1.

Kiting

 Overstatement of cash is created by a cash transfer between bank accounts.

It is usually characterized by recording the transfer to the other bank as cash
receipts but the disbursement is not recorded.
 From an internal control point of view, kiting occurs due to lack of segregation of
duties between accounting and cash custody.
 To detect kiting auditor may examine bank transfers. The auditor may make
use of cutoff bank statement in doing the examination.
2. Lapping

 This is done by misappropriating collections from one customer and concealing

this defalcation by applying a subsequent collection made from another
customer. This scheme is used to conceal cash shortage.
 Lapping can be detected by comparing details of cash receipts journal with the
details of corresponding daily deposit slips; or comparing daily deposit slips with
the credit postings to accounts receivable.
3. Window dressing

 This refers to any deliberate misstatement of the assets, liabilities, equity, income
and expenses. It is usually accomplished by:
a. Recording as of the last day of the accounting period the collections made
subsequent to the close of the period
b. Recording as of the last day of the accounting period the payments of
accounts made subsequent to the close of the period
 To detect this scheme, the auditor will ordinarily verify cash cutoff of cash receipts
and disbursements.
4. Skimming

 Skimming fraud involves taking the cash of a business prior to entering it into
the accounting system.
 May be detected by examining unusual significant decline in gross profit rates –
meaning, no sales is reported (because of the theft) but inventory is reduced and
therefore there is cost of sales is reported.
 Individuals are also vulnerable to this type of fraud. They may experience ATM,
debit card, or credit card skimming.
 Cash receipts received in mail listed by individuals with no recordkeeping responsibility
a. Cash goes to cashier
b. Remittance advices go to accounting
 Over-the-counter cash receipts controlled (cash register tapes)
 Cash deposited daily
 Employees handling cash are bonded
 Lockbox- employees have no access to cash and bank employees have no access to
the company’s accounting records.
 Bank reconciliation prepared by individuals independent of cash receipts
recordkeeping & cash custody
 Use of official receipts
 Use of checks (prenumbered checks)

 Two signatures on large check amounts

 Checks signed only with appropriate support (purchase order, receiving

report, vendor’s invoice). Treasurer signs checks and mails them
 Support for checks canceled after payment

 Voided checks mutilated, retained, and accounted for

 Bank reconciliations prepared by individual independent of cash

disbursements recordkeeping & cash custody
 Physical control of unused checks
1. Sending confirmation to banks or financial institutions

2. Conducting surprise cash counts

3. Obtaining and testing bank reconciliation and, if appropriate, preparing proof of

cash
4. Obtaining bank cutoff statement and tracing bank transfers

5. Performing cash cutoff tests

6. Checking the appropriate valuation of cash

7. Performing analytical procedures to assess the reasonableness of reported cash

 Prepared by the client, examined by the auditor
 Foot the schedule
 Trace balances to GL/trial balance, bank statement, bank confirmation reply
 Trace book reconciling items to bank statement or other relevant documents
 Trace bank reconciling items to cutoff bank statement
 Use adjusted balance method
 Per books (accountability / “should be”)
 Per bank (actual cash)
 If per books > per bank
 If per books < per bank

 If there is a shortage, consider that the shortage might be concealed in the bank recon… how?
 Understate per books
 Overstate per banks
Per Books Per Bank
Unadjusted balance 50,000 Unadjusted balance 45,000
Add: Interest income 1,000 Outstanding checks ( 5,000)
_____ Deposits in transit 10,000
Balance before shortage 51,000 Balance before shortage 50,000
Cash shortage (1,000)
Adjusted balance 50,000 Adjusted balance 50,000
 Purchasing fund
 Change fund
 Revolving fund
1. Use of imprest system
2. Establishment of limits on disbursements which may be
paid out of the fund
3. Use of petty cash vouchers
4. Approval of petty cash vouchers
5. Use of petty cash book
6. Cash counts
7. Not commingled with other funds
Entries:
1. Set up of PCF
2. Disbursements out of petty cash fund
3. Replenishment of petty cash fund
4. Year-end adjusting entry
 On December 1, 20x1, the board of directors of ABC Co. passed a resolution for the
establishment of a P5,000 petty cash fund. Single disbursements amounting to less
than P2,000 will be made through this fund. Those amounting to P2,000 or more
will be made through checks. The following were the transactions during the
period.

 Dec.1 - Established P5,000 petty cash fund.

 Dec. 1-21 - Disbursements are made for the following:
a. Bond papers for use of employees, P1,400
b. Transportation for company vehicles, P1,500
c. Snacks during meeting and conferences, P1,100
d. Transportation for purchase of merchandise inventory, P1,700

 Dec. 31 Total coins and currencies in the petty cash box is P300.
 Determine the correct balance  Cash count
of cash (petty cash fund)

 Determine whether there are

 Cash count
any shortages or overages
 Compare:
 Actual cash
 Custodian’s accountability
 “I hereby certify that the above fund in the amount of P______
have been counted in my presence by __________, representative of
_____ CPAs.
The same has been returned to me intact.
There are no other funds for which I am accountable for except
as noted above.”

(Sgd.) Custodian
For the succeeding problems, be able to calculate
the following:
1) cash shortage / overage
2) correct balance of petty cash fund
3) adjusting entries, if necessary
Cash count at the close of business on December 31, 2023 showed the
following: Denomination Quantity
1,000 1
500 3
200 6
100 5
50 1
20 5
10 1
General ledger balance of the petty cash account amount to P5,000.
Cash count at the close of business on December 31, 2023 showed the
following: Denomination Quantity
1,000 2
500 5
200 4
100 6
50 3
20 4
10 3
5 3
1 2
General ledger balance of the petty cash account amount to P6,000.
The cash account includes petty cash fund amounting to P20,000.
The fund was last replenished on December 24, 2023. When the fund
was counted on December 31, 2023, the following were found:
 Bills and coins P13,000
 Vouchers
 No. 145 12.25 Transportation 500
 No. 146 12.25 Meals for Christmas 480
 No. 147 Cancelled
 No. 148 12.26 Repairs 950
 No. 149 12.27 Cellphone load 200
The cash account includes petty cash fund amounting to P15,000.
The fund was last replenished on December 24, 2023. When the fund
was counted on December 31, 2023, the following were found:
 Bills and coins P13,000
 Vouchers
 No. 145 12.25 Transportation 500
 No. 146 12.25 Meals for Christmas 480
 No. 147 Cancelled
 No. 148 12.26 Repairs 950
 No. 149 12.27 Cellphone load 200
The cashier handles petty cash fund (with imprest amount of P5,000) as well as
collections from credit customers. At the end of each week, collections are
remitted to the treasurer together with duplicate copies of official receipts.
You conducted the count at end of day on Dec. 31, 2023 and noted the following:
Bills and coins P4,550
Expense vouchers 1,530
Unvouchered disbursements for meals 450
Check no. 180045, Mr. Sy, a customer 2,550
Total P9,080
Duplicate copies of official receipts not yet turned over to the treasurer:
OR no. 435, Mr. Alvarez (cash) P1,050
OR no. 432, Mr. Sy (check) 2,550
OR no. 455, Ms. Santos (cash) 350
You were assigned to audit the Cash account of a client for the year ended Dec.
31, 2023.
Cash count of the petty cash fund and undeposited collections at that date
showed the following:

Currency and coins P3,595.01

Expense vouchers 1,920.75
Employees’ IOUs 573.50
Customers’ checks in payment of accounts 2,500.00
Total P8,589.26
The amount of petty cash fund per general ledger is P6,000. Upon comparing
the official receipts with the bank validated deposit slips, you noted that
P3,025.60 was not yet deposited to the bank.
PROBLEM 7: Cash count at the close of business on December 31, 2023.
Bills P2,900
Coins 400
Petty cash vouchers: Gasoline payments 250
Office supplies 160
Medicines for employees 240
Transportation 400
Office equipment repairs 400
Loans to employees 800
Check drawn by the company payable to the order of the
petty cash custodian representing her salary 3,800
An envelope containing contributions for a wedding gift for an
employee 500

The petty cash general ledger account has an imprest balance of P10,000.
 In auditing the books of a client for 2023, you find
that a petty cash fund of P25,000 is maintained on the
imprest basis but the company has failed to replenish
the fund on December 31.
Replenishment was made and recorded on
January 15, 2023 when a check for P18,500 was drawn
to petty cash for expenses paid. Your analysis
discloses that P2,500 had been spent out of petty cash
in 2023.
What audit adjustment would you propose
relating to this?
PROBLEM 9
Cash in bank P134,500
Petty cash fund (last replenished Nov. 30, 2023) 15,000
Purchasing fund (last replenished Nov. 30, 2023) 35,000
Balance per ledger, December 31, 2023 P184,500

January 5, 2024 replenishment of the Petty Cash Fund amounted to P10,000.

The composition of which is as follows:
Date of supporting documents Nature
2023 Transportation P5,500
2024 Repairs 4,500
Total P10,000
PROBLEM 10
Cash in bank P134,500
Petty cash fund (last replenished Nov. 30, 2023) 15,000
Purchasing fund (last replenished Nov. 30, 2023) 35,000
Balance per ledger, December 31, 2023 P184,500

The January 4, 2024 replenishment of the purchasing fund amounting to

P29,000 includes 2023 purchases of indirect materials, P20,000, to be used in the
production process of the company in the year 2024. The remainder represent
disbursements in 2024.
PROBLEM 11: Cash count was at start of business on January 2, 2024.
Bills and coins P2,500
Paid vouchers and date of vouchers
Telephone (December 2023) 1,500
Water (January 2024) 1,600
Office supplies (December 2023) 3,700
Postage stamps (December 2023) 2,800
IOUs signed by employees 3,900
Empty envelope containing list of contributions for a gift to an employee, 1,000
totaling
Company check for fund replenishment 15,000
Unused postage stamps 1,800
Unused office supplies 1,200
You have ascertained that client established a petty cash fund for P35,000