ubstantive Test of Cash _ The next two questions are based on the following inform The information below was taken from the bank transfer schegy), during the audit of Hayaan Mo Sila, Sige Sige Lang Cos financiay State Prepay the year ended December 31, 2021. Assume all checks are dateq atemen tt December 30, 2021. a issueg Bank Accounts Disbursement date Receipt, o Check Per Per Pep Peay no, From To pooks bank ~— boo Per 101 Bebe Chinito Dec.30 Jan.4 Dee, 3g bank 202 John Labidabs © Jan.3—Jam2u Dec. 3g Ana 303 Chinito Pinrito Dec. 31 Jan.3 Jan.2 80.3 404 Labidabs Lloyd Jan.2 Jan.2 Jan. jm 23, Which of the following checks might indicate kiting? 03 a. #101 and #303 b, #202 and #404 c #101 and #404 ‘ 4, #202 and #303 i 24, Which of the following checks illustrate deposits/ transfers in trang | a} December 31, 2018? a, #101 and #202 b, #101 and #303 c. #202 and #404 #303 and #404 25, A practical and effective audit procedure for the detection of lappingis, a. Preparing an interbank transfer schedule. b. Comparing recorded cash receipts in detail against items making up te bank deposit as shown on duplicate deposit slips validated by the bark c. Tracing recorded cash receipts to postings in customers’ ledger cards, 4. Preparing a proof of cash. = 154Operating 5 alrecretiuly Wnyatug EMMON CA to Me, chapter 8 - Cash and Cash Equivalents CHAPTER 8 CASH AND CASH EQUIVALENTS cae a ‘TOPIC OVERVIEW: ‘This chapter discusses the concept of cash and cash equivalents, its characteristics and components, preparation of bank reconciliation and proof of cash. LEARNING OBJECTIVES: ‘After studying this chapter, you should be able to: 1. Identify what items are included as cash and cash equivalents. 2. Calculate the correct balance of petty cash fund. 3. Identify bank and book reconciling items. 4, Prepare bank reconciliation and proof of cash. SUMMARY OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR CASH Unrestricted and immediately available for use in the current operations For use other than for current operations. -For payment of operating expense -For payment of current liabilities -For acquisition of current assets “Cash in the current asset Other noncurrent section financial assets DEFINITION OF CASH Cash includes money and other negotiable instrument that is payable in money and. acceptable by the bank for deposit and immediate credit. It 155Chapter 8 ~ Cash and Cash Equivalents v includes cash on hand, demand deposits and other items that are unrestricted for use in the current operations. 1, Cash on Hand (CUTCMoBa) Customer's checks awaiting deposit Undeposited cash collections (currencies such as bills and coins) Traveler's check Postal money orders (a demand credit instrument issued and payable by a post office) = are cle 2. Cash i Bank drafts (a written order addressed to the bank to pay an amount of money to the order of the maker) in bank a Current account/checking account/demand deposit/commercial account Generally non-interest bearing Withdrawable by checks against bank Cashier's / Official / Treasurer's / Manager's checks Savings deposit (Savings Account-SA) = Generally non-interest bearing = Depositor'is issued an ATM card or passbook -_Withdrawable in ATM station or within the bank 3. Cash fund for current operations (CP2RIntPeDiT?) C_| Change fund P_| Payroll fund Purchasing fund (for purchasing of inventories) R | Revolving fund (fund that is used for limited or specific purpose set by management. Int_| Interest fund Pe_| Petty cash fund (for small and miscellaneous disbursements) Di_| Dividend fund T_| Travel fund _ Tax fund Fund for Noncurrent Operations Fund for noncurrent operations are part of noncurrent assets and should not be inc fund Preferred redemption luded as part of cash. Examples are as follows: (P2ACI: P | Pension fund Generally noncurrent investment but if the related liability is current, the fund is included as cash. Noncurrent investment unless the preferred redeemable 156 share has a mandatory redemption and ifChapter 8 - Cash and Cash Equivalents Y within one year from the reporting period - part of current investment ¥ within three months from the reporting period - part of current investment ‘A| Acquisition of property, | Always noncurrent even if expected to be plant and equipment __| disbursed next year C | Contingent fund Noncurrent investment 1 | Insurance fund Noncurrent investment : $ | Sinking fund Noncurrent investment, if the related bonds payable is current, the fund is included as cash, Note: Classification of cash fund as current or noncurrent should be parallel to the classification applied to the related liability. Thus, an entity should \ reclassify such noncurrent asset CASH EQUIVALENTS ifthe related liability becomes current. Cash equivalents are short-term and highly liquid investments that are readily convertible into cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates, [PAS 7.6] Items that may qualify as cash equivalents include the following: 1. Time deposit i 2. Money market instrument or commercial paper 3, Treasury bills treasury n 4, Redeemable preference s tes and treasury bonds hares with mandatory redemption period. Ifthe above items are: Treatment 1) Originally invested /acquired for more than three months before maturity date a) Remaining term is three months or less from | Short-term the reporting date investment 'b) Remaining term is more than three months _| Short-term but within one year investment c) Remaining term is more than one year Long-term investment 2) Originally invested /acquired for three months or | Cash equivalents less before maturity date Note: v If an item cannot be included as cash equivalent because it did not qualify the cut-off time p classified as investments period up to maturity. The reckoning period for ti eriod (ie, three months), it will always be (short term or long term) depending on the time deposit is its duration since time deposit generally does not have secondary market, For other securities with 157Chapter 8 ~ Cash and Cash Equivalents } Shapter 8 = cash S Pag” "eed in February, o cee rT “ary corn Sof | 1,000 | (1,000) | > nae red in ebay, os ee Tanyas a [a > Ra at veemes of | (1,200) ci Une lay M12, Corrected in Fag teg [| Re typ APS oF Ta00 : ib 4 Corrected in | tg 190chap [iz | [adie [4 ter 8 - Cash and Cash Equivalents sted balance method - BOOK | BOOKS Februay Beg. Rec. | Disb, [onRS) Unrecorded disbursements for the month of February, P1,600, End 1,600 (1,600) Unrecorded receipts for the month of February, P1,800. Post-dated or unreleased check of the company included as outstanding checks for the month of February, P2,000. 1,800 1,800 (2,000) 2,000 | Post-dated check from custo- mer in February recorded as receipts in February, 1,200. (1200) (1,200) Cancellations of company’s checks recorded by a reduc- tion of cash disbursements, 2,600. 2,600 (2,600) 13 in January was mutilated and returned by the payee. A replacement check was issued. Both checks were entered in the check register but no entry was made to cancel the mutilated check, P2,700. (in addition, this should not be included as part of outstanding checks in January) Check of the company issued | 2,700 2,700 14 was included in the out- standing checks in January was recorded for P3,000 but when the bank statement was received in February the correct amount of this check is 300. No correction was made in February. (P300 should be included as outstanding checks in January) Check issued in January and | 2,700 2,700 15 The company issued a stop payment order to the bank in February for check issued in February which was not received by the payee. A new check was written and recorded in the check register (3.200) | (3,200) 191Char Adj justed balance method -BOOK BOOKS| February _| BOOKS Beg. | Rec. | Disb. | End in February. The old ch eck was written off by a journal entry also in February, P3,200, Adjusted balance method - BANK | BANK | February | BANK Beg | Rec. | Disb. | End 1, | Customer's “NSF check |(@,400) | 3,400 returned by bank in January and redeposited and cleared in February (no entry in January and February to record the NSF check), P3,400 2. | Payment directly from the 1,000 | 1,000 collections (paid out in currency), P1,000, (see explanation below) 3. | Erroneous bank credit made in (8.100) | (3,100) February corrected by Debit/Disbursements also in February, P3,100. 4, | Customer's dishonored checks (2,400) | (2,400) in February are recorded as reduction of cash receipts. The dishonored checks are redeposited also in February and are recorded as regular receipts, P2,400. 5. [NSF check amounting to (2,000) | (2,000) 2,000 returned this month and redeposited this month (no entry was made in the books both on the return and redeposit) - see note below Note: This is the traditional treatment in the textbooks. However, as the check received by the company was returned due to insufficiency of funds, effectively, the company did not receive payment at al. Thus, the amount of returned check should be deducted from the Book Balance End and from the Book Receipts (if recorded) and added back to receivables as these are still collectible from the customer. PAID OUT IN CURRENCY (PAYMENT OUT OF COLLECTION) ‘According to imprest system, all cash collection received by the company should be deposited intact to the bank, and all disbursements should be made through the use of check, except for payment of small and 192Chapter 8 - Cash and Cash Equivalents miscellaneous items. Therefore payment directly out of the collection is a violation of this internal control. For purposes of accounting all the receipts and disbursements during a certain period, the following treatment should be presented in the proof of cash starting from the unadjusted cash balance- bank: Beg. Rec. Disb, End. Unadjusted cash in bank - bank x oo XK OM Paid out of collection xX OX Note that in the presentation, the payment out of collection is assumed to have been deposited in the bank and a check was issued for the payment. ILLUSTRATION: Proof of Cash Data concerning the cash records of Lyndon Company for the months of September and October of the current year follow: a) Unadjusted book balance on September 30 amounted to P2,258,000 b) Total receipts per book in October, P1,400,000. i; ©) Total disbursements per book in October, P2,400,000. d) Unadjusted bank balance on September 30 amounted to P2,100,000. e) Total credits per bank in October amounted to P 1,200,000, | £) Total debits per bank in October amounted to P2,500,000. £)_ NSF checks on September 30 amounted to 60,000 while on October 31 amounted to P40,000. | 1) Collection of accounts receivable not recorded by the company P| September 30, P30,000 and P50,000 on October 31. | i) Erroneous bank charge on September 30, P10,000 and P18,000 0” October 31. j) Erroneous bank credit on September 30, P7,000 and P9,000 on October 31. 1k) Understatement of check in payment of rent payable on September 30 90,000 and P120,000 on October 31, 1)_ Deposit in transit on September 30, 130,000. m) Outstanding checks on October 31, P30,000. Required: Based on the above data, answer the following questions: How much is the deposit in transit October 31? How much is the outstanding checks September 30? How much is the adjusted cash in bank balance September 30? How much is the adjusted cash receipts during October? How much is the adjusted cash in bank balance October 31 Provide the adjusting journal entries. SOLUTION: Requirement No. 1 Deposit in transit, beginning ‘Addl: Deposits made by the company 193 | ae eene p 130,000Book receipts Less: Credit last month Total Less: Deposits acknowledged by the bank py 99,000 Bank receipts 50,000 Less: Credit memo this month 10,000 Erroneous bank charge - September 9,000 Erroneous bank credit - October PSLoy Deposit in transit, end Requirement No. 2 Pp Outstanding checks, beginning (squeeze) 95.009 ‘Add: Checks issued by the company 2,400,000 Book disbursements 60,000 Less: Debit last month = Understatement of check in 90,000 payment of rent-September Add: Understatement of check in aa Payment of rent ~ October A200 2.320 Total 65,009 Less: Checks paid by the bank 500,000 i Bank disbursements ee 40,000 Less: Debit memo this month faa Erroneous bank charge - October , Erroneous bank credit - September —2.000 Patiow Outstanding checks, end 2_ 30,000 Requirement Nos. 3-5 Balance October Balance | Sept.30___ Receipts Oct. 31 | Bank bal. 2,100,000 1,200,000 P2, 300; 000 800,000 | Deposit in transit 1 Sept. 30 130,000 (130,000) | Oct. 31 369,000 369,000 Outstanding checks Sept. 30 (95,000) (95,000) Oct. 31 30,000 (30,000) Erroneous bank charge Sept. 30 10,000 ( 10,000) Oct. 31 (18,000) 18,000 Erroneous bank credit Sept. 30 (7,000) (7.900) Oct. 31 : 9,000) (9.000) Adjusted bal. pii38000 120000 2410000 puis 194ZZ cnapter 8 = Cash and Cash Equivalents Balance Octob Sept.30 Recipe eceipts : Balance ook balance 2,258,000 Pi,400,000 a peat 400,000 -F NSF checks sept: 30 oct. 34 credit Memo sept. 30 30,000 (80,000) Oct. 31 50,000 understatement of “ checks in payment ofrent sept. 30 Oct. 31 aie ‘Adjusted bal 2.138.000 pequirement No, 6: Adjusting Entries 1) ‘Accounts receivable Cash in bank (60,000) (90,000) 2) Cashin bank ‘Accounts receivable 3) Rent payable Cash in bank 195 120.000 (120.000 210000 pLsaaonn 1,258,000 ( 60,000) 40,000 (40,000) 50,000 (0,000) Debit credit 40,000 40,000 50,000 50,000 120,000 120,000wy uw Sig Symes can Chapter 8 - Cash and Cash Equivalents CHAPTER 8: REVIEW QUESTIONS - COMPUTATIONAL = PROBLEM 8-1 Cash and Cash Equivalents The following pertains to Kerry Corporation on December 31, 2021: Postage stamps Credit memo from a vendor for a purchase return, 10,000 (50,000) Current account at BPI J Current account at Metrobank 1,000,000 Employees postdated check 2,000 Foreign bank account - restricted (in equivalent pesos) 500,000 OU from controller's sister 5,000 Listed stock held as temporary investments 7,500 250,000 ~ Payroll account Petty cash fund (P2,000 in currency and expense receipts 5,000 for P3000) =~ 7 Postal money order 15,000”, Traveler's check 25,000 \f. Treasury bills, due 1/31/2022 (purchased 01/31/2021) 150,000 ‘Treasury bills, ue 3/31/2022 (purchased 12/31/2021) 100,000 /” Treasury warrants Additional information: 1. Check of P100,000 drawn against Metrobank account in paymel suppliers on January 5, 2022. Check of P50,000 drawn against Metrobank account dated January 15, 150,000 / ant of accounts payable was recorded on December 31, 2021 but mailed to 2022 ” in payment of accounts payable was recorded and mailed on December 31, 2021. Check of P25,000 drawn against Metrobank account dated January 15,2021 in payment of accounts payable was recorded and mailed on January 15, 2021, As of the reporting period, the same has not been encashed by the payee and still outstanding. How much cash and cash equivalents should Kerry Corp. report on the December 31, 2021 statement of financial position? a. P1,565,000 ~ ¢, P1,717,000 a. 1,700,000 d. P 1,865,000 PROBLEM 8-2 Cash and Cash Equivalents The following pertains to Kerry Corporation on December 31, 2021: Postage stamps P 1,000 Employees postdated check 4,000 TOU from controller's sister 10,000 Credit memo from a vendor for a purchase return 20,000 Traveler's check 50,000 Postal money order 30,000 Petty cash fund (P4,000 in currency and expense receipts 196 va Chapter Cash and Cash Equivalents for P6,000) 10,000 | ‘Treasury bills, due 3/31/2022 (purchased 12/31/2021) 200,000 “ Treasury bills, due 1/31/2022 (purchased 01/31/2021) 300,000 Listed stock held as temporary investments 15,000 Current account at Metrobank 2,000,000 —~ | Current account at BPI (200,000) | Payroll account 500,000 | Foreign bank account - restricted (in equivalent pesos) 1,000,000 | ‘Treasury warrants 300,000 | How much cash and cash equivalents should Kerry Corp. report on the December 31, 2021 statement of financial position? a. 3,084,000 «. #2,784,000 | b. 2,790,000 4. P2,704,000 | | }) PROBLEM 8-3 Cash and Cash Equivalents | The cash account of Ria on December 31,2021 has abalanceofP151,000andit | consists of the following: Bills and coins on hand P 52,780 Traveler's check 22,400 Credit memo from supplier's for purchase returns 6500 | Postage stamps 120 | Petty cash including paid cash vouchers of P1,650 2,000 | Balance in Savings Account with a bank closed by the BSP 36000 | Customer's check dated January 15, 2022 8,000 Money order 800 | IOU of an employee 0 | Checking Account Balance in Bank of Philippine Island 2000 || Total suo The correct cash and cash equivalents balance on December 31, 2021 is | a. 98,900, c. 997,530. | b. ?98,730. 4. 98,330. |! PROBLEM 8-4 Cash and Cash Equivalents | Assume the following data of Dianne Corporation of its cash and short-term, highly liquid investments for December 31, 2021: Cash on hand 80,000 Checking account No. 143 - BPI 200,000 Checking account No. 155 - BPI (30,000) Date Maturity Securities: Acquired Date Amount 120-day Certificate of Deposit 12/10/2021 01/31/2022 600,000 BSP-Treasury Bills (No.1) 11/30/2021 04/30/2022 5,000,000 | BSP-Treasury Bills (No.2) 10/31/2021 01/20/2022 1,000,000 | 180 days Commercial Paper___12/01/2021__ 06/20/2022 _1,400,000 | 197Chapter 8 - Cash and Cash Equivalents ‘The correct cash and cash equivalents balance on December 31, 2021 is a. P3,850,000 c. P5,250,000 b. 3,880,000 d, P5,280,000 PROBLEM 8-5 Cash and Cash Equivalents The statement of financial position of a company presents the follow financial assets at December 31, 2021: ms «Bank cheque account = 58,400. «Bank savings account (collectible immediately) = ?23,440. © Cash=P10,000. + Common stocks of Entity Z, one of the most traded assets in Country 4, stock exchange, purchased by the airline to speculate = 2,715, + Oilprice derivative entered into by the entity to hedge the commodity pri risk ofthe anticipated future purchase of oil for use in the entity's operating business = 6,720. + Agold price derivative entered into by the entity to speculate = P9,880, + Treasury bonds issued by the government of Country A = P8,500. The entiy acquired the bonds from the government one week before the enttys reporting date, The bonds mature 2 months after the date of acquisition (je they are two-month bonds from date of issue). « Treasury bonds issued by the government of Country A = P6,300. The entity acquired those bonds from the government in the previous annua reporting period. The bonds mature 15 months after the date of acquisition (ie they are 15-month bonds). Im the absence of evidence to the contrary, the entity's total cash and cash equivalent at December 31, 2021 is: a. P98,560 c. P109,775 b. P100,340 d. P107,060 PROBLEM 8-6 Cash and Cash Equivalents ‘The December 31, 2021 trial balance of Agee Company includes the following accounts: Petty cash fund 70,000 Current account ~ Metro Bank 4,000,000 Current account - BPI (overdraft) (250,000) 120-day Money market placement - RCBC 1,000,000 Time deposit - PNB 2,000,000 Additional information: + The petty cash fund includes unreplenished December 2021 petty cash expense vouchers for P15,000 and an employee check for 5,000 dated January 31, 2022. 198‘ash and Cash Equivalents Chapter #Acheck for P100,000 was drawn against Metro Bank current account dated and recorded December 27, 2021 but delivered to payee on January 10, 2022. «The PNB time deposit is set aside for land acquisition in early January 2022. What should be reported as “cash and cash equivalents” on December 31, 2021? a. 5,130,000 cc, P4,150,000 b. PS5,150,000 d. P4,880,000 PROBLEM 8-7 Effective Interest Rate Luke Company is in need of P3,375,000 to finance its building expansion program. Luke is currently negotiating a loan with Metro Bank which requires the company to maintain a compensating balance of 5% of the loan principal on deposit in a current account at the bank. Luke, Inc, currently maintains a balance P50,000 in its current account. The current account earns interest of 4% per annul interest rate on the loan is 12% per annum. Questions: Based on the above data, answer the following: 1. Whats the principal amount of the loan? a. 3,375,000 c. 3,500,000 b. P3,325,000 d. P3,480,000 2, Whatis the effective interest rate on the loan? a 8% c. 12.30% b, 12.91% 4. 12% PROBLEM 8-8 Petty Cash Fund As part of your engagement to audit the financial statements of ABC Company for the year ended December 31, 2021, you were assigned to verify the petty cash fund and the cash on hand in the morning of January 3, 2022. You began to count at 9:00 A.M. in the presence of W. Ally, the petty cash custodian. In the course of your counting, you found the following items: Bills: 10 two-hundreds, 20 one-hundreds, 40 twenties Coins: 10.00 10rolls, ( 10 pieces toa roll) 5.00 9rolls (50 pieces toaroll) 1.00 Srollsand4loose (100 pieces toa roll) 0.25 7rollsand10loose (200 pieces toa roll) 0.10 Srollsand20loose (300 pieces toa roll) 0.05 4rollsand 10loose (200 pieces toaroll) Checks: Maker Date Payee Amount Jose Manalo, Manager 12/05/21 ABCCompany 800 W. Ally, petty cash custodian 12/28/21 ABC Company 500 199(Chapter 8 Cash and Cash Equivalents Note: Jose Manalo’s check was returned on December 29, 2021 for insufficiency of fund, 1.0.U's Date Amount A.Braham, janitor 12/19/2021 250 R.Tica, clerk 12/20/2021 150 P.Du, Bookkeeper 12/22/2021 200 Petty cash vouchers for replenishment: Payee Date Account charged Amount J.Cruz, messenger 12/14/2021 Advances to employees 125.00 Cid Bookstore 12/15/2021 Supplies 15000 Dalin Liner 12/19/2021 Freight-out 19200 Bureau of Posts (stamps) 12/20/2021 Supplies 30000 ABala,carpenter 12/21/2021 Repairs 45000 B.Go 01/02/2022 Miscellaneous expense 154.00 Unused stamps: Various denominations 50.00 Additional information: 1. The balance of petty cash fund per books is 12,000, 2. Cash sales of January 2, 2022 amounted to 8,000 per sales records, while cash receipts book and deposit slip showed that only 6,600 was deposited inthe bank on January 3, 2022. 3. The following employees’ pay envelopes have been opened and the mosey removed. Each envelope was marked “unclaimed.” D.Bill 400 G.Ng 200 Required: 1. Prepare working papers showing your cash count. 2. Prepare necessary adjusting journal entries as of December 31, 202). 3. Determine the amount at which the Petty Cash Fund will be stated in the statement of financial position as of December 31, 2021 PROBLEM 8-9 Petty Cash Fund You are examining the accounts of Raymund Beauty Salon. Your count of the imprest cash fund, made at 8:30 aun, on January 3, 2021, in the presence of Frances petty cashier, revealed: Coins Bills Quantity Denomination Quantity Denomination 50 P 1.00 3 500 60 025 5 100 20 20 12 10 200Chapter 8 = Cash and Cash Equivalents Checks: | Date Payee Maker Amount | December 26 Cash Al, Beautician F 5.000 29 Raymund Rex, Hairdresser 6.100 29 Raymund Zev, customer 6500 | Unused stamps: Various denominations °70 | Vouchers: | Date Nature of Disbursements | December 15. Transportation 65 16 Office supplies 7 17 Xerox fees 40 28 Postage 150 } January 2 Newspaper 10 2 Freight charges 50 tous pate Maker December Rhad, employee 50 Andrix, 100 ‘The balance of the Petty Cash account, December 31, 2021, was P5,000, Sales invoices (for cash sales, all in cash, no checks) Invoices mas December 30 4.000 mss December 31 5,100 mas January 2 3.050 Required: Compute the amount of cash shortage. PROBLEM 8-10 Bank Reconciliation The accounting period of Laurieleen Company ends on December 31, The following information is available about the company’s cash, Laurieleen Company Bank Reconciliation October 31 Balance per bank statement 18,005 ‘Add Deposit in transit _1790 | Deduct: Outstanding checks | No. 143 P4563 No. 144 2118 = _6681 | Correct cash balance PA3L14 | Balance per books PLL S34 ‘Add: Note collected by bank Principal P1,500 201Interest Total —100 1.600 Deduct Bank service P13,124 Correct cash balance "8 ——20 PASSAI GEN BLE NATIONAL BANK '- ACCOUNT: LAURIELEEN COMPANY Date Debits 10/31 Credits ay 11/01 i 11/02 4,563 on feo 11/04 2,118 5,967 19,081 11/04 4,567 " 14514 11/05 963 13.551 11/06 3,410 16,961 11/07 2515 14,446 41/11 1,037 15,483, 11/13 2,264 13319 11/18 3,325 9,894 11/24 964 4,255 13,185 11/28 619 750 CM 13,316 11/29 3,000 500 CM 10,816 31/29 35 DM 10,781 11/30 665 NSF 10,116 11/30 22_ sc 10,094 Total 25,620 17,709 Legend: DM: Debit Memo NSF: No sufficient fund check CM: Credit Memo SC: Service Charge Laurieleen Company's Cash Account Taken from General Ledger Cash — Balance, Oct. 31 11,534 | Balance, Nov. 30 rs CR Journal, Nov. 30 18,269 | CD Journal Nov. 30 218 Legend: CR: Cash Receipts; CD: Cash Disbursements Information taken from Laurieleen Company: Cash Receipts Journal Cash Disbursements Journal Date Cash Debit Date CheckNo. Cash Credit 11/03 5,967 11/01 145 ae 11/06 3,410 11/04 146 Be 11/11 1,037 11/05 147 a 11/23 4255 11/10 148 3264 11/30 3,600 11/17 149 Sa 182 11/22 150 6 202Chapter 8 - Cash and Cash Equivalents 1/27 151 619 11/28 152 760 11/29 153 3,000 11/30 154 1.868 u515 Additional Information: 1) After preparing the October 31 reconciliation, Laurieleen failed to record the necessary journal entries, 2) The NSF check had been received during November from a customer on account. Laurieleen has not yet recorded the return ofthe check. The credit memos shown on the bank statement pertain to P750 of bond interest that Laurieleen earned during the current accounting period and that the banle collected on the company's behalf (collection not yet recorded on Laurieleen’s books) and a PS00 collection made for Dulawan Company that the bank erroneously credited to Laurieleen’s account. The P35 debit memo shown on the bank statement pertains to the rental of asafe deposit box during November. 5) Laurieleen made two errors in recording cash payments during November: Check No. Actualamount of check Amount recorded 148 2,264 73,264 150 964 694 Check No 148 was issued to purchase equipment, check No. 150 was for advertising expense. 3 4 Questions: Based on the above data and the result of your audit, compute for the following: 1. Deposit in transit on November 30 a. 2,600 «. P1,600 b. 3,600 4. P600 2, Outstanding checks on November 30 a. 2,628 c. P3,268 b. 2,826 4d. P1628 3. Adjusted receipts in November a P17,519 cc. P15,419 b. P19,019 d. P21,309 4. Correct cash balance on November 30 a. P10,094 c, PL1,066 b. P13,694 dl. P10,566 5. Assuming each reconciling item will be given an adjusting entry, how many adjusting entries will be made on November 30 a8 06 b 4 as 203Chapter ‘ash and Cash Equivalents PROBLEM 8-11 Deposit in Transit In your audit of the cash account of Karen Mae Company, you have ascertaines the following data relative to the debits per books and credits per bank: Book debits in February 40000 Bank credits in February 360,005 CM for interest earned in January but taken up in the books in February 5,009 CM for interest earned in February but taken up in the books in March 6000 Check from customer in January amounting to P40,000 but was taken up in the books as 40% Check from customer in February amounting to P20,000 but was taken up in the books as 4000 Check by the company issued to supplier in January amounting to 73,000 but was taken up in the books as 30,000 Erroneous bank credit-February 2500 Erroneous bank charge-January 1,009 Deposit in transit-January 31 50,000 How much is the undeposited collections at the end of February? a 47,500 ©. 15,500 b. 31,500 d. £46,500 PROBLEM 8-12 Outstanding Checks Based on the following information, the causes of the discrepancies between the book credits and bank debits are ascertained: Book credits in May 85,800 Bank debits in May 97,650 Check issued on May 29 for P5,700 erroneously recorded in the books of the depositor as 7500 Customer's DAIF check, returned by the bank of the depositor in May 2300 30 ‘April bank service charges, taken up in the books in May Payment of VISA credit card automatically debited by the bank on May 25, as per ADA, but taken up in the books of the depositor in June 3,000 Outstanding checks as of May 31 4500 How much is the outstanding checks at the beginning of the period? a. 4,500 c. £12,880 b. 5,300 d. 11,880 204Chapter 8 ~ Cash and Cash Equivalents PROBLEM 8-13 Basics Of Proof Of Cash Data regarding the cash in bank for the current year af Basic Company follow: fan. 31 Feb. 28 Cash per ledger 250,000 — 290,000 Cash receipts for February 300,000 Unadjusted bank statement 237,500 Bank disbursements Credit Memo for note collected 30,000 Bank service charge 7,500 Deposit in transit 50,000 Outstanding checks 15,000 Required: Compute for the adjusted balance of the following: 1. Cashin bank, January 31 Cash receipts h disbursements ‘ash in bank, February 28 2, 3. 4G PROBLEM 8-14 Basics Of Proof Of Cash Data regarding the cash in bank for the current year of Launch Attack Company follow: Jan.31 Feb. 28 Cash per ledger 250,000 290,000 Cash receipts for February 300,000 Unadjusted bank statement, 248,100 282,400 Bank disbursements 269,600 Overstatement of customer's checks per books 4000 3,000 Overstatement of company’s checks per books 300 900 Erroneous bank credit 5,000 4,000 Erroneous bank charge 3,200 9.500 Required: Compute for the adjusted balance of the following: 1. Cash in bank, January 31 2. Cash receipts 3. Cash disbursements 4. Cash in bank, February 28 PROBLEM 8-15 Basics Of Proof Of Cash Your client, Aira Marie Zhon Company, presented you the following data: Jan, 31 Feb. 28 Cash per ledger 200,000 270,000 Cash receipts for February 150,000 Bank statement balance 203,300 273,200 credits per bank statement in February 157,700 Credit Memo for note collected 10,000 15,000 NSF check 2,000 3,000Chapter 8 - Cash and Cash Equivalents Understatement of salaries expense per book (corrected the following month) 1,500 600 Deposit in transit 9,000 2 Outstanding checks 3,000 2 Erroneous bank credit 6,000 4,000 Erroneous bank charge 3,200 1,400 Questions: Based on the above data, compute for the following: 1. Deposit in transit, February 28 a. P13,500 ©. 9,500 b. P16,300 d.P 19,500 2, Outstanding checks, February 28 a, P700 ©. P5,700 b. 2,700 4.P1,300 3, Unadjusted bank disbursements in February a, P81,500 c.P80,100 b. 87,800 d.P81,000 4, Adjusted cash in bank balance on January 31 a. 206,500 c. P203,300 b. 208,000 d.P208,500 5, Adjusted Cash receipts in February a, P155,000 ©. P162,200 b. P140,000 d.P158,200 6. Adjusted Cash disbursements in February a. P81,000 ©.P79,500 b. P80,100 d.P81,500 7. Adjusted cash in bank balance on February 28 a. 282,000 .P284,000 b, 281,400 d.P280,000 PROBLEM 8-16 Proof of Cash Reconciliation of Jazz Company's bank account at May 31 of the current year is: Balance per bank statement 2,600,000 Deposits outstanding 300,000 Bank service charge 10,000 Erroneous bank charge 40,000 Outstanding checks (100,000) Erroneous bank credit (60,000) CM for collection of note (600,000) Balance per book 2,190,000 206Pere es | chapter 8 - Cash and Cash Equivalents June data are as follows: | Checks recorded Bank Book Correction of erroneous bank credit in May 2200000 2,500,000 Deposits recorded Ls0oa0e 0 Correction of erroneous bank charge 600,000 1,800,000 \ Service charges recorded 40,000 : CM for collection by bank ee z NSF checks returned with June 30 statement (will be $0,000 600,000 redeposited) 100,000 Questions: : Based on the above data and the result of your audit co + mn ; 1. How much is the total outstanding checks on June 30, ne OUowine® a. 400,000 ©. P190,000 b. 510,000 4. P340,000 2. How much is the total deposit in transit on June 302 a. 510,000 c. P100,000 b, 500,000 4. 90,000 3. How much is the total adjusted cash receipts in june? a. 2,350,000 . P2,190,000 b. 2,400,000 4. P2,030,000 | 4, How much is the total adjusted cash disbursements in June? | a. 2,650,000 c. P2,500,000 b. 2,410,000 4. P2,350,000 5, How much is the total adjusted cash balance as of june 30? a. P2,480,000 c. 2,370,000 b. 2,280,000 4. P2,490,000 PROBLEM 8-17 Proof of Cash In connection with your examination, the Seann Company presented to you the following information regarding its Cash in Bank account for the month of june of the current year: a. Balances per bank statements: May 31, 1,250,000, and June 30, 1,350,000, b, Balances of cash in bank account in company’s books: May 31, P1,251,000, and June 30, P1,051,000, ‘Total charges in the bank statement during June were P1,300,000. Undeposited receipts were: May 31, P200,000 and June 30, P153,000. Outstanding checks as of May 31, P150,000. Erroneous bank credits were: May 31, P45,000 and June 30, 17,000. Erroneous bank charge were: May 31, P20,000 and June 30, P30,000. Collections by bank not recorded by Company were P125,000 in May and P150,000 in June, PR me Ao 207 } olChapter 8 - Cash and Cash Equivalents i, NSF not entered in company's books were: May 31, 110,000 and June 30, 75,000. 4 j. Customer's check deposited in May amounting to P21,000 was erroneously entered in the books as P12,000. Assume this was corrected in June. Questions: Based on the above and the result of the audit, answer the following: 1. How much were the cash disbursements per books in June? a. 1,365,000 c. P1,500,000 b. 1,491,000 d. P1,565,000 2. How much are the outstanding checks at the end of June? a 110,000 c. P381,000 b. 330,000 d. P390,000 3, How much is the adjusted cash balance as of May 30? a. P1,257,000 c. P1,275,000 b. 1,266,000 a, P1,291,000 4, How much is the adjusted book disbursements for June? a. 1,315,000 c. P1,456,000 b. P1,381,000 d. P1,465,000 5, How much is the adjusted cash balance as of June 30? a. P1,126,000 c. P1,276,000 b. P1,135,000 d. P1,346,000 6. Which of the following adjusting entry would be made by the company at the end of June? a. Bankservice charge 75,000 Cash in bank 75,000 Accounts receivable 150,000 b. Cash in bank 50,000 Accounts receivable 75,000 Cash in bank 125,000 c Cashin bank 84,000 ‘Accounts receivable 84,000 4. Cash in bank 75,000 Accounts receivable P75,000 PROBLEM 8-18 Proof of Cash You have been hired by Sophia Manufacturing Co. as an internal auditor. One of, your first assignments is to reconcile the bank account of the company. ‘The bank statement shows the following: Beginning balance, Aug. 1,2021 P 180,250 Deposits (20) 1,830,752 Checks-(64) plus debit memos (1,702,830) 208Chapter 8 - Cash and Cash Equivalents Service charges-new checks t 88) Ending balance, Aug. 31, 2021 P_308.084 The cash account on the books of Sophia Manufacturing Co. is as follows: CASH 7/1 Beginning 128,384 | 7/31 - Cash Disb. 1,330,882 7/31-Cash Receipts 1,364,858 | 8/1 - Bank Recon 750 8/31-Cash Receipts 1,839,744 | 8/31 - Cash Disb. 1,712,892 Your review of last month's bank reconciliation and the current bank statement reveals the following: 1) Outstanding checks: July 31,2021 2 August 31, 2021 67,122 2), Deposits in transits: July 31, 2021 732,844 August 31,2021 41,836 3) Check No. 216 for the Office Furniture was written for P1,390 but recorded in the cash disbursements journal as P1,930. The bank deducted the check as P1,390. The error happened in July and is not yet corrected as of August 31. 4) Acheck written on the account of the Caleb Co. for P1,166 was deducted by the bank from Sophia's account. 5) Included with the bank statement was a debit memorandum dated August 31 for P4,950 for interest on a note taken out by the Sophia Manufacturing Co. on July 30. 6) The service charge for new checks has not been recorded. 7). The July 31, 2021 bank reconciliation showed as reconciling item a service charge of P52 and an NSF check for P698. Questions: Based on the above data, compute for the following: 1. Unadjusted cash in bank per books, August 31, 2021 a. P288,462 c. 289,752 b. P289,212 d. P289,002 2, Outstanding checks as of July 31, 2021 a. PS1,484 c. P50,944. b. 52,110 d. P51,570 3. The adjusted cash in bank per books, July 31, 2021 a. P162,150 c. P162,202 b. P162,848 4. P161,610 4. The adjusted disbursements for August, 2021 a. P1,718,470 c, P1,717,180 b, P1,717,930 d. 1,719,096 209Chapter 8 ~ Cash and Cash Equivalents 5, Adjusted cash in bank per books, August 31, 2021 a. 283,964 c. P282,798 b. 283,424 4. P288,914 PROBLEM 8-19 Proof of Cash ‘Your audit senior instructed you to prepare a four column proof of cash receipts and disbursements for the month of December 2021. The bank reconciliation prepared by Character Company at November 30 is reproduced below: Unadi. bank balance 69,000 Unadj. book balance P 66,000 Add: Add: Deposit in transit 11,000 CMfornote collected _8.809 Total 80,000 Total 74,800 Less: Less: Outstanding checks: Bank service charge 1,800 No. 143 1,000 144 1,500 145 2,000 146 2500 =_7,000 — Adjusted balance £73,000 p73000 The bank statement, which has a beginning balance of P69,000, is reproduced below: May Bank. Account Name; CHARACTER Company Date Debits Credi Dec PF 1,000 P 11,000 4-Dec 25,000 10,000 5-Dec 3,000 CM1 6-Dec 2,000 20,000 8-Dec 10,000 DM1 5,000 9-Dec 2500 40,000 17-Dec 30,000 7,000 19-Dec 40,000 DM2 20-Dec 500 E 500 EC 26-Dec 40,000 31-Dec — _2,000 DM3 __35,000 cmM2 £113,000 £121,500 DM1 Customer's DAIF check DM2 Customer's DAIF check DM3 Service charges (M1 Account collected by the bank (M2 — Notecollected by the bank E Error EC Error Correction 210re a Chapter 8 - Cash and Cash Equivalents ‘The debit memo on December 8 and December 19 were customer NSF checks returned by the bank. The check on December 19 was redeposited on December 26 without entry. The company made a journal entry when the check = returned on December 8 was received. This check was redeposited by the client || inthe bank on January 3 without entry. The company’s cash receipts and cash disbursements journals for the month of | December 2021 are provided below: Cash Receipts Journal Cash Disbursements Journal Date ORNo. Amount Date CheckNo. Amount | Dec. 03 555 P 10,000 Dec. 03 147 P 25,000 | 5 556 20,000 15 148 30,000 7 557 5,000 30 149 800 8 558 40,000 31 150 12,000 18 559 7,000 30 560 18,000 31 561 —200 {i 102,000 | ‘The company’s Cash in Bank Ledger appears below: Cash In Bank Balance 66,000 | 12/31/2021 GJ(DM1) 10,000 12/1/2021 GJ(CM) 8,800 | 12/31/2021 cj 75,000 12/8/2021 GJ(CM1) 3,000 12/31/2021 CRY 102,000 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, 2021? a P21,500 c. P14,300 b. 20,000 4. P24,000 2, How much is the adjusted book receipts for December, 2021? a. P140,000 c, P180,500 b. P140,500 4. P138,200 3. How much is the adjusted book disbursements for December, 2021? a. P78,000 c. P79,800 b. P87,000 4, P1270 4, How much is the adjusted cash balance as of December 31, 2021? a. P127,800 ¢, PLA7,500 b. P126,000 d. P131,400 5. How much is the cash shortage as of December 31, 20217 | a. Nil «, P3800 i b. 2,000 a. P1800 | aitChapter 8 - Cash and Cash Equivalents PROBLEM 8-20 Proof of Cash The following information was obtained in connection with the audit of Kathereen Hyacinth Co's cash account as of December 31, 2021: © Cash balance per general ledger on December 31 was P37,500. The company recorded actual company collections amounting to P152,500 fron its customers during December. Also in December, the company recorded bank service charges of P2,500, including November bank service charges of P1,500. The December bank statement showed total deposits credited by the bank of P145,000 and total checks paid amounting to P133,750 and bank service charges of P3,250. «The Outstanding checks on November 30 and December 31 were 16,250 and P12,500 respectively while deposit in transit on November 30 was 12,500. « Thecash receipts book of December is under-footed by ?2,500. «The bank erroneously charged the company's account for a P3,750 check for another company. This bank error was corrected on January 2022, Questions: Based on the above data and the result of your audit, compute for the following: 1. Book disbursements in December 2021 a. P126,250 c, P128,750 b. P125,500 d. P129,750 2, Deposit in transit, December 31, 2021 a. P19,000 c. P22,000 b. 12,000 d. P20,000 3. Adjusted cash in bank balance, December 31, 2021 a. 26,500 c. P37,750 b. 37,500 d. P26,750 4. How much is the unrecorded bank service charges as of December 31, 2021? a 1,250 ©. P2,350 b. 3,250 4. 2,250 5, Adjusted cash in bank balance, Nov. 30, 2021 a, P1800 c. P12,250 b. 14,750 . P17,450 PROBLEM 8-21 Proof of Cash The following data were taken from the records of Brayden Company: Undeposited collections: September 30 5,000 October 31 7000 Outstanding checks: 212Chapter 8 ~ Cash and Cash Equivalents September 30 October 31 Bank service charge, September 30 6000 September 30 October 31 2500 Customer's notes collected, September 39 1500 | September 30 j October 31 8000 i NSF returned this month redeposited also thi 2:00 month (no journal entry was made on the books both on the return and when it was redeposited 3,000 Balances: September 30 bank balance September 30 book balance 100,000 October 31 book balance 91,500 October transactions: 139,500 Receipts: Book (2,000 thereof was paid outincurrency) 196,000 = 200,000 Disbursements: Book ; “ 150,000 Questions: Based on the above data, compute for the adjusted balances of the following: 1. Outstanding checks, September 30. a. 2,000 c. 76,000 b. 8,000. 4. P4000 2. Cash in bank balance, September 30 a. 97,000 c. P99,500 b. P105,000 d, 94,000 3. Cash receipts on October 31. a. 201,000 c. #188,000 b. 202,000 4. 209,000 4, Cash disbursements on October 31. | a. P147,000 c. P148,000 | b. 142,000 d. P152,000 5. Cash in bank balance, October 31 | a. 151,000 c. 156,000 d, P141,000 b. P157,000Chapter 8 - Cash and Cash Equivalents PROBLEM 8-22 Proof of Cash Your firm has been engaged to examine the financial statements of the Aries Company for the year ended December 31, 2021. In connection with this audi, you have been assigned to audit the CASH account. You noted that there are two Cash in Bank account, one in RCBC and the other in BPI. Data relating to RCBC Account No. 143: On December 31, 2021, the bookkeeper prepared the following bank reconciliation on this bank account: CASH Bank Reconciliation December 2021 Balance per bank statement 1,000,000 Add (Deduct): Reconciling items Deposit in transit (Note 1) 100,000 Outstanding check (Note 2) (75,000) Note charged by the bank (Note 3) 74,400 Balance per general ledger 21,099,400 Audit Notes: 1) Includes a customer's check in the amount of 20,000 (dated April 25, 2021), which is not yet deposited because it has been misplaced. 2) Includes two checks totaling P15,000 which were among the items counted during the cash count conducted early morning of January 2, 2022. 3) This is the maturity value of a two-year note maturing on December 31, 2021. The note bears a 12% interest. Interest for the year ended December 31, 2021 was properly accrued. Data relating to BPI Account No. 544: On November 30, 2021, the bookkeeper prepared the followi reconciliation on this bank account: jing bank Cash account balance 1,980,000 Add: Outstanding check 250,000 Unrecorded collections 90,000 __40,000 Balance P2,320,000 Less: Bank service charge P 10,000 Deposit in transit 90,000 Check erroneously charged by bank against company's account © __20,000 __120,000 Bank statement balance 2,200,000 Additional information: ) + The company’s book for the month of December showed the following entries: November 30 balance P 1,980,000 Credits 3,500,000 Debits 1,420,000 214Chapter 8 - Cash and Cash Equivalents + Thebank statement showed the following on December 31: November 30 balance P 2,200,000 Credits 1,000,000 Debits 2,000,000 The December bank debits include the followii Debit memo for service charge P 20,000 Debit memo for customer's NSF check 100,000 «The company recorded as cash receipt a customer's note of P200,000 placed with the bank for collection on December 31. The note was not collected until the subsequent month Questions: Based on the above data and the result of your audit, compute the following: 4. Adjusted balance of the cash in bank (Account No. 143) a. 1,020,000 . P940,000 b. 1,080,000 d. P1,094,400 2. Total outstanding check as of December 31,2021. a. 1,920,000 c. P1,660,000 b. P1,860,000 d. P1,720,000 3. Adjusted receipts for December of the Cash in bank (Account No. 544) a, 2,060,000 c. P1,150,000 b, P1,130,000 d. P1,330,000 4, Adjusted disbursements for December of the Cash in bank (Account No. 544) a. P2,230,000 c, P1,750,000 b. P3,610,000 d, P3,510,000 5, Total adjusted cash in bank balance December 31, 2021. a. P700,000 c. P600,000 b, P1,020,000 d, P820,400 PROBLEM 8-23 Proof of Cash Your firm has been engaged to examine the financial statements of the Tiffany Company for the year ended December 31, 2021. In connection with this audit, you have been assigned to audit the CASH account, You noted that there are two Cash in Bank account, RCBC and Equitable PCI Bank. You discovered the following items relating to RCBC Account: 1). Unadjusted cash in bank per books on December 31, P165,000. 2), Unadjusted cash in bank per bank statement on December 31, P125,000. 3) Proceeds of a note collected by the bank in December, P6,000. 4) Bank service charges for December, P1,000. 5) Outstanding checks for December, P25,000. These checks are issued to supplier. 215Chapter 8 - Cash and Cash Equivalents 6) Deposit in transit for December, P60,000. These are collections to be deposited in the bank, You discovered the following items relating to Equitable PCI Bank Account: 1). Unadjusted cash in bank per bank on December 31, P93,000. 2). Proceeds ofa note collected by the bank in December, P10,000. 3) Bank service charges for December, P2,000. 4) Outstanding checks for December, P28,000. These checks are issued to supplier. 5) Deposit in transit for December, P15,000. These are collections to be deposited in the bank. In addition, below is a listing of interbank account cash transfers of a client for late December, 2021. All checks are dated December 31, 2021: Fund RCBC-Disb.Bank Equitable PCI Bank Transfer Daterecorded Date recorded Nos. Amount Book Bank Book Bank 1 20,000 31-Dec 2-Jan 31-Dec —2-Jan 2 30,000 2-Jan 31-Dec 2Jan —-31-Dec 3 40,000 31-Dec 31-Dec 31-Dec 31-Dec 4 50,000 31-Dec 31-Dec 2-Jan 2-Jan Questions: Based on the above data, answer the following: 1. How much is the adjusted cash in bank of the RCBC Account on December 31,2021? a, P140,000 c. P170,000 b, P160,000 d. P100,000 2, How much is the adjusted cash in bank of the Equitable PCI Bank Account on December 31, 2021? a. P150,000 c. P80,000 b. 70,000 . P130,000 3. How much is the unadjusted cash in bank per books of the Equitable PCI Bank Account on December 31, 2021? a, 92,000 c. P112,000 ‘b. P62,000 d. P102,000 4, How much is total outstanding checks of the 2 accounts in 2021? a P53,000 c. 80,000 b. 73,000 d. P70,000 5. Which of the cash transfers would not appear as an outstanding check on the December 31, 2021 bank reconciliation? a, Fund transfer No. 1 c. Fund transfer No. 3 b. Fund transfer No. 2 d. Fund transfer No. 4 216Chapter 8 - Cash and Cash Equivalents ‘Chapter 8 ~ Cash and PROBLEM 8-24 Proof of Cash Data regarding the cash in bank for the current year of Hype Beast Company follow: Jan. 31, Feb. 28 01 Cash per ledger 200,000 270,000 02. Cash receipts for February 150,000 03 Bankstatement balance 206,600 276,950 Total credits per bank statement in 04 February 159,000 05 Credit memo for note collected 9,000 13,000 06 Bank service charge 100 150 07 Deposit in transit 10,000 11,000 08 Outstanding checks 4,200 1,800 09 Erroneous bank credit 6,000 4,000 10 Erroneous bank charge 3,200 1,400 11 Check of the company issued in January was mutilated and returned by the payee. A replacement check was issued. Both checks were entered in the Check register but no entry was made to cancel the mutilated check, 700. The company issued a stop payment order to the bank in February for check issued in February which was not received by the payee. A new check was written and recorded in the Check register in February. The old check was written off by a journal entry also in February, P1,200. Questions: Based on the above data, compute for the following: L The unadjusted bank disbursements in February a. P78,850 c. 80,000 b. P79,900 d. 788,650 ‘The adjusted cash in bank balance on January 31 a. 209,000 c. P209,600 b. 209,100 d. P216,600 The adjusted bank receipts in February a. 141,000 c. P152,800 b. 149,000 4. 154,000 The adjusted bank disbursements in February a. P78,850 c. P80,000 b. 79,900 d. P88,650 The adjusted cash in bank balance on February 28 a. 282,850 c. P283,550 b. 283,000 . P287,950 217Chapter 8 - Cash and Cash Equivalents. PROBLEM 8-25 Computation of Cash Shortage The records of Rossiter Company indicate a May 31 cash in bank balance of 242,310.50, which includes undeposited receipts for May 30 and 31. The cash balance on the bank statement as of May 31 is P225,400. This balance includesa note of P30,000.00 plus P900,00 interest collected by the bank but not recorded in the journal. Checks outstanding on May 31 were as follows: No. 421, P8,434; No. 488, P4,300; No. 522, P6,524; No. 992, P9,551.50; No. 995, P4,577; and No, 996, P5,961. On May 12, the cashier resigned effective at the end of the month. Before leaving _ on May 31, the cashier prepared the following bank reconciliation: } Balance per books, May 31 242,310.50 ‘Add: Outstanding checks 992 9,551.50 995 4577.00 l 996 5,961.00 __18,089.50 } Total 260,400.00 i Less: Undeposited receipts 35,000.00 E Balance per bank, May 31 225,400.00 F Deduct: Unrecorded note with interest 30,900.00 4 ‘Truecash, May 31 94,500.00 | Subsequently, the owner of Rossiter Company discovered that the cashier had stolen all undeposited receipts in excess of the P35,000 on hand on May 31. The owmer, a close family friend, has asked your help in determining the amount that the former cashier has stolen. | Questions: Based on the above data and the result of your audit, compute the following: 1. Adjusted cash in balance (Cash accounted) as of May 31. a, 225,400.00 ©. P260,400.00 b. 221,052.50 d. P186,052.50 2, Cash in bank balance per books (Cash accountability) as of May 31. a, 242,310.50 c, P243,210.50 | b. 272,310.50 4. P273,210.50 3. Cash shortage | a Nil c. P17,189.50 | b, 52,158.00 4. 787,158.00 | PROBLEM 8-26 Computation of Cash Shortage The Josiah engaged your services to audit its accounts. In your examination of cash, you find that the Cash account represents both cash on hand and cash in bank. You further noted that there is a very poor internal control of cash. Your audit covers the period ended June 30, 2021. You started the audit July 15. Upon cash count on this date, cash on hand amounted to P4,800. Examination of the cash book and other evidence of transactions disclosed the following: 218a Chapter 8 - Cash and Cash Equivalents 1) July collections per duplicate receipts, P18,800. 2) Total of duplicate slips, all dated July, P11,000, included a deposit representing collections of June 30. Cash book balance at June 30, 2021 is P46,500, representing both cash on hand and cash in bank, 4) Bank statement for June showing a balance of P42,400, 5) Outstanding checks at June 30: May checks, No. 183 for P450, and No. 198 for P1,650; June checks, No. 205 for P600, No.254 for P400, No. 280 for 5,000, No 302 for P900, and No. 317 for P2,500. 6) Undeposited collections at June 30, P5,000. 7) An amount of P900 representing proceeds of a clean draft on a customer credited by bank, but not yet taken up in the company's books. 8) Bank service charges for June, P100. 3) The company cashier presented to you the following reconciliation statement for June, 2021 which he has prepared: Balance per books, June 30, 2021 P 45,600 Add: Outstanding checks: No. Amount 205 P600 254 400 280 500 302 700 317 1500 —3.600 Total 49,200 Less: Bank charges (200) Undeposited collections (5.100) Balance per bank, june 30, 2021 44,000 Questions: Based on the above data and the result of your audit, compute the following: 1, Adjusted cash in bank balance (Cash accounted) as of May 31. a. P42,400 c. P35,900 b. 30,900 4. P47,400 2. Cash in bank balance per books (Cash accountability) as of May 31. a, 46,500 c. P46,400 b. 47,400 4. P47,300 3. Cash shortage as of June 30. a. Nil c. P19,400 b. P11,400 4, 78,000 4, Cash shortage as of July 1-15 a Nil c. P19,400 b. P1400 4. 8,000 219Chapter 8 - Cash and Cash Equivalents 5, Which of the following is incorrect on how the cashier attempted to cover up his shortage? a. Understating of cash in bank per books by P900. b. Overstating of cash in bank per bank by P1,600. c. Understating of outstanding checks by P7,900. d. Understating of undeposited collections by P100. PROBLEM 8-27 Computation of Cash Shortage You are conducting an audit of Sto. Tomas Company for the year ended December 31, 2021. The internal control procedures surrounding cash transactions were not adequate. Wakan Wakat, the bookkeeper-cashier, handles cash receipts, maintains accounting records, and prepares the monthly reconciliation of the bank account. ‘The bookkeeper-cashier prepared the following reconciliation at the end of the year: Balance per bank statement P 700,000 ‘Add: Deposit in transit 350,500 Note collected bythe bank __30,000 __380,500 Balance P 1,080,500 . Less: outstanding checks 493,500 Balance per general ledger 587,000 Inthe process of your audit, you gathered the following: a. At December 31, 2021, the bank statement and the general ledger showed balances of P700,000 and P587,000, respectively. b. The cut-off bank statement showed a bank charge on January 2, 2022 for 60,000 representing a correction of an erroneous bank credit. c. Included in the list of the outstanding check were the following: 1. Acheck payable to a supplier, dated December 29, 2021, in the amount of 29,500 released on January 5, 2022. 2. A check representing advance payment to a supplier in the amount of 74,420, the date of which is January 4, 2022 and released in December 2021. d. On December 31, 2021, the company received and recorded customer's postdated check amounting to 100,000. Questions: Based on the above and the result of your audit, answer the following: 1. Theadjusted deposit in transit as at December 31, 2021. a. 350,500 c. P450,000 b. 250,500 d. P250,000 2. The adjusted outstanding checks as at December 31, 2021. a, 597,420 c. P419,080 ‘b. 464,000 d. P389,580 220 EEE |Chapter 8 - Cash and Cash Equivalents 3. The adjusted cash to be presented as at December 31, 2021. a, 470,920 ¢, P530,920 ‘b. P500,920 d. P620,920 4, The cash shortage in 2021: a, 90,000 c. P120,000 b. 116,080 4. P16,080 5. The net adjustment to the cash account in 2021. a ?86,080 c. P116,080 b. 120,000 d, 790,000 PhilCPA EXAM PROBLEM 8-28 Computation of Cash Shortage As part of your engagement to audit the financial statements of Janong Company for the year ended December 31, 2021, you were able to gather the following information: Janong Company started operation on October 2, 2021 with Janong investing 240,000 cash. Monthly bank reconciliation statements have not been prepared; however, bank statements for October, November, and December were made available to you. The bank statement in December, 2021 showed an ending balance of 101,000. Examination of the paid checks disclosed that checks totaling P9,000 were issued by the company in December, 2021, and were presented for payment only in January, 2022. Cash count of the cashier's accountability amounted to 16,400. You were told by the cashier that 10,000 of these, in checks, were cash sales on December 29, 2021, deposited on January 3, 2022. The balance, in currency and coins, represents petty cash fund. Additional data: 1. Accounts receivable subsidiary ledgers had a total balance of P140,000 at December 31, 2021, 2. Merchandise inventory at December 31, 2021 amounted to P60,000. 3. Supplier's unpaid invoices for merchandise totaled P120,000. 4. The bank statement in October showed a bank credit for P200,000, dated October 2, 2021 representing bank loan proceeds for 120-day, discounted bank note, 140,000 of this loan was paid by check in December 2021, 5. Operating expenses paid during the period totaled P180,000; while merchandise purchases amounted to P480,000. 6. The gross profit rate is 25% based on sales. Questions: Based on the above data and your audit, answer the following: 1. How much is the adjusted balance per bank as of December 31, 20217 a P 92,000 c. P268,000 b, P102,000 4. ?271,000 221Chapter 8 - Cash and Cash Equivalents 4y How much is the total payment for merchandise purchas 500,000 ed in 2021) 2. a. 360,000 500,001 b. 380,000 d. P620,000 3. ow much s the cost of goods sold in 2021? a. 380,000 c. P500,000 b. 420,000 d. P560,000 4. How muchis the total sales in 2021? a. 440,000 c, P560,000 b. 528,000 d. P968,000 5, How much is the amount of ‘cash shortage as of Decer , mb: a. Nil e180 0ztt b. P71,600 d. P155,000 222Chapter 9 - Substantive Test of Receivables and Sales CHAPTER 9 SUBSTANTIVE TEST OF RECEIVABLES AND SALES ee eee ae TOPIC OVERVIEW: This chapter discusses the audit of receivables and sales, its objectives and procedures as well as the management assertions relating to receivables and sales. LEARNING OBJECTIVES: After studying this chapter, you should be able to: 1. Identify the audit obj es for receivables, sales and related accounts. 2, Describe the primary substantive audit procedures for receivables, sales and related accounts. 3, Identify assertions addressed by audit procedures for receivables, sales and related accounts. Introduction The audit of receivables and revenue (eg, sales) represents significant audit risk because: (a) many incidences of financial statement fraud have involved the overstatement of receivables and revenue; (b) revenue recognition may be based on complex accounting rules; and (Q receivables and revenue are usually subject to valuation using significant accounting estimates. It is also noteworthy that under PSA 240, the auditor shall, based on a presumption that there arg/fisks of frau@in revenue recognition, evaluate which types of revenue, réVenive transactions or assertions give rise to such risks. If the auditor has concluded that this presumption is not applicable, the auditor shall document the reasons for that conclusion. Companies should establish effective high-level controls over the financial reporting of these accounts, including (a) an audit committee to oversee the reliability of reporting of revenue; (b) an internal audit department to monitor compliance with other revenue cycle controls; (c) human resource policies and practices to ensure that competent personnel are involved in determining revenue and receivables estimates; and (@) effective monitoring policies and procedures, In addition, a sound accounting system and effective control activities should be established for the revenue cycle. 223