AC20 - AUDITING PROBLEMS
AUDIT OF CASH
QUIZ 1
PROBLEM 1
In the course of your audit of the ALONA Corporation, its controller is attempting to
determine the amount of cash to be reported on its December 31, 2020 statement of
financial position. The following information is provided:
a. Commercial savings account of P1,200,000 and a commercial checking account
balance of P1,800,000 are held at DC Bank.
b. Travel advances of P360,000 for executive travel for the first quarter of the next year
(employee to reimburse through salary deduction)
c. A separate cash fund in the amount of P3,000,000 is restricted for the retirement of a
long-term debt.
d. Petty cash fund of P10,000.
e. An I.O.U. from a company officer in the amount of P40,000.
f. A bank overdraft of P250,000 has occurred at one of the banks the company uses to
deposit its cash receipts. At the present time, the company has no deposits at this
bank.
g. The company has two certificates of deposit, each totaling P1,000,000. These
certificates have maturity of 120 days.
h. ALONA has received a check dated January 2, 2021 in the mount of P150,000.
i. ALONA has agreed to maintain a cash balance of P200,000 at all times at DC Bank
to ensure future credit availability.
j. Currency and coins on hand amounted to P15,000.
1. Based o the above and the result of your audit, how much will be reported as cash and
cash equivalents at December 31, 2020?
a. 3,025,000
b. 2,825,000
c. 2,575,000
d. 5,025,000
PROBLEM 2
The cash account of the Malta Corporation as of December 31, 2020 consists of the
following:
On deposit in current account with Rea Bank P900,000
Cash collection not yet deposited to the bank 350,000
A customer’s check returned by the bank for
insufficient fund 150,000
A check drawn by the Vice President of the
Corporation dated January 15, 2021 70,000
A check drawn by a supplier dated
December 28, 2020 for goods returned
by the Corporation 60,000
A check dated May 31, 2020 drawn by the
Corporation against the Dhel Bank
in payment of customs duties.
Since the importation did not materialize.
The check was returned by the customs
broker. This was an outstanding check in
the reconciliation of the Dhel Bank 410,000
Petty Cash fund of which P5,000 is in currency;
P3,600 in form of employees’ I.O.U.’s and
P1,400 is supported by approved petty
Cash vouchers for expenses all dated
Prior to closing of the books on
December 31, 2020. 10,000
TOTAL 1,950,000
Less: Overdraft with Dhel Bank secured by a
Chattel mortgage on the inventories 300,000
BALANCE PER LEDGER P1,650,000
2. At what amount will the account “Cash” appear on the December 31, 2020 statement of
financial position?
a. 1,315,000
b. 1,425,000
c. 1,495,000
d. 1,725,000
PROBLEM 3
You noted the following composition of Manila Company’s “cash account” as of
December 31, 2020 in connection with your audit:
Demand deposit account P2,000,000
Time deposit – 30 days 1,000,000
NSF check of customer 40,000
Money market placement (due 6/30/2021) 1,500,000
Savings deposit in a closed bank 100,000
IOU from employee 20,000
Pension fund 3,000,000
Petty cash fund 10,000
Customer’s check dated 1/1/2021) 50,000
Customer’s check outstanding for 18 months 40,000
TOTAL P7,760,000
Additional information follows:
• Check of P200,000 in payment of accounts payable was recorded on
December 31, 2020 but mailed to suppliers on January 5, 2021.
• Check of P100,000 dated January 15, 2021 in payment of accounts
payable was recorded and mailed on December 31, 2020.
• The company uses the calendar year. The cast receipts journal was held
open until January 15, 2021, during which time P400,000 was collected
and recorded on December 31, 2020.
3. The cash and cash equivalents to be shown on the December 31, 2020 statement of
financial position is:
a. 3,310,000
b. 1,910,000
c. 2,910,000
d. 4,410,000
PROBLEM 4
You were able to gather the following from the December 31, 2020 trial balance of DAN
Corporation in connection with your audit of the company:
Cash on hand P 500,000
Petty cash fund 10,000
BDO current account 1,000,000
Metrobank current account no. 101 1,080,000
Metrobank current account no. 102 (80,000)
Landbank savings account 1,200,000
Landbank time deposit 500,000
Cash on hand includes the following items:
• Customer’s check for P40,000 returned by bank on December 26, 2020 due to
insufficient fund but subsequently redeposited and cleared by the bank on
January 8, 2021.
• Customer’s check for P20,000 dated January 2, 2021, received on December 29,
2020.
• Postal money orders received from customers, P30,000
The petty cash fund consisted of the following items as of December 31, 2020.
Currency and coins P2,000
Employees vales 1,600
Currency in envelope marked
“Collection for charity” with
names attached 1,200
Unreplenished petty cash
vouchers 1,300
Check drawn by DAN
Corporation, payable to the
petty cash 4,000
TOTAL P10,100
Included among the checks drawn by DAN Corporation against the BDO current account
and recorded in December 2020 are the following:
• Check written and dated December 29, 2020 and delivered to payee on January
2, 2021, P80,000
• Check written on December 28, 2020 dated January 2, 2021, delivered to payee
on December 29, 2020, P40,000
The credit balance in the Metrobank current account no. 102 represents checks drawn in
excess of the deposit balance. These checks were still outstanding at December 31,
2020.
The savings account deposit in Landbank has been set aside by the Board of Directors
for acquisition of new equipment. This is expected to be disbursed in the next 3 months
from the balance sheet date.
Based on the above and the result of your audit, determine the adjusted balances of
following:
4. Cash on hand
a. 410,000
b. 530,000
c. 470,000
d. 440,000
5. Petty cash fund
a. 6,000
b. 7,200
c. 2,000
d. 4,900
6. BDO current account
a. 1,000,000
b. 1,120,000
c. 1,080,000
d. 1,040,000
7. Cash and cash equivalents
a. 2,917,200
b. 3,074,900
c. 3,052,000
d. 3,066,000
8. The auditor’s count of cash should be coordinated with the:
a. Consideration of internal controls with respect to cash
b. Close business on the balance sheet date
c. Count of marketable securities
d. Count of inventories
9. Which of the following is not an objective related to cash?
a. Reported cash exists
b. The client has ownership rights in the reported cash
c. Compensating cash balances are reported as other assets
d. The reported cash balance includes all cash transactions that should have been
recorded.
10. The process of transferring money from one bank account to another and improperly
recording the transaction
a. Lapping
b. Embezzling
c. Kiting
d. Defalcation
11. The information below was taken from the bank transfer schedule prepared during the
audit of JURI’s Company financial statement for the year ended December 31, 2020.
Assume all checks are dated and issued on December 30, 2020.
Check From To Disbursement date Receipt date
No. Per books Per bank Per books Per bank
101 National Federal Dec. 30 Jan. 4 Dec. 30 Jan. 3
202 Country State Jan. 3 Jan. 2 Dec. 30 Dec. 31
303 Federal American Dec. 31 Jan. 3 Jan. 2 Jan. 2
404 State Republic Jan. 2 Jan. 2 Jan. 2 Dec. 31
Which of the above checks might indicate kiting?
a. 101 and 303
b. 202 and 404
c. 101 and 404
d. 202 and 303
PROBLEM 5
A count of the undeposited receipts under the custody of P. Contis, cashier of Apple
Company, on October 1, 2020, 9:00am, showed the following composition:
Currency and coins P14,750
Checks:
Date Payee Drawer Amount
2/29/20 Cash P. Contis P1,000
9/29/20 Apple Co. Davao Corp. 3,400
9/30/20 Apple Co. L. Reyes 2,500
9/30/20 Meralco Apple Co. 1,900 8,800
Postage and documentary stamps 120
Paid vouchers covering transportation expenses 1,200
Customer’s check returned by bank, NSF 900
Money in envelop with list of contributors to Sweepstakes’ pool 800
IOUs from employees 500
TOTAL P27,070
12. If the cashier’s accountability is P24,500, the amount of overage/shortage on October 1,
2020 was:
a. 2,570 overage
b. 2,450 shortage
c. 3,850 shortage
d. None of the above
13. An entity’s internal control structure requires every check request that there be an
approved voucher, supported by a prenumbered purchase order and a prenumbered
receiving report. To determine whether checks are being issued for unauthorized
expenditures, an auditor most likely would select items for testing from the population of
all:
a. Cancelled checks
b. Approved checks
c. Purchase orders
d. Receiving reports
14. Which of the following internal control procedures will most likely prevent the
concealment of a cash shortage resulting from improper write-off of a trade account
receivable?
a. Write-offs must be supported by an aging schedule showing that only receivables
overdue for several months have been written off.
b. Write-offs must be approved by the cashier who is in a position to know if the
receivables have, in fact, been collected.
c. Write-offs must be approved by a responsible officer after review of credit
department recommendations and supporting evidence.
d. Write-offs must be authorized by company field sales employees who are in a
position to determine the financial standing of the customers.
15. A cash shortage may be concealed by transferring funds from one location to another or
by converting negotiable assets to cash. Because of this, which of the following is vital?
a. Simultaneous verification
b. Simultaneous confirmations
c. Simultaneous bank reconciliations
d. Simultaneous surprise cash count
PROBLEM 6
The ledger account of Shawn Company showed a ledger balance of P1,800,000 on
December 31, 2020. The bank statement as of that date showed a balance of
P2,100,000. Upon comparing the statement with the cash records, the following facts
were determined.
• There were bank service charges for December for P10,000.
• A bank memo stated that Camilla Inc.’s note for P200,000 and interest of
P20,000 had been collected on December 29, and the bank has made a charge
of P5,000 on the collection. No entry had been made in Shawn’s books when
Camilla’s note was sent to the bank for collection.
• Receipts for December 31 for P550,000 were not deposited until January 2.
• Checks outstanding on December 31 totaled P325,000.
• The bank had charged the Shawn’s Company’s account for a customer’s
uncollectible check amounting to P43,000 on December 29.
• A customer’s check for P900,000 had been entered as P600,000 in the cash
receipts journal by Shawn on December 15.
• Check No. 777 in the amount of P141,000 had been entered in the cash book as
P114,000, and check no. 799 in the mount of P10,000 had been entered as
P100,000. Both checks had been issued to pay for purchase of equipment.
16. What is the amount of cash to be shown in the December 31, 2020 statement of
financial position?
a. 2,650,000
b. 2,325,000
c. 2,030,000
d. 2,025,000
17. What is the net total amount of adjustment to the balance per books?
a. 850,000
b. 525,000
c. 230,000
d. 225,000
18. An auditor who is engaged to examine the financial statements of a business enterprise
will request a cut-off 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 kiting
d. Detect lapping
19. To gather evidence regarding the balance per bank in a bank reconciliation, an auditor
would examine all of the following, except
a. Cut-off bank statement
b. Bank confirmation
c. Year-end bank statement
d. General ledger
PROBLEM 7
In the audit of Boy Company’s cash account, you obtained the following information:
The company’s bookkeeper prepared the following bank reconciliation as of November
30, 2020:
Bank balance – 11/30/2020 P90,800
Undeposited collections 5,000
Bank service charge 100
Bank collection of customer’s notes (8,000)
Outstanding checks:
Number Amount
1159 P3,000
1767 5,000
1915 2,000 (10,000)
Book balance – 11/30/2020 P77,900
Additional data are given as follows:
a. Company recordings for December:
Total collections from customers P165,000
Total checks drawn 98,000
b. Bank statement totals for December:
Charges P123,800
Credits 169,000
c. Check no. 1159 dated November 25, 2020, was entered as P3,000 in payment of a
voucher for P30,000. Upon examination of the checks returned by the bank, the
actual amount of the check was P30,000.
d. Check no. 2113 dated December 20, 2020 was issued to replace a mutilated check
(no. 1767), which was returned by the payee. Both checks were recorded in the
amount drawn, P5,000, but no entry was made to cancel check no. 1767.
e. The December bank statement included a check drawn by Soy Company for P1,500.
f. Undeposited collections on December 31, 2020, P8,000.
g. The service charge for December was P150, which was charged by the bank to
another client.
h. The bank collected a note receivable of P7,00 on December 28, 2020, but the
collection was not received on time to be recorded by Boy.
i. The outstanding checks on December 31, 2020, were:
Check No. Amount
1767 P5,000
2856 1,300
2910 2,300
2925 4,100
Based on the above and the result of your audit, determine the following:
20. Unadjusted cash balance per books as of December 31, 2020
a. 152,800
b. 152,750
c. 144,900
d. 165,700
21. Adjusted cash balance as of November 30, 2020
a. 85,800
b. 58,800
c. 63,800
d. 90,800
22. Adjusted book receipts for December 2020
a. 170,500
b. 182,000
c. 172,000
d. 173,000
23. Adjusted bank disbursement for December 2020
a. 120,150
b. 76,150
c. 125,150
d. 98,150
24. Adjusted cash balance as of December 31, 2020
a. 132,650
b. 137,650
c. 137,800
d. 134,650
25. The proof of cash statements is usually prepared by the auditor when:
a. Internal control over cash is strong and control risk is place at the maximum
b. Cash balance is very significant
c. Cash balance is very insignificant
d. Internal control over cash is weak and control risk is place at the maximum.
PROBLEM 8
You are auditing the cash account of KAREN, Inc. for the fiscal year ended July 31,
2020. The client has not prepared the July 31, bank reconciliation. The following
information were made available:
GENERAL LEDGER BANK STATEMENT
Beginning balances P140,330 P172,590
Deposits 751,680
Cash receipts journal 763,680
Checks clearing the bank (708,450)
Cash disbursement journal (654,330)
July bank service charge (2,620)
Note paid by the bank (183,000)
NSF check (9,330)
Ending Balances P249,680 P20,880
Audit notes:
a. Bank reconciliation in June included the following information: Bank statement
balance, June, P172,590; Deposit in transit, P18,000; Outstanding checks, P52,260,
and; Balance per general ledger, June, P140,330.
b. Checks clearing the bank in July, outstanding by the end of June was at P50,760.
c. Checks clearing the bank in July and were recorded in the July cash disbursement
journal was at P614,010.
d. A check for P31,800 cleared the bank, but had not been recorded in the cash
disbursement journal. It was for a payment of an accounts payable.
e. A check for P11,880 was erroneously charged by the bank to KAREN, Inc.
f. Deposits included P18,000 from June and P733,680 from July.
g. The bank charged KAREN, Inc.’s account for a non-sufficient fund check totaling to
P9,330. The credit manager concluded that the customer intentionally closed its
account and the owner left the city. The check was turned over to a collection
agency.
h. A note for P174,000, plus interest, was paid directly by the bank under an agreement
signed four months ago.
Based on your audit procedures and appreciation of the above data, answer the
following:
26. How much is the total outstanding checks as of July 31?
a. 32,490
b. 41,820
c. 29,940
d. 10,020
27. How much is the total deposits made by the company during July 31?
a. 20,940
b. 30,000
c. 763,680
d. 781,680
28. How much is the correct cash in bank balance as of July 31?
a. 32,820
b. 11,160
c. 20,940
d. 9,060
29. How much is the cash in bank shortage as of June 31?
a. 2,200
b. 1,200
c. 2,000
d. None
30. The receipt of the completed standard bank confirmation form would provide the auditor
with all of the following items except
a. The balances in all bank accounts with that bank
b. Any restrictions on withdrawals
c. The adjusted cash balance
d. Loan balances with that bank
BONUS POINTS: (2 points)
What is my full name?
“Life has two rules:
1. Never quit;
2. Always remember rule no. 1”
