REO With Theories Anwer

Page 1 of 17 | AUD Handouts No.
05
AUDIT OF CASH
DARRELL JOE O. ASUNCION, CPA, MBA
AUDIT OF CASH
DARRELL JOE O. ASUNCION, CPA MBA
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 includes cash on hand, demand deposits and other items that are unrestricted for use in the current
operations.
1. Cash on Hand (CUTCMoBa)

C Customer’s checks awaiting deposit
U Undeposited cash collections (currencies such as bills and coins)
T Traveler’s check
C Cashier’s / Official / Treasurer’s / Manager’s checks
Mo Postal money orders (a demand credit instrument issued and
payable by a post office)
Ba Bank drafts (a written order addressed to the bank to pay an
amount of money to the order of the maker)
2. Cash in bank
a. Current account/checking account/demand deposit/commercial
deposit/
- Generally non-interest bearing
- Withdrawable by checks against bank
b. 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 (CP2RIntPeDiT2)

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 included as part of cash. Examples are as
follows: (P2ACIS)
P Pension fund Generally noncurrent investment but if the
related liability is current, the fund is included
as cash.
Preferred redemption Noncurrent investment unless the preferred
fund share has a mandatory redemption and if
redeemable
 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
I Insurance fund Noncurrent investment
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Page 2 of 17 | AUD Handouts No. 05

AUDIT OF CASH
S 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 if the related liability becomes current.
CASH EQUIVALENTS
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
2. Money market instrument or commercial paper
3. Treasury bills, treasury notes and treasury bonds
4. Redeemable preference shares with mandatory redemption period.
If the 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:
 If an item cannot be included as cash equivalent because it did not qualify the cut-off time period (i.e. three months), it
will always be classified as investments (short term or long term) depending on the period up to maturity.
 The reckoning period for time deposit is its duration since time deposit generally does not have secondary market. For
other securities with secondary market, the reckoning period would be three months from acquisition date until maturity
date.
 If the problem is silent with regard to:
1. Treasury note and bonds - assumed non-current investment
2. Cash in money market account - cash and cash equivalent
3. Time deposit - cash and cash equivalent
Some Measurement Issues and Frequent Encountered Tricks in Cash and Cash Equivalents Computation
Items Remarks
Cash Measured at face value
Cash in foreign currency Should be translated to Philippine Peso using the
closing rate or spot rate at the reporting date.
Deposit in foreign bank a. Unrestricted - part of cash
b. Restricted - if material, classified separately
among noncurrent assets as receivables
Cash in closed bank / Measured at estimated realizable value and be
banks in bankruptcy included among noncurrent assets if the amount
recoverable is lower than face value.
Bank overdraft Definition: Negative balance in the cash in bank
account.
Treatment: If the company is maintaining two
accounts in
a. Different banks
 current liability or may be netted against
other bank if immaterial.
 netted against other account if it is part
of cash management. [PAS 7.8]
b. Same bank - maybe netted against the
account with positive amount but cannot be
offset against restricted account.
Compensating balance Definition: Compensating balance is minimum
checking account balance that must be


AUDIT OF CASH
maintained in connection with a borrowing

agreement with a bank
Treatment:
a. Not legally restricted - part of cash
b. Legally restricted – if the related loan is:
1) Short-term – presented as “cash held as
compensating balance” (current
receivable)
2) Long-term – presented as “cash held as
compensating balance” (noncurrent
receivable)
Note: if the problem is silent with regard to
compensating balance, it is assumed not legally
restricted.
Effect of compensating balance on:

a. Yield rate (lender) – increase
b. Effective rate (borrower) – increase
(Effective rate) = Net interest expense
Net proceeds
Undelivered/unreleased Reverted back to cash by a
check Dr Cash xx
Cr A/P xx
Stale checks/checks long Definition: Checks not encashed by the payee
outstanding with a relatively long period of time. Under current
banking practice, checks are considered stale if
not encashed within 6 months from its date.
Treatment: Stale checks are reverted to cashby

a
Dr Cash xx
Cr Accounts payable xx (if material)
Misc. income xx (if not material)
Postdated checks Definition: Checks dated after the reporting date
Treatment:
a. For company own PDC - reverted to cash
Dr Cash xx
Cr Accounts payable xx
b. Customer’s check – will still remain as
receivable
IOUs (I owe you) Included as part of receivable
Equity securities Generally cannot be classified as cash
equivalents because equity securities do not
have a maturity date (with the exception of
redeemable preference shares)
Redeemable preference Preference shares with specified redemption
shares date
 acquired three months before redemption
date - cash equivalents
 acquired for more than three months before
redemption date – current investment
Callable preference Not classified as cash equivalents. It is part of

shares shareholder’s equity on the part of issuer and part
of long-term investment of the holder.
NSF/DAUD/DAIF Definition:
NSF – no sufficient funds
DAUD – drawn against uncleared deposits
DAIF – drawn against insufficient funds
Treatment: Reverted back as part of
receivables.
Expense advances (e.g. Receivable or prepaid expense
travel advances)


AUDIT OF CASH
Temporary investments in Either FVTPL or FVTOCI but never to be included

shares of stocks as part of cash & cash equivalents
Unused credit line Definition: Difference between the amount of
line of credit applied for and approved by a bank
and the amount actually borrowed
Treatment: Disclosed in the notes

Treasury warrants Definition: A warrant for the payment of money
into or from public treasury.
Treatment: Included as part of cash.
Escrow deposit Definition: Restricted amount held in trust for
another party, e.g., a deposit required by a court
of law for a pending case.
Treatment: Part of other current/noncurrent
asset and reported as liability
Unrecorded cash Record the disbursements by:
disbursements Dr A/P or other
appropriate account xx
Cr Cash xx
Unrecorded cash Record the collection by:
collections/receipts Dr Cash xx
Cr Accounts receivable or
other appropriate account xx
Certificate of deposit (CD) Definition: A savings certificate entitling the
for time deposits bearer to receive interest. A CD bears a maturity
date, a specified fixed interest rate and can be
issued in any denomination. CDs are generally
issued by commercial banks and are insured by
the PDIC. The term of a CD generally ranges
from one month to five years.
Treatment:
a. Invested three months before maturity – cash
equivalents
b. Invested for more than three months –
investment (short or long-term)
Postage stamps on hand Should be reported as office supplies or as a
prepaid expense
Bank overdraft netted Bank overdraft that was netted or deducted from
from cash in bank cash in bank but should be presented as current
liability should be added back to compute for the
correct balance of cash in bank.
PROBLEM NO. 1
EZ Company reports the following information as of the end of the year:
 Share investment securities of ₱1,500,000. These securities are ordinary share investments in companies that
are traded in the Philippine Stock Exchange. As a result, the shares are very actively traded in the market.
 Debt investment securities of ₱3,000,000. These securities are government bonds broken down as follows:
₱1,200,000 in treasury bills, ₱800,000 in treasury bonds and ₱1,000,000 in treasury notes.
 Cash of ₱800,000 in the form of coin, currency, savings accounts and checking accounts.
 Money market placements in the form of banker’s acceptances, commercial paper and negotiable certificate of
deposits with a total value of ₱2,500,000.
At the end of the year, the “cash and cash equivalents” should be
a. ₱3,500,000 c. ₱6,100,000
b. ₱4,500,000 d. ₱6,400,000
PROBLEM NO. 2
EZ Company’s checkbook balance on December 31, 2020, was ₱8,000,000. In addition, EZ held the following items in its
safe on December 31:
 Check amounting to ₱2,000,000 payable to BBB, a supplier, dated January 2, 2021, not included in December 31
checkbook balance
 Check amounting to ₱400,000 payable to EZ, deposited December 20, and included in December 31, checkbook
balance, but returned by bank on December 30, stamped “DAIF”. The check was redeposited January 2, 2021
and cleared January 7
 Post dated checks on hand amounting to ₱150,000


AUDIT OF CASH
 Check amounting to ₱1,000,000 drawn on EZ account, payable to a vendor, dated and recorded December 31,
but not mailed until January 15, 2021
The proper amount to be shown as cash on EZ’s statement of financial position at December 31, 2020, should be
ab . ₱7
8,6
000,000 cd.. ₱89,,67050,000
PROBLEM NO.3
On December 31, 2020, the cash account of EZ Company showed the following details:
Undeposited collection P 60,000
Cash in bank – PCIB checking account 70,000
Undeposited DAUD check received from customer, dated December 1 15,000
Cash in bank – PNB fund for payroll 150,000
Cash in bank – PCIB savings deposit 100,000
Cash in bank – PCIB (overdraft) ( 50,000 )
Cash in bank – PCIB (money market instrument, 90 days) 2,000,000
Cash in foreign bank (restricted) 100,000
Receivable from officers 10,000
Sinking fund cash (to be disbursed on April 1, 2021) 450,000
Preferential shares (to be redeemed on January 10, 2021) 120,000
On December 31, 2020, the “cash and cash equivalents” should be
a. ₱2,810,000 d. ₱2,660,000
b. ₱2,780,000 c. ₱780,000
PROBLEM NO. 4
VICTORIA, INC. needs ₱2,000,000 to finance its expansion program. Victoria, Inc. is negotiating a loan with Metropolis
Bank which requires the company to maintain a compensating balance of 10% of the loan principal on deposit in a current
account at the bank. Victoria, Inc. currently maintains a balance ₱20,000 in its current account. The current account earns
interest of 2% per annum; the interest rate on the loan is 12% per annum.
1. What is the principal amount of the loan?
a. ₱2,200,000 b. ₱2,000,000 c. ₱1,980,000 d. ₱2,220,000
2. What is the effective interest rate on the loan?
a.13.2% b.11.8% c.13% d.12%
PETTY CASH FUND
Imprest system is a system of control of cash which requires that all cash receipts should be deposited intact and all cash
disbursements should be made by means of check. However, it is impractical for the company to make all payments thru
check. Therefore, a petty cash fund is established to cover small and miscellaneous expenditures.
Computation of Petty cash shortage
Petty cash accounted XX
Less: Petty cash accountabilities XX
Overage (or
ROBLEM NO. shortage)
5 XX
P
You examined the petty cash fund of the Victor Company immediately after the close of business on August 31, 2021, the
end of the company’s fiscal year. Your audit showed the following fund composition:
Currencies ₱2,900
Coins 400
Petty cash vouchers:
Gasoline payments for delivery vehicle 250
Office supplies 160
Medicines for employees 240
Transportation 400
Office equipment repairs 400
Loans to employees 800
A check drawn by the company payable to the order
of the petty cash custodian, representing her salary 3,800
An employee’s check returned by the bank because

of insufficient funds 1,200


AUDIT OF CASH
A piece of paper with names of several employees

together with a contribution for a wedding gift
for an employee. Attached to the sheet of paper
is a currency of 500
The petty cash general ledger account has an imprest balance of ₱10,000.
Based on the above data,

1. Determine the amount of petty cash fund that should be shown on the statement of financial position as of
August 31, 2021.
2. Determine the amount of cash shortage or overage.
3. Prepare the necessary audit adjusting entries.
PROBLEM NO. 6
You are examining the accounts of Raymund Beauty Salon. Your count of the imprest cash fund, made at 9:00 a.m. on
January 2, 2022, in the presence of Frances petty cashier, revealed:
Coins Bills
Quantity Denomination Quantity Denomination
32 ₱ 1.00 4 500
40 0.25 3 100
10 20
15 10
Checks:
Date Payee Maker Amount
December 27 Cash Mark, Beautician ₱ 5,000
30 Raymund Rex, Hairdresser 6,100
30 Raymund Zev, customer 6,500
Unused stamps:
Various denominations
Vouchers:
Date Nature of Disbursements
December 15 Transportation 65
16 Office supplies 70
17 Xerox fees 80
28 Postage 150
January 2 Newspaper 10
2 Freight charges 50
IOUs
Date Maker
December 20 Rhad, employee 50
23 Andrix, salesman 100
The balance of the Petty Cash account, December 31, 2021, was P 5,000.
Sales invoices (for cash sales, all in cash, no checks)
Invoices
#2007 December 30 4,000
#2008 December 31 5,100
#2009 January 2 3,050
REQUIRED:
Compute the amount of cash shortage.


AUDIT OF CASH
BANK RECONCILIATION
Bank reconciliation is a schedule prepared that accounts for the differences between cash balances per book and per bank
statement. It is prepared only for checking account/demand deposit and is prepared monthly because the bank provides the
depositor with the bank statement at the beginning (normally first week) of the following month.
Forms of Bank Reconciliation

1. Adjusted balance method
2. Book to bank method
3. Bank to Book
Reconciling items:
1. Book reconciling items
a. Credit memos
b. Debit memos
c. Errors
2. Bank reconciling items
a. Deposits in transit
b. Outstanding checks
c. Errors
PROBLEM NO. 7
You have gathered the following data in the preparation of bank reconciliation on December 31, 2020 for HARWOOD
Company:
A. Balance per bank statement, ₱1,000,000.
B. Balance per book, ₱350,000.
C. Bank service charge, ₱5,000.
D. Outstanding checks, ₱300,000.
E. Deposit in transit, ₱237,500.
F. Proceeds of bank loan, December 1 not recorded on HARWOOD Company’s books, ₱470,000
G. Customer’s check charged back by bank for lack of counter signature, ₱25,000.
H. Check of Plywood Company charged by the bank against HARWOOD account, ₱75,000.
I. Customer’s note collected by bank in favor of HARWOOD Company.
Face amount 200,000
Interest 20,000
Total 220,000
Less service charge 2,500 217,500
J. Deposit of ₱50,000 incorrectly recorded by bank as, ₱5,000.

K. Erroneous debit memo of December 28, to charge HARWOOD account with settlement of bank loan, ₱100,000.
L. Deposit of PARE Company credited to HARWOOD account, ₱150,000.
Required:
a. Prepare bank reconciliation as of December 31, 2020.
b. Prepare adjusting journal entries.
PROOF OF CASH (TWO-DATE BANK RECONCILIATION)

Proof of cash or four-column bank reconciliation or two-date bank reconciliation is an expanded reconciliation that includes
proof of receipts and disbursements.
PROBLEM NO. 8 (PROOF OF CASH)

Data regarding the cash in bank for the current year of Basic Company follow:
Jan. 31 Feb. 28
Cash per ledger 200,000 290,000
Cash receipts for February 300,000
Unadjusted bank statement 237,500 319,800
Bank disbursements 207,700
Credit Memo for note collected 80,000 60,000
Bank service charge 7,500 4,200


AUDIT OF CASH
Deposit in transit 50,000 40,000
Outstanding checks 15,000 14,000
Compute for the adjusted balance of the following:

a. Cash in bank, January 31
b. Cash receipts
c. Cash disbursements
d. Cash in bank, February 28
PROBLEM NO. 9
Data regarding the cash in bank for the current year of Launch Attack Company follow:
Jan. 31 Feb. 28
Overstatement of cash receipts per books 4,000 3,000
Overstatement of cash disbursements per books 270 900
Erroneous bank credit 6,000 4,000
Erroneous bank charge 3,200 9,500
b. Cash receipts
T-Accounts of the Cash in bank per books and bank:

CASH IN BANK PER BOOKS
Deposits made by the book this
1 1 Checks issued this month
month
2 Credit Memo last month 2 Debit Memo last month
Error corrections corrected this Error corrections corrected this
3 3
month: month:
a. Last month's a. Last month's
overstatement of CD understatement of CD
b. Last month's b. Last month's
understatement of CR overstatement of CR
Total Book Debits/Receipts Total Book Credits/Disb.
To get the deposits made by the To get the checks issued by the
company this month: company this month:
Current month’s error in Cash Current month’s error in Cash
receipts: disbursements:
Deduct if CR is overstated Deduct if CD is overstated
Add if CR is understated Add if CD is understated
CASH IN BANK PER BANK
Deposits acknowledged by the

1 Checks paid this month. 1
bank this month.
2 Debit memo this month 2 Credit memo this month
Error corrections corrected this Error corrections corrected this
3 month: 3 month:
a. Last month's a. Last month's
understatement of CD overstatement of CD
b. Last month's b. Last month's
overstatement of CR understatement of CR
Total Bank Debits/Disb. Total Bank Credits/Receipts

To get the checks paid by the To get the deposits acknowledged
bank this month: by the bank this month:


AUDIT OF CASH
Current month’s error in Cash Current month’s error in Cash

disbursement: receipts:
Deduct if CD is overstated Deduct if CR is overstated
Add if CD is understated Add if CR is understated
Formulas:
Deposit in transit, beginning XX
Add: Deposit made by the company this month XX
Total deposits to be acknowledged by the bank XX
Less: Deposit acknowledged by the bank this month XX
Deposit in transit, end XX
Outstanding checks, beginning XX

Add: Checks issued by the company this month XX
Total checks to be paid by the bank XX
Less: Checks paid by the bank this month XX
Outstanding checks, end XX
Computation of the deposits made by the company and the deposits acknowledged by the bank
Book receipts (Debits) XX Bank receipts (Credits) XX
Less: XX Less:
Credit Memo last month XX Credit Memo this month XX
Book errors last month corrected this month: Bank errors last month corrected this month: XX
Understatement of CR XX Understatement of CR XX
Overstatement of CD XX Overstatement of CD XX
Book errors this month: Bank errors this month:
Overstatement of CR XX Overstatement of CR XX
Add: Understatement of CR XX Add: Understatement of CR XX
Deposits made by the company this month Deposit acknowledged by the bank this month
XX XX
Computation of the checks issued by the company and the checks paid by the bank
Book disbursements (Credits) XX Bank disb. (Debits) XX
Less Debit Memo last month XX Less Debit Memo this month XX
Book errors last month Bank errors last month
corrected this month: corrected this month:
Overstatement of CR XX Overstatement of CR XX
Understatement of CD XX Understatement of CD XX
Book errors this month: Bank errors this month:
Overstatement of CD XX Overstatement of CD XX
Add: Understatement of CD XX Add: Understatement of CD XX
Checks issued by the company Checks paid by the bank this
this month XX month XX
Note:
1) Deposit in transit should exclude customer’s post-dated checks. If these were included and recorded as receipts for the
month, the following treatment will be required in the proof of cash or bank reconciliation assuming the adjusted balance
method is to be used:
Beg. Receipts Disb. End
Unadjusted book balance (XX) (XX)
2) Outstanding checks should exclude the following:

a) Company’s post-dated check.
b) Unreleased or undelivered company’s checks. If these were included and recorded as disbursements for the month,
the following treatment will be required in the proof of cash or bank reconciliation assuming the adjusted balance
method is to be used)
Beg. Receipts Disb. End
Unadjusted book balance (XX) XX
PROBLEM NO. 10 COMPUTATION OF DEPOSIT IN TRANSIT

The following data are available for the Cash in bank of ABC Company for February of the current year:
A. Deposit made by the company this February, ₱220,000.


AUDIT OF CASH
B. Deposit in transit, January 31, ₱200,000

C. Customer’s check representing receipts in January amounting to ₱21,000 was erroneously recorded by the
company as ₱12,000.
D. Check of the company in January amounting to ₱2,000 was erroneously recorded by the company as ₱20,000.
E. Deposit acknowledged by the bank in February, ₱150,000.
F. Erroneous bank charge in January 31, ₱13,000.
G. Erroneous bank credit in February 28, ₱14,000.
H. Customer’s note collected, January 31, ₱10,000.
I. Customer’s note collected, February 28, ₱12,000.
Required: Compute for the following:

1. Deposit in transit in February 28.
2. Unadjusted book receipts in February.
3. Unadjusted bank receipts in February.
PROBLEM NO. 11 OUTSTANDING CHECKS

The following data are available for the Cash in bank of ABC Company for February of the current year:
A. Checks issued by the company this February, ₱250,000.
B. Outstanding checks, January 31 ₱52,000.
C. Customer’s check representing receipts in January amounting to ₱12,000 was erroneously recorded by the
company as ₱21,000.
D. Check of the company in January amounting to ₱20,000 was erroneously recorded by the company as ₱2,000.
E. Checks paid by the bank in February, ₱130,000.
F. Erroneous bank credit in January 31, ₱10,000.
G. Erroneous bank charge in February 28, ₱12,000.
H. Bank service charge, January 31, ₱2,000.
I. Bank service charge, February, ₱3,000.
Required: Compute for the following:

1. Outstanding checks in February 28.
2. Unadjusted book disbursements in February.
3. Unadjusted bank disbursements in February.
PROBLEM NO. 12
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
June data are as follows:

Bank Book
Checks recorded 2,200,000 2,500,000
Correction of erroneous bank credit in May 60,000 -
Deposits recorded 1,600,000 1,800,000
Correction of erroneous bank charge 40,000 -
Service charges recorded 50,000 -
CM for collection by bank 550,000 600,000
NSF checks returned with June 30 statement (will be redeposited) 100,000 -
1. How much is the total outstanding checks on June 30?

a. 400,000 c. 190,000
b. 510,000 d. 340,000
2. How much is the total deposit in transit on June 30?
a. 510,000 c. 100,000
b. 500,000 d. 90,000

3. How much is the total adjusted cash receipts in June?
a. 2,350,000 c. 2,190,000
b. 2,400,000 d. 2,030,000
4. How much is the total adjusted cash disbursements in June? DARRELL JOE O. ASUNCION, CPA MBA
a. 2,650,000 c. 2,500,000 AUDIT OF CASH
b. 2,410,000 d. 2,350,000
5. How much is the total adjusted cash balance as of June 30?
a. 2,480,000 c. 2,370,000
b. 2,280,000 d. 2,490,000
PROBLEM NO. 13
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 Ashley Company at November 30 is reproduced below:
Unadjusted bank balance ₱193,600 Unadjusted book balance ₱117,280

Add: deposit in transit 36,000 Add: CM - Note collected 80,640
Total 229,600 Total 197,920
Less outstanding checks: Less: DM bank charges 320
No. 276 ₱4,800
282 14,400
284 9,600
285 3,200 32,000 .
Adjusted bank balance ₱197,600 Adjusted balance ₱197,600
The December bank statement, which has a beginning balance of ₱193,600, is reproduced below:
May Bank
Account Name: Ashley Company
Date Debits Credits
December 01 ₱36,000
December 02 ₱14,400 80,000
December 04 48,000
December 06 96,000
December 08 800,000 CM83
December 10 80,000 DM97
December 11 112,000
December 16 40,000
December 18 128,000
December 21 144,800
December 30 72,000 160,000
December 31 8,000 DM98 128,000 CM84
Totals ₱262,400 ₱1,684,800
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 2021 are provided below:
Cash Receipts Journal Cash Disbursements Journal

Date OR No. Amount Date Check No. Amount
Dec. 01 415 ₱80,000 Dec. 01 286 ₱32,000
05 416 96,000 03 287 48,000
10 417 112,000 10 288 64,000
17 418 128,000 14 289 40,000
20 419 144,000 20 290 56,000
30 420 160,000 23 291 72,000
31 421 177,600 26 292 80,000
28 293 88,000
. 31 294 96,000

Total ₱881,600 Total ₱608,000


AUDIT OF CASH
The company’s Cash in Bank ledger appears below:
Cash in Bank
Balance ₱117,280 12/31/2021 CDJ ₱608,000
12/01/2021 GJ 80,640
12/10/2021 GJ (CM83) 800,000
12/31/2021 CRJ 881,600
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. ₱416,000 b. ₱465,600 c. ₱433,600 d. ₱448,000
2. How much is the adjusted book receipts for December 31, 2021?
a.₱1,970,400 b. ₱1,543,200 c. ₱1,826,400 d. ₱1,809,600
3. How much is the adjusted book disbursements for December 31, 2021?
a. ₱695,680 b. ₱696,000 c. ₱664,000 d. ₱678,400
4. How much is the adjusted cash balance as of December 31, 2021?

a. ₱1,328,000 b. ₱1,377,600 c. ₱1,360,000 d. ₱1,345,600
PROBLEM NO. 14
Data regarding the cash in bank for the current year of Initiate Retreat Company follow:
Jan. 31 Feb. 28
NSF recorded as reduction of cash receipts:
a. returned in January recorded in February, ₱1,800
b. returned in February recorded also in February, ₱10,400
c. returned in February recorded also in March, ₱8,600
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, ₱1,200.
Paid out of collection in February, ₱12,100
b. Cash receipts
PROBLEM NO. 15
In connection with your examination, the Found Company presented to you the following information regarding its Cash in
Bank account for the month of June, 2020:
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, ₱1,251,000, and June 30, ₱1,051,000.
c. Total charges in the bank statement during June were ₱1,300,000.
d. Undeposited receipts were: May 31, ₱200,000 and June 30, ₱153,000.
e. Outstanding checks were: May 31, ₱150,000.
f. Erroneous bank credits were: May 31, ₱45,000 and June 30, ₱17,000.

g. Erroneous bank charge were: May 31, ₱20,000 and June 30, ₱30,000.


AUDIT OF CASH
h. Collections by bank not recorded by Company were ₱125,000 in May and ₱150,000 in June.
i. NSF not entered in company’s books were: May 31, ₱110,000 and June 30, ₱75,000.
j. Customer’s check deposited in May amounting to ₱21,000 was erroneously entered in the books as ₱12,000.
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. 1,491,000 b. 1,365,000 c. 1,565,000 d. 1,500,000
2. How much are the outstanding checks at the end of June?

a. 330,000 b. 381,000 c. 390,000 d. 110,000
3. How much is the adjusted cash balance as of May 30, 2020?

a. 1,266,000 b. 1,257,000 c. 1,275,000 d. 1,291,000
4. How much is the adjusted book disbursements for June, 2020?

a. 1,381,000 b. 1,315,000 c. 1,465,000 d. 1,456,000
5. How much is the adjusted cash balance as of June 30, 2020?

a. 1,135,000 b. 1,126,000 c. 1,346,000 d. 1,276,000
6. Which of the following adjusting entry would be made by the company at the end of June?
a. Bank service charge 75,000
Cash in bank 75,000
Accounts receivable 150,000
b. Cash in bank 50,000
Cash in bank 125,000
c. Cash in bank 84,000
d. Cash in bank 75,000
PROBLEM NO. 16(CASH SHORTAGE)

You are engaged to audit the books of JACINTO ENTERPRISES. From the records of the company, you gathered the
following information:
JACINTO ENTERPRISES started operation on October 2, 2021 with JACINTO investing ₱300,000 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 ₱261,000.
Examination of the paid checks disclosed that checks totaling ₱9,000 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 ₱17,000.
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 ₱140,000 at December 31, 2021.
2. Supplier's unpaid invoices for merchandise totaled ₱120,000.
3. The bank statement in October showed a bank credit for ₱196,000, dated October 2, 2021. Inquiry from the cashier
disclosed that the amount represents proceeds of a 90-day, discounted bank note. ₱160,000 of this loan was paid
by check in December, 2021.
4. Merchandise inventory at December 31, 2021 amounted to ₱60,000.
5. Operating expenses paid during the period totaled ₱360,000; while merchandise purchases amounted to ₱500,000.
6. The gross profit rate is 120% of cost.
1. What is the adjusted balance per bank as of December 31, 2021?

a. ₱271,000 b. ₱260,000 c. ₱262,000 d. ₱268,000
2. Total payment for merchandise purchased in 2021 is:
a. ₱360,000 b. ₱380,000 c. ₱500,000 d. ₱620,000
3. How much is the cost of goods sold in 2021?
a. ₱380,000 b. ₱500,000 c. ₱440,000 d. ₱560,000


AUDIT OF CASH
4. Total sales in 2021 should be:

a. ₱440,000 b. ₱528,000 c. ₱968,000 d. ₱744,000
5. Total book receipts in 2021 amounted to:
a. ₱1,324,000 b. ₱1,024,000 c. ₱1,288,000 d. ₱884,000
6. Total book disbursements in 2021 amounted to:
a. ₱520,000 b. ₱1,020,000 c. ₱740,000 d. ₱900,000
7. The amount of cash shortage as of December 31, 2021 is:
a. ₱162,000 b. ₱155,000 c. ₱118,000 d. ₱ 0
PROBLEM NO. 17
The following data pertain to the cash account of NEW WORLD Company:
1. The balance of Cash in Bank account in general ledger were ₱198,000 on September 30 and ₱210,000 on October
31.
2. Balance per bank statement: ₱200,000 on September 30 and ₱235,000 on October 31.
3. Total deposits and credits per bank statement during October were ₱195,000.
4. Deposits in transit were ₱18,000 at September 30.
5. Outstanding checks totaled ₱30,000 on October 31.
6. Bank service charges not entered in the company’s books amounted to ₱3,000 on September 30 and ₱5,000 on
October 31.
7. NSF checks returned by the bank, recorded as reduction of cash receipts.
a) returned by bank in September but recorded in October ₱4,000.
b) Returned by bank in October and recorded also in October ₱6,000.
8. Erroneous bank credit amounted to ₱10,000 on September 30 and ₱5,000 on October 31.
9. A check payable to supplier in September was recorded by the company as ₱13,000 when the correct amount is
₱31,000.
10. Total cash receipts for October per Company’s records were ₱187,000.
11. Credit memo for note collected: September 30-₱20,000; October 31-₱25,000.
QUESTIONS:
Compute for the adjusted balances of the following:
1. Deposit in transit October 31.
a. 15,000 c. 30,000
b. 5,000 d. 18,000
2. Outstanding checks September 30.
a. 21,000 c. 15,000
b. 19,000 d. 35,000
3. Cash receipts, October 31.
a. 197,000 c. 207,000
b. 202,000 d. 192,000
4. Cash disbursements, October 31.
a. 161,000 c. 153,000
b. 165,000 d. 159,000
5. Cash in bank, October 31.
a. 205,000 c. 230,000
b. 240,000 d. 235,000
SPECIAL AUDIT CONSIDERATION

1. Kiting is a form of fraud that overstates cash by causing it to be simultaneously included in two or more bank
accounts.
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 statement for the periods before and after year-end and by using the firm’s cash receipts
and disbursements journal.
3. Bank reconciliation. Auditors generally either a two-or 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 of 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


AUDIT OF CASH
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 first 8-10 business days after year-
end. Know that its primary purpose is to help auditors verify reconciling items on the year-end bank
reconciliation. Tests performed using a cutoff statement include verifying the outstanding checks have been
completely and accurately recorded as of year-end, and that deposits in transit have cleared within a reasonable
period. The statement is sent directly by the bank to the auditor.
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 request 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.)
PROBLEM NO. 18
1. Which of the following is not normally considered an act of concealing cash shortage?
a. Lapping c. Window dressing
b. Banking d. Kiting
2. This occurs when collection of receivable from one customer is misappropriated and then concealed by applying a
subsequent collection from another customer.
a. Lapping c. Kiting
b. Window dressing d. Floating
3. This occurs when cash shortage is concealed by overstating the balance of cash. This is performed by exploiting the
float period (the time it needs for a check to clear at the bank it was drawn).
a. Lapping c. Kiting
b. Window dressing d. Floating
4. The general cash account is considered significant in almost all audits

a. Where the ending balance is material
b. Where the beginning balance is material
c. Even when the ending balance is immaterial
d. Except those of not-for-profit organizations
5. When conducting surprise cash count, the auditor should simultaneously count all cash funds, marketable securities
and other negotiable assets to prevent
a. Time-out c. Substitution
b. Defalcation d. Misappropriation
6. A cash shortage may be concealed by transporting funds from one location to another or by converting negotiable
assets to cash. Because of this, which of the following is vital?
a. Simultaneous confirmations.
b. Simultaneous bank reconciliations.
c. Simultaneous verification.
d. Simultaneous surprise cash count.
7. The primary purpose of sending a standard bank confirmation request to financial institutions with which the client has
done business during the year is to:
a. Request information concerning contingent liabilities & collateral
b. Detect kiting activities that may otherwise not be discovered
c. Provide the data needed to prepare the bank section of a four-column proof of cash.
d. Corroborate/verify information regarding cash & loan balances.
8. 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 the assistant treasurer.
d. The CPA did not sign the confirmation request before it was mailed.


AUDIT OF CASH
9. 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 a 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 year-end.
c. Prepare bank reconciliation as of year-end.
d. Prepare a bank transfer schedule as of year-end.
10. Which of the following is not confirmed on the standard form used for cash balances at financial institutions?
a. Cash checking account balances.
b. Cash savings account balances.
c. Loans payable.
d. Securities held for the client by the financial institution.
11. The primary assertion being addressed by sending bank confirmation is

a. Existence c. Rights and obligation
b. Completeness d. Classification
12. Which of the following assertions is least likely to be addressed by sending bank confirmation?
a. Existence c. Rights and obligation
b. Completeness d. Classification
13. This document is a bank statement prepared a few days after month-end. Its purpose is to help auditors verify reconciling
items on the year-end bank reconciliation.
a. Cut-off bank statement c. Bank transfer schedule
b. Bank reconciliation d. Proof of cash
14. An auditor who is engaged to examine the financial statements of a business enterprise will request a cutoff 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.
15. The auditors use a bank cutoff statement to compare:

a. Deposits in transit on the year-end cash general ledger account to deposits in the cash receipts journal.
b. Checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation.
c. Deposits listed on the cutoff statement to disbursements in the cash disbursements journal.
d. Checks dated subsequent to year-end to the outstanding checks listed on the year-end bank statement.
16. Which procedure is an auditor most likely to use to detect a check outstanding at year-end that was not recorded as
outstanding on the year-end bank reconciliation?
a. Prepare a bank transfer schedule using the client's cash receipts and cash disbursements journal.
b. Receive a cutoff statement directly from the client's bank.
c. Prepare a four column bank reconciliation using the year-end bank statement.
d. Confirm the year-end balance using the standard form to confirm account balance information with financial
institutions.
17. A reconciliation that includes proof of receipts and disbursements that is useful in discovering possible discrepancies in
handling cash over a certain period of time.
a. Bank statement c. Proof of cash
b. Bank reconciliation d. Cash requirements report
18. Proof of cash or four-column-bank reconciliation is normally prepared by

a. The auditor c. Either the client or auditor
b. The client d. Neither client or auditor
19. The following specific scenarios are normally uncovered using proof of cash. Select the exception:
a. Cash receipts and disbursements recorded in the accounting records, but not on the bank statement.
b. Cash deposits and disbursements recorded on the bank statement, but not on the accounting records.
c. Cash receipts and disbursements not recorded in the accounting records and on the bank statement.
d. Cash receipts and disbursement recorded at different amounts by the bank than in the accounting records.
20. By preparing a four-column bank reconciliation (proof of cash) at year-end, an auditor will generally be able to detect:
a. An unrecorded deposit made at the bank at the end of the month.


AUDIT OF CASH
b. A second payment of an account payable which had already been paid in full two months earlier.
c. An embezzlement of cash receipts not recorded in the cash receipts journal before they had been deposited into
the bank.
d. A receivable collected that had previously been written off as uncollectible.
21. This document shows the dates of all transfers of cash among the various bank accounts. Its primary purpose is to help
auditors detect kiting.
a. Cut-off bank statement c. Bank transfer schedule
b. Bank reconciliation d. Proof of cash
22. Kiting would least likely be detected by:

a. Analyzing details of large cash deposits around year end.
b. Comparing customer remittance advices with recorded disbursements in the cash disbursements journal.
c. Preparing four-column bank reconciliation for all major cash accounts.
d. Preparing a schedule of interbank transfers by using the client's records and bank statements around yearend.
The next two questions are based on the following information:

The information below was taken from the bank transfer schedule prepared during the audit of Hayaan Mo Sila, Sige Sige
Lang Co.’s financial statements for the year ended December 31, 2021. Assume all checks are dated and issued on
December 30, 2021.
Bank Accounts Disbursement date Receipt date
Check no. From To Per books Per bank Per books Per bank
101 Bebe Chinito Dec. 30 Jan. 4 Dec. 30 Jan. 3
202 John Labidabs Jan. 3 Jan. 2 Dec. 30 Dec. 31
303 Chinito Pinrito Dec. 31 Jan. 3 Jan. 2 Jan. 2
404 Labidabs Lloyd Jan. 2 Jan. 2 Jan. 2 Dec. 31
23. Which of the following checks might indicate kiting?

a. #101 and #303. c. 202 and #404#
b. #101 and #404 d. #202 and #303
24. Which of the following checks illustrate deposits/ transfers in transit at December 31, 2021?
a. #101 and #202. c. #101 and #303
b. #202 and #404 d. #303 and #404
25. A practical and effective audit procedure for the detection of lapping is:
a. Preparing an interbank transfer schedule.
b. Comparing recorded cash receipts in detail against items making up the bank deposit as shown on duplicate deposit
slips validated by the bank.
c. Tracing recorded cash receipts to postings in customers' ledger cards.
d. Preparing a proof of cash.
26. Which of the following cash transfers would appear as a deposit in transit on the December 31, 2021 bank
reconciliation?
Bank Account One Disbursing Date (Monthly/Day) Bank Account Two Receiving Date (Month/Day)
Per Bank Per Books Per Bank Per Books
a. 12/31 12/30 12/31 12/30
b. 1/2 12/30 12/31 12/31
c. 1/3 12/31 1/2 1/2
d. 1/3 12/31 1/2 12/31
27. Which of the cash transfers would not appear as an outstanding check on the December 31,2021 bank reconciliation?
Bank Account One Disbursing Date (Monthly/Day) Bank Account Two Receiving Date (Month/Day)
Per Bank Per Books Per Bank Per Books
a. 12/31 12/30 12/31 12/30
b. 1/2 12/30 12/31 12/31
c. 1/3 12/31 1/2 1/2
d. 1/3 12/31 1/2 12/31
--- END OF HANDOUTS ---


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Page 1 of 17 | AUD Handouts No.

1. Cash on Hand (CUTCMoBa)

3. Cash fund for current operations (CP2RIntPeDiT2)

Fund for Noncurrent Operations

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

DARRELL JOE O. ASUNCION, CPA MBA

S Sinking fund Noncurrent investment, if the related bonds

If the above items are: Treatment

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

DARRELL JOE O. ASUNCION, CPA MBA

maintained in connection with a borrowing

Effect of compensating balance on:

Treatment: Stale checks are reverted to cashby

Callable preference Not classified as cash equivalents. It is part of

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

DARRELL JOE O. ASUNCION, CPA MBA

Temporary investments in Either FVTPL or FVTOCI but never to be included

Treatment: Disclosed in the notes

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

DARRELL JOE O. ASUNCION, CPA MBA

but not mailed until January 15, 2021

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

DARRELL JOE O. ASUNCION, CPA MBA

A piece of paper with names of several employees

Based on the above data,

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

DARRELL JOE O. ASUNCION, CPA MBA

Forms of Bank Reconciliation

J. Deposit of ₱50,000 incorrectly recorded by bank as, ₱5,000.

PROOF OF CASH (TWO-DATE BANK RECONCILIATION)

PROBLEM NO. 8 (PROOF OF CASH)

Cash receipts for February 300,000

Unadjusted bank statement 237,500 319,800

Bank disbursements 207,700

Credit Memo for note collected 80,000 60,000

Bank service charge 7,500 4,200

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

DARRELL JOE O. ASUNCION, CPA MBA

Deposit in transit 50,000 40,000

Outstanding checks 15,000 14,000

Compute for the adjusted balance of the following:

T-Accounts of the Cash in bank per books and bank:

CASH IN BANK PER BANK

Deposits acknowledged by the

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

DARRELL JOE O. ASUNCION, CPA MBA

Current month’s error in Cash Current month’s error in Cash

Outstanding checks, beginning XX

2) Outstanding checks should exclude the following:

PROBLEM NO. 10 COMPUTATION OF DEPOSIT IN TRANSIT

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

DARRELL JOE O. ASUNCION, CPA MBA

B. Deposit in transit, January 31, ₱200,000

Required: Compute for the following:

PROBLEM NO. 11 OUTSTANDING CHECKS

Required: Compute for the following:

June data are as follows:

1. How much is the total outstanding checks on June 30?

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

The bank reconciliation prepared by Ashley Company at November 30 is reproduced below:

Unadjusted bank balance ₱193,600 Unadjusted book balance ₱117,280