash shortage on December 31, 2018, is

3) What is the adjusted Cash in bank - Alzer Bank balance on December 31, 2018?

Solution:

Book Bank
Unadjusted 748,320 638,340
NSF (22,500)
BaE 1,800
Unrecorded 3,500
PDC (67,300)
DM (230,000)
CM 1,950
BSC (1,260)
DIT 68,950
OC (276,380)
Adjusted
Balance 432,710 432,710

4) Give the entry to adjust the Cash in bank - Alzer Bank account?

Accounts receivable (P22,500 + P67,300) 89,800

Accounts payable 230,000
Bank service charges 1,260
Cash in bank – Tsunami Bank 315,610
Advances to employees 3,500
Interest income 1,950

5) The December 31, 2018, statement of financial position should show “Cash and cash
equivalents” of?

Solution:
Cash in Bank 432,710
Petty cash 10,250
MMP - PD 4,000,000
Time deposit 1,000,000
CASH&CE 5,442,960