Common problems in audit for cash and cash equivalents:

1. Deposit in Transit – cash has been added to book but not yet added to the bank.
- Added to BANK balance. ex. cash on hand and awaiting deposit, a deposit for
xx mailed to bank and did not appear on bank statement, postdated check
2. Check on hand – cash on hand that is added to the book but not yet to the bank.
- Added to BANK balance. (ex. check totaling xx were on hand awaiting
deposit)
3. Outstanding checks – checks that have been written but hasn’t been cashed or
deposit by the bank.
- Deduction to BANK balance.
- Also depending on the problem, sometimes also added to the BOOK balance
if released and cashed within 6 months (antedated check). (ex. checks were
outstanding at the end of xx)
4. Credit Memo – commercial document issued by seller to a buyer. Increases
receivables.
- Added to BOOK balance. (since it is already reflected in the bank, it must be
added in the books)
- Note collected by bank can also be a credit memo (ex. note collected by bank
xx and interest xx, interest on note line)
5. Debit Memo – decline in account balance, decreases receivables.
- Deduction in BOOK balance. (same explanation to CM)
6. Bank Service Charge – deducted in BOOK balance since it is a charge already
incurred in the bank. Also depends on the nature unless representing a
correction of an erroneous bank credit.
7. NSF Checks returned – not sufficient funds
- Deducted in BOOK balance because it was assumed as cleared in the bank,
however because of the insufficiency of funds it is not cleared, thereby
reducing cash on hand balance.
- Ex. a customer check xx returned because of insufficient funds
8. Errors – depending on where the error lies.