Chapter 1
Audit of
Cash & Cash
Equivalents
AUDIT PROGRAM FOR CASH
Audit Objectives:
To determine that:
1. Cash balances at the end of the reporting period represent
cash and cash items on hand, in transit to, or in
depository banks.
2. Cash transactions have been properly recorded
3. Cash balances are properly described and classified, and
adequate disclosure with respect to amounts restricted as
to withdrawal are made in the financial statements.
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Audit Procedures:

Conduct a cash count of undeposited collections, petty cash
and other funds.






Obtain custodian’s signature to acknowledge return of
items counted.
Reconcile items counted with general ledger balances.
Trace undeposited collections counted to bank
reconciliation.
Follow up dispositions of items in cash counted:
 Undeposited collections should be traced to bank
deposits
 Checks accommodated in petty cash should be
deposited after the count to establish their
validity.
 IOUs in the petty cash should be confirmed and
traced to collections in the next payroll period.
 Expense vouchers should be traced to the
succeeding replenishment voucher.
Coordinate cash count with count of marketable
securities and other negotiable assets of the client.
Obtain confirmation of year-end fund balances of cash
not counted in branches or other offices.

Confirm bank balance by direct correspondence with all
banks in which the client has had deposits and loans during
the year.

Obtain or prepare bank reconciliation.




Check arithmetical accuracy of reconciliation.
Trace balance per book to the general ledger balance
of cash account.
Trace balance per bank to bank statement and compare
with amount confirmed by bank.
Establish authenticity of reconciling items by
reference to their respective sources, like:
 Bank debit or credit advices.
 Duly approved journal vouchers.

Investigate checks outstanding for a long period of
time.
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 Consider adjustment, especially if the check is
already stale.
 Consider the possibility of an erroneous
preparation of the check.
 Investigate any unusual reconciling items.
 Where internal control over cash is weak, consider
preparing a proof of cash reconciliation.
4. Obtain cutoff bank statement showing the client’s
transactions within the bank at least one week after the
reporting date, and:
 Trace year-end reconciling items, like:
 Deposit of the year-end undeposited collections.
 Completeness of year-end outstanding checks.
 Correction of bank errors.
 Examine supporting documents of year-end outstanding
checks that did not clear in the cutoff statement.
5. Obtain a list of interbank transfers of funds a few days
before and after the reporting date.
 Vouch supporting documents.
 Ascertain that the related receipts and disbursements
were booked by the client within the same day or at
least within the same month.
6. Test reasonableness of cutoff by:
 Comparing dates of checks returned with the cutoff
bank statement to dates of recording in the cash
disbursements register.
 Tracing receipts recorded to a few days before
reporting date to bank deposits.
7. Inspect savings account passbook and certificates of
deposit
 Reconcile with book balances.
Page 4
 Update interest earned posting on passbooks, if
necessary.
 Compare balances with bank confirmation reply.
8. Determine any restrictions on availability of cash.
9. Determine propriety of financial statement presentation and
adequacy of disclosures.
Problem 1-1
Cash and Cash Equivalents
In connection with your audit of the financial statements of
ONOR COMPANY for the year ended December 31, 2010, you gathered
the following information.
1. The company maintains its current account with the Tsunami
Bank. The bank statement on December 31, 2010 showed a
balance of P638,340.
Your audit of the company’s account with Tsunami Bank
disclosed the following:
 A check for P22,500 received from a customer whose
account is current had been deposited and then
returned by the bank on December 28, 2010. No entry
was made for the return of this check. The customer
replaced the check on January 15, 2011.
 A check for P5,720 was cleared by the bank as P7,520.
The bank made the correction on January 2, 2011.
 A check for P3,500 representing payment of an employee
advance was received and deposited on December 27,
2010, but was not recorded until January 3, 2011.
Page
5
 Post dated checks totaling P67,300 were included in
the deposits in transit.
These represent collections of current accounts
receivable from customers.
The checks were actually deposited on January 5, 2011.
 Various debit memos for drafts purchased for payment
of importation of equipment totaling P230,000 were not
yet recorded. These purchases were previously set up
as accounts payable. Said equipment arrived in
December 2010.

Interest earned on the bank balances for the 4th
quarter of 2010, amounting to P1,950 was not recorded.
 Bank service charges totaling P1,260 were not
recorded.
 Deposit in transit and outstanding checks at December
31, 2010 totaled P136,250 and P276,380, respectively.
2. Various expenses from the company’s imprest petty cash fund
dated December 2010 totaled P16,250, while those dated
January 2011 amounted to P5,903. Another disbursement from
the fund dated December 2010 was a cash advance to an
employee amounting to P3,500. A replenishment of the petty
cash fund was made on January 8, 2011.
3. The company’s trial balance on December 31, 2010 includes
the following accounts:
Cash in bank – Tsunami Bank
P 748,320
Cash in bank – Earthquake Bank (restricted account for
plant expansion, expected to be disbursed in 2011) 700,000
Petty cash fund
30,000
Time deposit, placed December 20, 2010 and due March 20,
2011
1,000,000
Money market placement – Prudential Bank
4,000,000
1. What is the adjusted Petty cash fund balance on December
31, 2010?
A. P4,347
C.P30,000
B. P10,250
D.P24,097
2. The petty cash shortage on December 31, 2010 is
A. P 0
C. P3,500
B. P5903
D. P4,347
3. What is the adjusted Cash in bank – Tsunami Bank balance
on December 31, 2010?
A. P 500,010
C. P432,710
B. P748,320
D. P429,110
4. The entry to adjust the Cash in bank – Tsunami Bank
account should include a debit to
A. Accounts receivable for P89,800.
B. Accounts receivable for P86,300.
C. Accounts payable for P228,200.
D. Interest expense for P1,950.
5. The December 31, 2010 statement of financial position
should show “Cash and cash equivalents “ at
A. P6,142,970
C. P4,442,960
B. P5,439,360
D. P5,442,960
Solution 1-1
1. Petty cash fund per trial balance
Various expenses dated December 2010
Employee cash advance
Adjusted petty cash fund balance
P30,000
(16,250)
(3,500)
P10,250
Answer: B
2. The petty cash shortage cannot be determined because of
insufficient information.
Answer: A
Page 7
3.
Book
P748,320
(22,500)
Unadjusted balances
NSF check
Bank error (P7,520 – P5,720)
Unrecorded Cash receipt
3,500
Post dated checks
(67,300)
Deposits in transit (P136,250 – P67,300)
Bank debit memos
(230,000)
Interest earned
1,950
Bank service charges
(1,260)
Outstanding checks
Adjusted balances
P432,710
Answer: C
Bank
P638,340
1,800
68,950
(276,380)
P432,710
4. Accounts receivable (P22,500 + P67,300) 89,800
Accounts payable
230,000
Bank service charges
1,260
Cash in bank – Tsunami Bank
Advances to employees
Interest income
315,610
3,500
1,950
Answer: A
Cash in bank – Tsunami Bank
Petty cash fund
Time deposit
Money market placement
Cash and cash equivalents
P432,710
10,250
1,000,000
4,000,000
P5,442,960
Answer: D
Page 8
Problem 1-2
Computation of Correct Cash Balance
The following are the cash balances of LEONOR, INC. at
December 31, 2010:
Undeposited collections (in currency and coins)P40,200
Current account – unrestricted
620,000
Disbursement checks written and recorded in
December 2010 but are to be released to the
Payees in January 2011
130,000
Restricted time deposits (expected use in
June 2011)
2,000,000
Leonor, Inc. has agreed to maintain a P200,000 compensating
balance in its unrestricted current account in accordance
with the loan covenant.
How much should Leonor, Inc. report as ash on its December 31,
2010, statement of financial position?
A. P590,200
B. P2,790,200
C. P790,200
D. P750,000
Solution 1-2
Undeposited collections
P40,200
Current account – unrestricted
620,000
Unreleased/Undelivered checks
130,000
Total
P790,200
Answer: C
1. The P200,000 compensating balance should be reported as
part of cash because it is not legally restricted as to
withdrawal.
Page 9
2. The time deposits should be reported separately as shortterm financial assets or temporary investments in the
company’s statement of financial position because the term
is more than three months but within one year.
Problem 1-3
Cash and Cash Equivalents
The accountant of SANTIAGO COMPANY is in the process of
preparing the company’s financial statements for the year ended
December 31, 2010. He is trying to determine the correct balance
of cash and cash equivalents to be reported as a current asset
on the statement of financial position. The following items are
being considered:

Balances in the company’s accounts at the Metropolitan
Bank:
 Current account
P81,000
 Savings account
P132,600
 Undeposited customer checks of P22,200 (including a
customer check dated January 2, 2011 or P3,000).
 Currency and coins on hand of P3,480
 Savings account at the Northern Philippines Bank with a
balance of P2,400,000. This account is being used to
accumulate cash for future plant expansion (in 2011).
 Petty cash of P4,000 (currency of P1,200 and unreplenished
vouches for P2,800).
 P120,000 in a current account at the Northern Philippines
Bank. This represents a 20% compensating balance for
P600,000 loan with the bank. Santiago company is legally
restricted to withdraw the funds until the loan is due in
2013.
 Treasury bills:
Two-month maturity bills
P90,000
Seven-month bills
120,000
 Time Deposit
P100,000
Page 10
What is the correct balance of cash and cash equivalents to
be reported in the current assets section of the statement of
financial position?
A. P547,480
C. P430,280
B. P427,480
D. P327,480
Solution 1-3
Savings and current accounts – Metropolitan Bank (P132,600 +
81,000)
P213,600
Undeposited customer checks (P22,000 – P3000)
19,200
Currency and coins on hand
3,480
Petty Cash
1,200
Two-month treasury bills
Time deposit
90,000
100,000*
Total cash and cash equivalents
P427,480
*It is assumed that the term is three months or less and
therefore qualifies as a cash equivalent.
Answer: B
The following items are not included in the computation above:
1. P3,000 postdated customer check.
2. P2,400,000 cash balance at Northern Philippines Bank which
represents a compensating balance that is restricted as to
withdrawal.
3. P120,000 in a checking account at Northern Philippines Bank
which represents a compensating balance that is restricted
as to withdrawal.
4. 7-month treasury bills totaling P120,000.
 Under PAS I: Presentation of Financial Statements,
current assets include cash or cash equivalents
unless they are restricted from being exchanged or
used to settle a liability for at least 12 months
after the reporting date.
Page 11

As stated in PAS 7, cash equivalents are short-term,
highly liquid investments that are readily
convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value.
These normally include short-term investments with
maturities of three months or less from the date of
acquisition.
Problem 1-4
Identifying Cash Items
Which of the following items should be included in the cash
balance at December 31, 2010?
I.
– A check payable to the company, dated January 3, 2011
in payment of a sale made in December 2010.
II. – A check payable to a vendor, dated and recorded in the
company’s books on December 31, 2010, but not released
until January 4, 2011.
A. I only
C. Both I and II
B. II only
D. Neither I nor II
1-4


The check payable to the company (I) is a postdated
check, i.e., dated after the end of the reporting
period. The amount should be shown as a receivable on
the December 31, 2010 statement of financial
position.
The disbursement check (II) was not released until
after the end of the reporting period. The amount
should be included in the cash balance at December
31, 2010.
Answer: B
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Problem 1-5
Cash and Cash equivalents on the Statement of Financial Position
Your audit of the December 31, 2010, financial statements of
DIONISIO CORP. reveals the following:
Current account at Prime Bank
P
Current account at Prudent Bank
(30,000)
135,000
Treasury bills (acquired 3 months before maturity) 300,000
Treasury bills (maturity date is Dec. 31, 2011)
1,500,000
Payroll account
390,000
Foreign bank account – restricted (translated using the
December 31, 2010, exchange rate)
2,000,000
Postage stamps
1,250
Employee’s postdated check
4,500
IOU from the vice-president
8,000
Credit memo from a supplier for a purchase return
8,100
Traveler’s check
21,000
Money order
12,900
Petty cash fund (3,000 in currency and expense receipts for
P12,000)
15,000
What amount would be reported as “cash and cash equivalents” on
the statement of financial position on December 31, 2010?
A. P840,050
B. P873,900
C.P849,400
D.P861,900
Solution 1-5
Current account at Prudent Bank
P135,000
Treasury bills (acquired 3months before maturity)
300,000
Payroll account
390,000
Traveler’s check
21,000
Page 13
Money order
Petty cash fund
Total cash and cash equivalents
Answer: D
12,900
3,000
P861,900
Problem 1-6
Compensating Balance
VICTORIA, INC. needs P2,000,000 to finance its expansion
program. Victoria, Inc. is negotiating a loan with Metropolis
Bank which requires 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 of
P20,000 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. P2,200,000
C. P1,980,000
B. P2,000,000
D. P2,220,000
2. What is the effective interest rate on the loan?
A. 13.2%
C. 13%
B. 11.8%
D. 12%
Solution 1-6
1. (X= Principal amount of the loan)
10%X
= P20,000 +
(X – P2,000,000)
10%X
= P20,000 +X – P2,000,000
10%X-X
= -P1,980,000
90%X
= P1,980,000
X
= P1,980,000÷90%
X
= P2,200,000
Answer: A
Page 14
2. Annual interest payment (P2,200,000 x 12%)
P264,000
Interest income on the loan proceeds in the compensating
balance (P200,000 x %)
4,000
Effective interest
P
260,000
Divide by loan proceeds
÷ P 2,000,000
Effective interest rate
13%
Answer: C
Problem 1-7
Compilation of Correct Cash Balance
The Cash account of the BEA CORPORATION as of December 31, 2010
was composed of the following:
On deposit in current account with the Bank of PI
Cash collection not yet deposited to the bank
P900,000
350,000
A customer’s check returned by the bank for
Insufficient fund
150,000
A check drawn by the Vice-President of the
Company dated January 15, 2011
70,000
A check drawn by a supplier dated December 28, 2010
for goods returned y the company
A check dated May 31, 2010 drawn by the company the
Bank of Manila in payment of custom duties. Since
the importation did not materialize, the check was
returned by the customs broker. This check was an
outstanding check in the reconciliation of the Bank
60,000
of Manila.
410,000
Petty cash fund of which P10,000 is in currency,
P7,200 in form of employee’s IOUS; and P2,800 is
supported by approved petty cash vouchers for
expenses all dated prior to closing of the books on
December 31, 2010
Total
20,000
P1,960,000
Less: Overdraft with the Bank of Manila secured by
Page 15
a chattel mortgage on the inventories
Cash balance per ledger
300,000
P1,660,000
What is the amount of cash to b e reported on the December 31,
2010 statement of financial position of Bea Company?
Solution 1-7
Current account – Bank of PI
Undeposited collection
P900,000
350,000
Supplier’s check for goods returned by the company
60,000
Petty cash fund
10,000
Bank of Manila (P410,000 – P300,000)
Correct cash balance
110,000
P1,430,000
Problem 1-8
Petty Cash Fund
On January 1, 2010, JERVS COMPANY established a petty cash fund
of P10,000. On December 31, 2010, the petty cash fund was
examined and found to have receipts and the documents for
miscellaneous general expenses amounting to P8,120. In addition,
there was cash amounting to P1,500.
1. What is the amount of petty cash shortage or overage?
A. P380 overage
C. P1,880 shortage
B. P380 shortage
D. P1,880 overage
2. What entry would be required to adjust the petty cash fund
on December 31, 2010?
A. Miscellaneous general expenses
8,120
Cash short or over
380
Petty cash fund
8,500
B. Miscellaneous general expenses
8,120
Cash short or over
380
Petty cash fund
7,740
C. Miscellaneous general expenses
8,120
Petty cash fund
8,120
D. Miscellaneous general expenses
8,500
Cash short or over
380
Petty cash fund
8,120
Solution 1-8
1. Cash
Miscellaneous general expenses
Petty cash accounted
Petty cash per ledger
Petty cash
P1,500
8,120
9,620
10,000
P 380
Answer: B
2. Miscellaneous general expenses
Cash short or over
Petty cash fund
Ansawer: A
8,120
380
8,500
Problem 1-9
Petty Cash Fund
The auditor for SAMANTHA, INC. examined the petty cash fund
immediately after the close of business, July 31, 2010, the end
of the company’s natural business year. The petty cash custodian
presented the following during the count:
Currency
P1,650
Petty cash vouchers:
Page 17
Postage
420
Office supplies expense
900
Transportation expense
340
Computer repairs
800
Advances to office staff
1,500
A check drawn by Samantha, Inc., payable to the
petty cash custodian
Postage stamps
An employee’s check, returned by bank, marked NSF
7,200
300
1,000
An envelope containing the currency of P1,890
for a gift for a retiring employee
1,890
P16,000
The general ledger shows an imprest petty cash fund balance of
P16,000.
1. How much is the petty cash shortage or overage?
A. P2,190 overage
C. P1,890 shortage
B. P2,190 shortage
D. P1,890 overage
2. What is the adjusted balance of the petty cash fund at July
31, 2010?
A. P10,740
C. P7,200
B. P3,540
D. P8,850
Solution 1-9
1. Currency
Petty cash vouchers (P420 + P900 + P340 + P800
+ P1,500)
Replenishment check
Employee’s NSF heck
Petty cash accounted
Petty cash fund per ledger (custodian’s
accountability)
Petty cash shortage
P1,650
3,960
7,200
1,000
13,810
16,000
P 2,190
Answer: B
Page 18
2. Currency
Replenishment check
Adjusted petty cash balance
P1,650
7,200
P8,850
Answer: D
Problem 1-10
Petty Cash Fund
On January 1, TANYA CO. establishes a petty cash account and
designates Orly Reyes as petty cash custodian. The original
amount included in the petty cash fund is P10,000. The follow
disbursements are made from the fund:
Office supplies
P3,460
Postage
P2,240
Entertainment
840
The balance in the petty cash box is P3,200.
1. The person responsible, at all times, for the amount of the
petty cash fund is the
A. Chairman of the Board of Directors
B. President of the company
C. Petty cash custodian
D. General cashier
2. The following are appropriate procedures for controlling
the petty cash fund, except
A. To monitor variations in different types of expenditures,
the petty cash custodian files petty cash vouchers by
category of expenditure after replenishing the fund.
B. To replenish the fund, the general cashier issues a
company check to the petty cash custodian, rather than
cash.
Page 19
C. To determine that the fund is being accounted for
satisfactorily, surprise counts of the fund are made from
time to time by the internal auditor or other responsible
official.
D. Each individual to whom petty cash is paid is required to
present signed receipts to the petty cash custodian.
3. The entry to replenish the fund is
A. Office supplies expense
Postage expense
Entertainment expense
Cash
3,460
2,240
840
B. Office supplies expense
Postage expense
Entertainment expense
Cash over and short
Petty cash
3,460
2,240
840
260
6,540
6,800
C. Office supplies expense
Postage expense
Entertainment expense
Cash over and short
Cash
D. Office supplies expense
Postage expense
Entertainment expense
Petty Cash
3,460
2,240
840
260
6,800
3,460
2,240
840
6,540
4. The objective of establishing a petty cash fund is to
A. Cash checks for employees
B. Account for all cash receipts and disbarments
C. Account for cash sales
D. Facilitate payment of small, miscellaneous Items
5. What is the effect of not replenishing the petty cash at
year-end and not making the appropriate adjusting entry?
Page 20
A. Detailed audit is essential
B. The petty cash custodian should turn over the petty cash
to the general cashier.
C. Cash will be overstated and expenses understated
D. Expenses will be overstated and cash will be understated
Solution 1-10
1. One individual, the petty cash custodian, should be
responsible for the petty cash fund.
Answer: C
2. The petty cashier should not have custody of paid petty
cash vouchers to prevent their reuse.
Answer: A
3. Office supplies expense
3,460
Postage expense
Entertainment expense
Cash over and short
Cash
2,240
840
260
Computation of cash shortage:
Currency and coins
Petty cash vouchers (P3,460 + P2,240 + 840)
Petty cash accounted
Petty cash per ledger
Shortage
6,800
P3,200
6,540
9,740
10,000
P 260
Answer: C
4. Facilitate payment of small, miscellaneous items.
Answer: D
Page 21
5. Cash will be overstated and expenses understated.
Answer: C
Problem 1-11
Count of Petty Cash Fund and Undeposited Collections
In connection with your audit of the financial statements of
BENJAMIN CORP. for the year ended December 31, 2010, you
conducted a surprise count of the company’s petty cash fund and
undeposited collections at 8:20 a.m. on January 3, 2011. Your
count disclosed the following:
Bills and coins
Bills
Coins
P100.00
5 pieces
5.00
18 pieces
50.00
40 pieces
1.00
206 pieces
20.00
48 pieces
0.25
32 pieces
Postage stamps (unused) – P365
Checks
Date
Payee
Maker
Dec. 30
Cash
Custodian
Dec. 30
Benjamin Corp.
SLV, Inc.
Dec. 31
Benjamin Corp.
Mario Lansang,
Sales manager
Dec. 31
Benjamin Corp.
MSU Corp.
Dec. 31
Benjamin corp.
Ateneo, Inc.
Dec. 31
Taiwan Corp.
(not endorsed)
Benjamin Corp.
Amount
P
1,200
14,000
1,680
17,800
8,300
27,700
Unreiumbursed vouchers
Date
Payee
Description
Amount
Dec. 23
Mario Lansang
Advance trip for
P20,000
Sales manager
Tagaytay City
Page 22
28
Central Post Office
Postage stamps
1,620
29
Messengers
Transportation
150
29
Byte, Inc.
Computer repair
800
Other items found inside the cash box:
1. Unclaimed pay envelope of Juan MacDonut. Indicated on the
pay slip is his net salary of P7,500.Your inquiry revealtd
that Juan’S salary is mingled with the petty cash fund.
2. The sales manger’s liquidation report for his Tagaytay City
trip.
Cash advance received on Dec. 23
Less: Hotel accommodation, meals, etc.
P20,000
P16,000
Bus fare for two
1,200
Cash given to Pablo, salesman
1,000
Balance
18,200
P 1,800
Accounted for as follows:
Cash returned by Pablo to the sales manager P
Personal check of the sales manager
Total
120
1,680
P1,800
Additional information:
1.
The custodian is not authorized to cash checks.
2. The last official receipt included in the deposit on
December 30 is No. 4351 and the last official receipt issued
for the current year is No. 4355. The following official
receipts are all dated December 31, 2010.
OR No.
Amount
Form of Payment
4352
P13,600
4353
17,800
4354
3,600
Cash
4355
8,300
Check
Cash
Check
3. The petty cash balance per general ledger is P25,000. The
last replenishment of the fund was made on December 22, 2010.
Page 23
1. What is the amount of shortage due from the sales manager?
A. P240
C. P120
B. P1,800
D. P 0
2. What is the amount of undeposited collections on December 31,
2010?
A. P44,300
C. P57,300
B. P84,300
D. P41,000
3. The adjusting entries on December 31. 2010 should include a
net debit of Travel expenses of
A. P17,320
C.P22,570
B. P18,320
D.P18,080
4. What is the total unreimbursed vouchers on January 3, 2011
(count date)?
A. P22,450
C. P22,570
B. P22,085
D. P22,205
5. What is the total cash shortage?
A. P22,166
B. P8,166
C. P22,406
D. P20,486
Solution 1-11
1. Cash advance
Less: Actual cash disbursed
Hotel, meals, etc.
Bus fare
Pablo(P1,000-P120)
Cash that should be returned
Cash actually returned
Shortage due from the sales manager
P20,000
P16,000
1,200
880
18,080
1,920
1,680
P
240
Answer: A
Page 24
2. Collections per OR nos. 4352 – 4355
Unreceipted collections
Total undeposited collections
P43,300
14,000
P57,300
Answer: C
3. Travel expenses (16,000 + P1,200 + P880)
P18,080
Answer: D
4. Unreimbursed vouchers
(P20,000 + P1,620 + P150 + P800)
P22,570
Answer: C
5. Travel cash shortage
Answer: A
P22,166
Benjamin Corp.
CASH COUNT SHEET
January 3, 2011 – 8:20 a.m.
Bills and coins:
Denomination
Quantity
Amount
P100.00
5
P 500
50.00
40
2,000
20.00
48
960
5.00
18
90
1.00
206
206
0.25
32
8
Total
P 3,764
Checks:
Date
Maker
Amount
Dec. 30
Custodian
P 1,200
Dec. 30
SLV, Inc.
14,000
Dec. 31
Mario Lansang
Dec. 31
MSU Corp.
Dec. 31
Ateneo, Inc.
1,680
17,800
8,300
42,980
Page 25
Unreimbursed vouchers:
Date
Account
Amount
Dec. 23
Advances
P20,000
Dec. 28
Postage
Dec. 29
Transportation
1,620
150
Dec. 29
Repairs
800
22,570
Total cash accounted
P69,314
Less: Accountabilities
Petty cash
P25,000
Collections (per official receipts)
43,300
Unclaimed salary
7,500
Excess travel advance
1,680
Unreceipted collection from SLV, Inc. 14,000
CASH SHORTAGE
91,480
(P 22,166)
Benjamin Corp.
ADJUSTING JOURNAL ENTRIES
December 31,2010
1. Cash
14,000
Accounts receivable
2. Advances to officers and employees
Postage expense
Transportation expense
Repairs expense
Petty cash fund
3. Unused postage
Postage expense
4. Cash
14,000
20,000
1,620
150
800
22,570
365
365
7,500
Salaries payable
7,500
Page 26
5. Receivable from custodian
Cash
22,166
22,166
6. Travel expenses
(P16,000 + P1,200 + P880)
18,080
Petty cash fund
1,680
Advances to officers and employees
19,760
Problem 1-12
Bank Reconciliation; Computation of Undeposited Collections
On July 7, 2010, ANING CORP. received its bank statement for the
month ending June 30. The statement showed a P209,500 balance
while the cash account balance on June 30 was P35,000. In
reconciling the balances, the auditor discovered the following:
1. The June 30 collections amounting to P176,000 were recorded
on the books but were not deposited until July.
2. The bank charged the company for a DAUD (Drawn Against
Uncollected Deposit) check of a customer.
3. A paid check for P24,300 was entered incorrectly in the
cash disbursements journal as P42,300.
4. Outstanding checks as of June 30 totaled P354,400.
1. What is the amount of the customer’s DAUD check?
A. P14,100
C. P21,900
B. P3,900
D. P334,900
2. The adjusted cash balance is
A. P31,100
B. P387,900
C. P38,900
D. P4,900
Page 27
3. The cash balance per ledger should be increased (decreased)
by
A. P3,900
C. P(3,900)
B. P178,400
D. P(178,400)
4. To gather evidence regarding the balance per bank in a bank
reconciliation, an auditor would examine all of the following
except
A. Year-end bank statement
B. Cutoff bank statement
C. Bank confirmation
D. General ledger
Solution 1-12
1. Customer’s DAUD check (see no.2)
P21,900
Answer: C
2.
Unadjusted balances
Bank charge for a DAUD check
Overstatement of book disbursement
(P42,300 – P24,300))
Outstanding checks
Undeposited collections(SQUEEZE)
Adjusted balances
Book
Bank
P35,000 P209,500
(21,900)
18,000
P31,100
(354,400)
176,000
P31,000
Answer: A
3. ADJUSTING JOURNAL ENTRIES
June 30, 2010
a. Accounts receivable
Cash
b. Cash
Accounts payable
21,900
21,900
18,000
18,000
Page 28
Net decrease in cash balance
(P21,900[a] – P18,000[b])
P3,900
Or
Balance of cash in bank per ledger
Adjusted cash balance
Net decrease in cash balance
P35,000
(31,100)
P 3,900
Answer: C
4. General ledger
Answer: D
Problem 1-13
Bank Reconciliation: Unadjusted to Adjusted Balances Format
The following data were taken from GARAY’s check register for
the month of April. Garay’s bank reconciliation for March showed
one outstanding check, check No. 178 for P2,150 (written on
March 20), and one deposit in transit for P4,350 (made on March
31).
Date
Item
Checks
Deposits
Balance
2010
April 1
Beginning Balance
6,150
1
Deposit
1
Check No. 179
250
32,567
4
Check No. 180
10,673
21,898
27
Deposit
29
Check No. 181
26,167
11,774
13,217
32,317
33,672
20,490
The following is from Garay’s bank statement of April:
Date
Item
Checks
Deposits
Balance
2010
April 1
Beginning Balance
3 Check No. 179
3,950
250
3,700
3 Deposit
5 Check No. 180
4,350
10,673
(2,623)
5 Automatic loan
5 Deposit
20 NSF check
20 Service charge
8,050
8,150
5,527
26,417
31,944
1,000
30,944
600
30,344
30 Interest
82
30,426
Assume that any errors or discrepancies you find are Garay’s,
not the bank’s.
What is the adjusted cash balance as of April 30?
A. P26,833
B. P26,838
C. P30,426
D. P26,872
Solution 1-13
Unadjusted balances
Outstanding checks
Check no.178
Check no.181
Book
Bank
P20,490
P30,426
P2,150
13,217
(15,367)
Deposit in transit
Error in recording deposit
(P26,417 – P26,167)
11,774
250
Automatic loan
8,150
Interest
NSF check
82
(1,000)
Bank service charge
(600)
Arithmetic error for:
Check no. 179 (P32,567 – P32,067)
(500)
Check no. 180 (P21,898 – P21,894)
(4)
Check no. 181 (P20,490 – P20,455)
(35)
Adjusted balances
P26,833
P26,833
Answer: A
Page 30
Problem 1-14
Bank Reconciliation: Bank to Book Format
The information below relates to CHARMAINE COMPANY’s cash in
bank:
Balance per bank statement, December 31, 2010
P27,910
Collections recorded but not yet deposited in bank
1,950
NSF check – not recorded on books nor redeposited
2,000
Bank charges not recorded
40
Note collected by bank and not recorded on books
2,800
Outstanding checks
3,000
The cash balance in the books of Charmaine Company on December
31, 2010, is:
A. P26,020
B. P32,100
C. P22,200
D. P26,100
Solution 1-14
Balance per bank
P27,910
Collections not yet deposited
1,950
NSF check
2,000
Bank charges
40
Note collected by bank
(2,800)
Outstanding checks
(3,000)
Balance per books
P26,100
Answer: D
Page 31
Problem 1-15
Computation of Outstanding Checks
The bank reconciliation for December for DONNIE CO. included the
following information:
Checks and debit memos recorded by bank in December,
including a December service charge of P1,000
November bank service charge recorded on the books in
December
Cash disbarments per books during December
Customer’s NSF check returned by bank in December
(no entry on company books)
Customer’s NSF check returned by bank in December(no
entry on company book in either November or December)
Deposit in transit, December 31
Outstanding checks, December 31
The outstanding checks at November 30 totaled
A. P12,112
B. P13,112
C. P27,112
D. P10,112
P24,320
2,000
34,658
16,000
7,600
5,421
37,450
Solution 1-15
Outstanding checks, November 30 (SQUEZE)
Add: Checks issued during December
Book disbursements during December
Less: November bank service charge
Total
P12,112
P34,658
2,000
Less: Checks paid by bank during December
Bank disbursements during December
Less: NSF check returned in Dec. P16,000
Dec. bank service charge
1,000
Outstanding checks, December 31
32,658
44,770
P24,320
17,000
7,320
P37,450
Answer: A
Problem 1-16
Bank Reconciliation: Unadjusted to Adjusted Balances Format
ELAINE INC.’s newly hired accountant prepared the following cash
reconciliation as of June 30, 2010:
Bank
Unadjusted balances
Deposits in transit
Bank service charges
Check written and recorded on
June 30 but was released on July 4
Outstanding checks
NSF check
Loan proceeds (company not informed)
Erroneous bank debit
Customer’s checks received on June 29
(all dated July 6), included in
deposits in transit
Certified check
Unlocated difference
P268,367
Book
P79,367
(15,000)
1,000
(12,000)
36,000
17,000
200,000
15,000
9,000
11,000
P477,367
345,000
P477,367
The adjusted cash balance of Elaine Inc. on June 30, 2010,
should be
A. P265,367
C. P273,367
B. P253,367
D. P264,367
Solution 1-16
Unadjusted balances
Deposits in transit, net of post-dated
checks (P15,000 – P9,000)
Bank service charges
Unreleased check
Book
P79,367
Bank
P268,367
6,000
(1,000)
12,000
Page 33
Outstanding checks, net of certified check
(P36,000 – P11,000)
NSF check
(17,000)
Loan proceeds
200,000
Erroneous bank debit
Post-dated checks
(9,000)
Adjusted balances
P264,367
(25,000)
15,000
P264,367
Answer: D
Problem 1-17
Bank Reconciliation: Unadjusted to Adjusted Balances Format
The following information pertains to FLINT CORP.:
Flint Corp.
BANK RECONCILIATION
November 30, 2010
Balance per bank statement
Less: Outstanding checks
No. 4321
4329
4340
4341
P435,000
P6,000
15,000
1,700
4,675
Add: Deposit in transit
27,735
P407,625
16,200
Balance per books
P423,825
CHECK REGISTER
December 2010
Date
Payee
Dec. 1
3
7
12
15
16
18
21
22
28
San Beda Inc.
Miriam Corp.
UE Enterprises
PSBA Corp.
Payroll
BU, Inc.
New Era Co.
UST, Inc.
Petty cash
fund
Payroll
Vouchers
Payable
No.
4342
4343
4344
4345
4346
4347
4348
4349
4350
4351
P
10,000
4,200
3,755
12,000
96,000
6,300
14,200
7,000
10,000
98,000
P261,455
Discount
P500
120
142
P762
Cash
P9,500
4,200
3,755
11,880
96,000
6,300
14,058
7,000
10,000
98,000
P260,693
BANK STATEMENT
BANKABLE BANK
Page 1 of 1
PERIOD: NOVEMBER 30, 2010 – DECEMBER 31, 2010
No.: 001-43-44
Check
Date Decription
Number
Debit
Credit
Balance
Balance last statement
P435,000
Dec. 1 Cash Deposit
P16,200
451,200
1 Check issued
4329
P15,000
436,200
4 Check issued
4342
9,500
426,700
4 Check issued
4341
4,675
422,025
5 Check deposit
49,000
471,025
6 Check deposit
4343
4,200
466,825
8 Check deposit
14,000
480,825
10 Check issued
4344
3,755
477,070
15 Encashment
4346
96,000
381,070
22 Encashment
4350
10,000
371,070
28 Encashment
4351
98,000
273,070
29 Debit memo service charge
1,000
272,070
29 Credit memo interest
1,550
273,620
Deposit in transit at December 31 totaled P49,000.
1. What is the total book receipts for December?
A. P113,550
C. P63,000
B. P80,750
D. P112,000
Page 35
2. What is the cash balance per books on December 31, 2010
A. P275,132
C. P291,332
B. P226,132
D. P274,370
3. What is the total outstanding checks on December 31, 2010?
A. P68,313
C. P46,938
B. P39,238
D. P40,938
4. What is the adjusted cash balance on November 30, 2010?
A. P446,375
C. P226,682
B. P275,682
D. P274,920
5. What is the adjusted cash balance on December 31, 2010?
A. P281,682
C. P226,682
B. P275,682
D. P274,920
Solution 1-17
1. Dec. 5 deposit
Dec. 8 deposit
Dec. 31 deposit in transit
Total collections/book receipts
P49,000
14,000
49,000
P112,000
Answer: D
2. Cash balance, November 30
Add: December receipts(see no. 1)
Total
Less: Disbursements per check register
Cash balance, December 31
P423,825
112,000
535,825
260,693
P275,132
Answer: A
3. Outstanding checks, December 31:
Check no. 4321
4340
P6,000
1,700
Page 36
4345
4347
4348
4349
Total
Answer: C
11,880
6,300
14,058
7,000
P46,938
4. Adjusted cash balance, Nov. 30, 2010
P423,825
The balance per books as determined and shown on the November 30
reconciliation is also the adjusted cash balance on that date.
Notice that there are no book reconciling items in November.
Answer: C
5.
Unadjusted balances
Deposits in transit
Outstanding checks
Service charge
Interest
Adjusted balances
Book
P275,132
(1,000)
1,550
P275,682
Bank
P273,620
49,000
(46,938)
P275,682
Answer: B
Problem 1-18
Bank Reconciliation: Unadjusted to Adjusted Balances Format
EDGARDO CO. was organized on January 2, 2010. The following
items are from the company’s trial balance on December 31,2010.
Ordinary share capital
Share premium
P1,500,000
150,000
Page 37
Merchandise inventory
Land
Building
Furniture and fixtures
Accounts Receivable
Accounts Payable
Notes-payable Bank
Sales
Operating expenses (including depreciation
Of P400,000)
69,000
1,000,000
1,400,000
367,000
165,000
389,650
500,000
6,235,200
1,005,150
Additional information is as follows:
1.
2.
3.
4.
5.
Deposit in transit, December 31
Service charge for December
Outstanding checks, December 31
Bank Balance, December 31
Edgardo Co.’s mark up on sales is 30%
1.
What is the total collection from sales?
A. P6,114,967
C. P6,235,200
B. P4,119,240
D. P6,069,800
2.
What is the total payments for merchandise purchases?
A. P3,905,990
C. P4,043,990
B. P4,649,140
D. P5,914,550
3.
What is the total cash receipts per books?
A. P7,819,800
C. P8,219,800
B. P8,169,800
D. P8,069,800
4.
What is the total cash disbursement per books?
A. P7,816,140
C. P8,021,290
B. P7,416,140
D. P7,278,140
5.
6.
P364,000
2,000
475,000
892,000
What is the cash balance per books on December 31?
A. P653,600
C. P1,203,660
B. P803,660
D. P707,060
CPA EXAMINATION REVIEWER: AUDITING PROBLEMS
Page 38
What is the adjusted cash balance on December 31?
A. P801,660
C. P1,201,660
B. P651,660
D. P803,660
☺Solution 1-18
1. Sales
Less: Accounts Receivables
Collections from customers
Answer: D
P6,235,200
165,400
P6,069,800
2. Cost of Sales (P6,235,200 x 70%)
P4,364,640
Add: Merchandise Inventory, December 31
69,000
Goods Available for sale/Purchases (there is
no beginning inventory)
4,443,640
Less: Accounts Payable, December 31
389,650
Payments for purchases
P4,043,990
Answer: C
3. Issue price of ordinary shares
(P1,500,000 + P150,000)
P1,650,000
Notes Payable – Bank
Collections
Total Cash Receipts per books
Answer: C
500,000
6,069,800
P8,219,800
4. Land
P1,000,000
Building
1,400,000
Furniture and fixtures
367,000
Operating Expenses paid(P1,005,150-P400,000)
605,150
Payment for purchases
4,043,990
Total cash disbursements per books
P7,416,140
Answer: B
CHAPTER 1 AUDIT OF CASH EQUIVALENTS
Page 39
5. Cash receipts per books(see no. 3)
Cash disbursements per books (see no. 4)
Cash balance per books, December 31
Answer: B
P8,219,800
(7,416,140)
P 803,660
6.
Bank
P892,000
384,660
Unadjusted balances
Deposit in transit
Service charge
Outstanding checks
Adjusted Balances
Book
P803,660
(2,000)
P801,660
(475,000)
P801,660
Answer: A
Problem 1-19
Computation of Cash Receipts and Disbursements
In connection with your audit of the cash account of ANNIE
CORP., you gathered the following information.
a. Balance per bank, December 1, 2010
P145,000
b. Total bank receipts (credits) in December
346,000
c. Balance per bank, December 31, 2010
114,500
d. Outstanding checks, Nov. 30, 2010(including
P12,000 paid by bank in December)
67,000
e. Outstanding checks, December 31, 2010(including
checks issued in November)
94,162
f. Deposit in transit, November 30, 2010
39,458
g. A customer’s check received on December 4, 2010,
was returned by bank on December 7 marked
“NSF.” It was redeposited on December 8, 2010.
The only entry made was to take up the
Collection on December 4, 2010
11,143
CPA EXAMINATION REVIEWER: AUDITING PROBLEMS
1. What is the total book receipt in December?
A. P295,399
C. P334,857
B. P306,542
D. P346,000
2. What is the total bank disbursement in December?
A. P315,550
C. P231,500
B. P376,500
D. P201,000
3. What is the book disbursements in December?
A. P447,519
C. P403,662
B. P331,519
D. P392,519
40
Solution 1-19
1. Bank receipts (credits) in December
Less: Deposit in transit, November 30
NSF check redeposited in December
Book receipts (debits) in December
P346,000
P39,458
11,143
50,601
P295,399
Answer: A
2. Bank balance, December 1, 2010
Add: Bank receipts in December
Total
Less: Bank balance, December 31, 2010
Bank disbursements in December
P145,000
346,000
491,000
114,500
P376,500
Answer: B
3. Bank disbursements in December
Add: Book disbursements in December
But not in December bank disbursements:
Checks issued in December, outstanding
At December 31:
Outstanding checks, Dec. 31
P94,162
Less: Checks issued in Nov.,
P376,500
Page 41
Still outstanding at Dec. 31
(P67,000 – P12,000)
55,000
Total
Less: Bank disbursements in December
but not in book disbursements
in December:
November outstanding checks
paid by bank in December P12,000
NSF check
11,143
Book disbursements (credits) in December
39,162
415,662
23,143
P392,519
Alternative computation:
Bank disbursements in December
Add: Outstanding checks, December 31
Total
P376,500
94,162
470,662
Less: Outstanding checks, Nov. 30
NSF check
Book disbursements in December
67,000
11,143
78,143
P392,519
Answer: D
Problem 1-20
Petty Cash Fund; Bank Reconciliation
Your audit of the cash account of JUNIE CORP. disclosed the
following information:
1. Cash in bank balance per books, Dec. 31, 2010
2. Bank statement balance, December 31, 2010
3. Note collected by bank in December (principal plus
interest of P800, less collection fee of P200)
4. Debit memo for a check book
5. Deposits in transit, Dec. 31 2010
6. Transposition error made by bank in
Recording deposit of December 28:
Correct amount
P45,000
Recorded as
54,000
7. Erroneous bank debit
8. Included in the Cash in bank account is petty cash
Fund of P10,000. Your count on December 31,
2010, revealed the following fund items:
Currency and coins
P 3,000
Supplies
2,400
Transportation
100
IOUs
4,000
9. Erroneous bank credit
10. Outstanding checks (including a certified
Check of P10,000)
P35,000
60,000
27,000
Page 42
15,200
9,000
26,700
9,500
11,000
39,400
1. What is the principal amount of the note collected by bank
in December?
A. P27,600
C. P28,200
B. P26,800
D. P27,000
2. What is the adjusted cash in bank balance at December 31,
2010?
A. P52,500
C. P53,000
B. P52,700
D. P51,900
3.
The cost of checkbook is
A. P600
B. P300
C. P0
D. P100
4.
What is the amount of petty cash shortage at December 31,
2010?
A. P400
C. P100
B. P500
D. 0
5.
What is the adjusted petty cash balance?
A. P9,500
C. P3,000
B. P3,500
D. P10,000
Page 43
Solution 1-20
1. Principal(SQUEEZE)
Interest
Collection free
Proceeds credited by bank
P27,000
Answer: A
2.
Book
P35,000
27,600
(100)
Unadjusted balances
Note collected by bank
Debit memo for a checkbook
Deposit in transit
Transposition error in recording deposit
(P54,000 – P45,000)
Erroneous bank debit
Petty cash fund
10,000
Erroneous bank credit
Outstanding checks, net of certified check
(P39,400 – P10,000)
Adjusted balances
P52,500
Bank
P60,000
15,200
(9,000)
26,700
(11,000)
(P29,400)
P52,500
Answer: A
3. Cost of checkbook (see no. 2)
4. Petty cash fund per ledger
Petty cash accounted
Petty cash shortage
P100
P10,000
9,500
P
500
Answer: B
Adjusted petty cash balance – currency & coins
P3,000
Answer: C
Page 44
Problem 1-21
Computation of Book Disbursements
Presented below is the November 30, 2010, reconciliation of the
cash account of RAM, INC.:
Balance pre bank statement, November 30, 2010
Add: Deposits in transit
Total
Less: Outstanding checks
P49, 500
Erroneous Bank Credit
18, 436
Balance per books, November 30, 2010
Additional Information:
• Balance per bank statement, December 31, 2010
• Bank receipts (credit) in December
• Bank disbursements (debits) in December
(Including all outstanding checks on
November 30, 2010, and the erroneous
Bank credit in November)
• Outstanding checks, December 31, 2010
P78, 750
36, 415
115, 165
67, 936
P47, 229
P59, 214
139, 461
124, 554
74, 110
What is the total book disbursements in December?
A. P149, 164
C. P118, 380
B. P130, 728
D. P124, 554
Solution 1-21
Bank disbursements in December
Add: Book disbursement in December
Not yet taken up by bank:
Outstanding checks, December 31
Total
Less: Bank disbursements in December
But not on books:
Outstanding checks, Nov. 30
Correction of November erroneous
Bank credit
Book disbursements in December
Answer: B
P 124, 554
74, 110
Page 45
198, 664
P 49, 500
18, 436
67, 936
P 130, 728
Problem 1-22
Bank Reconciliation
The cash receipts and the cash payments of LIEZEL COMPANY for
April 2010 follow:
Cash Receipts (CR)
Cash Payment (CP)
Date
Cash Debit
Check No.
Cash Credit
April 2
P 208, 700
4113
P 44, 550
8
20, 350
4114
7, 350
10
27, 950
4115
96, 500
16
109, 350
4116
33, 200
22
92, 700
4117
73, 600
29
53, 000
4118
50, 000
30
16, 850
4119
31, 600
Total
P 528, 900
4120
83, 750
4121
5, 000
4122
120, 650
Total
P 546, 200
The cash account of Liezel Company shows the following
information at April 30, 2010:
Page 46
Cash
Date
April 1
30
30
Item
Balance
Ref.
CR 6
CP 11
Debit
Credit
528, 900
546, 200
Balance
95, 550
624, 450
78, 250
Liezel Company received the following bank statement on April
30, 2010:
Bank Statement for April 2010
Beginning balance
Deposits and other credits:
April
1
P 16, 300
EFT
4
208, 700
9
20, 350
12
27, 950
17
109, 350
22
68, 400
BC
23
92, 700
Check and other Debits:
April 7
P 44, 550
13
69, 500
14
45, 150
US
15
7, 350
18
33, 200
21
10, 950
EFT
26
73, 600
30
50, 000
30
1, 000
SC
Ending Balance
Explanation: EFT -- electronic funds transfer
US
-- unauthorized signature
BC
-- bank collection
SC
-- service charge
P 95, 550
543, 750
(335, 300)
P 304, 000
Page 47
Additional data for the bank reconciliation include the
following:
a.
The EFT deposit was a receipt of the rent. The EFT debit
was a monthly insurance payment.
b.
The unauthorized signature check was received from Lester
Soon.
c.
The P 68,400 bank collection of a note receivable on April
22 included P 9,250 interest revenue.
d. The correct amount of check number 4115, a payment on n
account, is P 69,500. (Liezel's accountant mistakenly recorded
the check for P 96, 500).
1. What is the amount of deposits in transit on April 30?
A. P 53,000
C. P 45,150
B. P 69,850
D. P 115,000
2. What is the amount of outstanding checks on April 30?
A. P 241,000
C. P 286,150
B. P 337,500
D. P 310,500
3. What is the amount of bank receipts in April?
A. P 543,750
C. P 459,050
B. P 527,450
D. P 528,900
4. What is the amount of bank disbursements in April?
A. P 290,150
C. P 289,150
B. P 335,300
D. P 316,150
5. What is the correct cash balance as of April 30?
A. P 132,850
C. P 122,150
B. P
87,700
D. P 223,150
Page 48
Solution 1-22
1. Deposits in transit, April 30:
April 29 collection per CR
P 53,000
April 30 collection per CR
Total
Answer: B
2. Outstanding
Check no.
Check no.
Check no.
Check no.
Total
Answer: A
16,850
P 69,850
checks, April 30:
4119
4120
4121
4122
P 31,600
83,750
5,000
120,650
P 241,000
3. Bank receipts in April
(Total Deposits and other credits)
Answer: A
P 543,750
4. Bank disbursements in April
(Total checks and other debits)
Answer: B
P 335,300
5.
Unadjusted balances, April 30
Deposits in transit
Outstanding checks
Error in check no. 4115
(P 96,500-P 69,500)
EFT-rent
Bank collection
Unauthorized signature check
Book
P 78,250
Bank
P 304,000
69,850
(241,000)
27,000
16,300
68,400
45,150
Page 49
EFT-insurance
Service charge
Adjusted balances, April 30
Answer: A
(10,950)
(1,000)
P 132,850
P 132,850
Problem 1-23
Bank Reconciliation: Unadjusted to Adjusted Balances Format
FERMIN COMPANY's check register shows the following entries for
the month of December:
Date
2010
Dec. 1
5
7
11
26
29
Checks
Beginning Balance
Deposit
Check #14344
P 32,500
Check #14345
14,000
Deposit
Check #14346
8,600
Deposits
P 65,000
49,000
Balance
P 89,300
154,300
120,800
106,800
155,800
147,200
Fermin's bank reconciliation for November revealed one
outstanding check (No. 14343) for P 12,000 (written on November
28), and one deposit in transit for P 5,550 (made on November
29).
The following is from Fermin's bank statement for December 2010:
Date
2010
Dec. 1
1
4
5
14
15
20
29
31
Checks
Beginning Balance
Deposit
Check No. 14344
P 32,500
Deposit
Check No. 14345
14,000
Loan proceeds
NSF check
7,600
Service charge
1,000
Interest
Deposits
P 5,550
56,000
500,000
3,600
Balance
P 95,750
101,300
68,800
124,800
110,800
610,800
603,200
602,200
605,800
Page 50
Assume that all errors were committed by Fermin Company, not the
bank.
1. Adjusted cash balance on November 30
A. P 89,300
C. P 102,200
B. P 95,750
D. P 101,300
2. Outstanding checks on December 31
A. P 46,500
C. P 8,600
B. P 45,500
D. P20,600
3. Deposit in transit on December 31
A. P 52,600
B. P 49,000
C. P 5,550
D. P 43,450
4. Total Bank receipts in December
A. P 114,000
C. P 565,150
B. P 119,550
D. P 61,550
5. Adjusted cash balance on December 31
A. P 663,800
C. P 748,200
B. P 634,200
D. P 597,200
Solution 1-23
1. Balance per bank, Nov. 30
Outstanding check (no. 14343)
Deposit in transit
Adjusted bank balance, Nov. 30
Answer: A
P 95,750
(12,000)
5,550
P 89,300
Page 51
Note that because there are no book reconciling items in
November. The adjusted bank balance agrees with the cash in bank
balance per ledger on November 30.
2. Outstanding checks on December 31:
Check no. 14343
Check no. 14346
Total
Answer: D
P 12,000
8,600
P 20,600
3. Deposit in transit on December 31:
Dec. 26 collection
Answer: B
P 49,000
4. Total Bank receipts in December
Answer: C
P 565,150
The total bank receipt is the total amount credited by the bank
during the period.
5.
Unadjusted balances
Book
P 147,200
Bank
P 605,800
Deposit in transit
Outstanding checks (see no. 2)
Error in recording deposit
(P 65,000-P 56,000)
(9,000)
Error in arithmetic for Check No. 14344
1,000
Loan proceeds
500,000
NSF check
(7,600)
Interest
3,600
Service charge
(1,000)
Adjusted balances
P 634,200
Answer: B
49,000
(20,600)
P634,200
Page 52
Problem 1-24
Bank Reconciliation: Unadjusted to Adjusted Balances Format
The accountant of NARCISA CO. provided the following data in
reconciling the April 30 cash in bank balance:
Balance per bank, April 30
P 130,350
Balance per books, April 30
85,000
Bank Service charge
2,000
Deposits in transit
49,000
Outstanding checks
17,650
Note collected by bank including P 11,200
Interest (NARCISA CO. not yet informed) 136,000
Check drawn by XYZ Co. erroneously
Charged by bank to Narcisa's account
54,600
A transposition error was made in recording a sale and deposit
in the sales journal and cash receipts journal in April.
Correct amount
P 13,658
Recorded as
P 16,358
1. What is the adjusted cash balance on April 30?
A. P 219,000
C. P 216,300
B. P 221,700
D. P 161,700
2. Prepare journal entries to correct the cash account.
Solution 1-24
1.
Book
Bank
Unadjusted balances
Bank service charge
P 85,000
(2,000)
P 130,350
Page 53
Deposits in transit
Outstanding checks
Collection of note
Erroneous Bank debit
Transposition error
(P 16,358-P 13,658)
Adjusted Balances
Answer: C
49,000
(17,650)
136,000
54,600
(2,700)
P 216,300
P 216,300
2. Adjusting Journal Entries
April 30
a. Bank service charges
Cash in bank
b. Cash in bank
Interest income
Notes receivable
c. Sales
Cash in bank
2000
2000
136,000
11,200
124,800
2,700
2,700
Problem 1-25
Bank Reconciliation: Unadjusted to Adjusted Balances Format
The following information is included in EMIL CORPORATION's bank
statement for the month of March:
A customer's check has been marked "NSF"
by the bank and returned
P 13,000
Bank service charge for March
1,200
In comparing the bank statement to the company's cash records,
you found:
Page54
Outstanding checks on March 31
P 184,000
Deposits made but are not yet shown in the
April bank statement
14,000
The deposits in transit and outstanding checks
correctly taken up in the company's books. You
customer's check for P 17,400 that had not yet
and had not been recorded in Emil's book. Your
show a cash balance of P 36,420.
have been
also found a
been deposited
client's books
What is Emil Corporation's correct cash balance at March 31?
A. P 52,620
C. P 22,220
B. P 53,620
D. P 39,620
Solution 1-25
Balance per books
Unrecorded and undeposited customer's check
Bank service charge
NSF check
Adjusted cash balance
Answer: D
P 36,420
17,400
(1,200)
13,000)
P 39,620
Problem 1-26
Bank Reconciliation: Bank to Book Format
The following information pertains to a checking account of a
company at June 30, 2010.
Balance per bank statement
P 200,000
Interest earned for the second quarter
500
Outstanding checks
15,000
Customer's checks returned for insufficient funds
5,000
Deposit in transit
25,000
Page 55
At June 30, 2010, the cash balance per books is
A. P 214,500
C. P 185,500
B. P 210,000
D. P 200,000
Solution 1-26
Balance per bank statement
Outstanding checks
Deposit in transit
Interest earned
P 200,000
(15,000)
25,000
(500)
NSF checks
Balance per books at June 30, 2010
`
Answer: A
5,000
P 214,500
Problem 1-27
Computation of Cash Balance per Bank Statement
A company is reconciling its bank statement with internal
records. The cash balance per the company's books is P 45,000.
There are P 5,000 of bank charges not yet recorded, P 7,500 of
outstanding checks, P 12,500 of deposits in transit, and P
15,000 of bank credits and collections not yet taken up in the
company's books.
What is the cash balance per bank?
A. P 20,000
C. P 40,000
B. P 30,000
D. P 50,000
Solution 1-27
Balance per books
Bank charges
Outstanding checks
P 45,000
(5,000)
7,500
Page 56
Deposits in transit
Bank credits and collections
Balance per bank
Answer: D
(12,500)
15,000
P 50,000
Problem 1-28
Computation of Adjusted Cash Balance
A company shows a cash balance of P 175,000 on its bank
statement dated June 30. As of June 30, there are P 55,000 of
outstanding checks and P 37,500 of deposits in transit.
What is the correct cash balance on the company books as of June
30?
A. P 212,500
C. P 120,000
B. P 267,500
D. P 157,500
Solution 1-28
Balance per bank statement
Outstanding checks
Deposits in transit
Adjusted cash balance
Answer: D
P 175,000
(55,000)
37,500
P 157,500
Problem 1-29
Computation of Adjusted Cash Balance
The cash account shows a balance of P 225,000 before
reconciliation. The bank statement does not include a deposit of
P 11,500 made on the last day of the month. The bank statement
shows a collection by the bank of P 4,700 and a customer's check
for P 1,600 was returned because it was NSF. A customer's check
for P 2,250 was recorded on the books as P 2,700, and a check
written for P 395 was recorded as P 485.
Page 57
What should be the correct cash balance?
A. P 227,740
C. P 228,640
B. P 239,240
D. P 227,560
Solution 1-29
Balance per books
P 225,000
Bank collection
4,700
Customer's NSF check
(1,600)
Overstatement of cash receipt (P 2,700-P 2,250)
(450)
Overstatement of cash disbursement (P 485-P 395)
90
Adjusted cash balance
P 227,740
Answer: A
Problem 1-30
Computation of Outstanding Checks
On July 5, 2010, EMILIA CORP. received its bank statement for
the month ending June 30. The statement showed a P 209,500
balance while the cash account balance on June 30 was P 35,000.
In reconciling the balances, the auditor discovered that:
1. The June 30 collections of P 176,000 were recorded on the
books but were not deposited until July.
2. The bank service charges for the month of June totaled P
3,000.
3. A paid check for P 24,300 was entered incorrectly in the cash
payments journal as P 34,200.
Page 58
What is the total outstanding checks at June 30, 2010?
A. P 75,400
C. P 363,400
B. P 343,600
D. P 353,500
Solution 1-30
Balance per books, June 30, 2010
Bank Service charges
Overstatement of disbursement (P 34,200-P 24,300)
Adjusted cash balance
Balance per bank, June 30, 2010
P
Add: Undeposited Collections
Total
P
Less: Adjusted cash balance (see above computation)
Outstanding checks, June 30, 2010
P
Answer: B
P 35,000
(3,000)
9,900
P 41,900
209,500
176,000
385,500
41,900
343,600
Problem 1-31
Bank Reconciliation: Unadjusted to Adjusted Balances Format
In connection with an audit, you are given the following bank
reconciliation.
BANK RECONCILIATION
December 31, 2010
Balance per ledger, December 31, 2010
Add: Collections received on the last day of
December and charged to "Cash in Bank"
on books but not deposited
Debit memo for customer's check
unpaid (check is on hand but not entry has
P 34,350
5,325
been made on the books)
Debit memo for bank service charge for December
Deduct:
Outstanding Checks
(see detailed list below)
P 18,625
Credit memo for proceeds of a
note receivable which had been
left at the bank for collection but
which has not been recorded as
collected
8,000
Check for an account payable
entered on books as P 12,625
but drawn and paid by bank
as P 16,225
3,600
Computed balance
Unlocated difference
Balance per bank (checked to confirmation)
4,000
1,000
P 46,675
Page 59
32,225
P 14,450
36,600
P 51,050
LIST OF OUTSTANDING CHECKS
December 31, 2010
Check No.
14344
14358
14367
14399
14401
14407
Amount
P 5,820
1,295
3,543
2,001
4,892
5,074
P 18,625
1. What is the correct amount of outstanding checks December 31?
A. P 18,625
C. P 17,625
B. P 22,625
D. P 21,625
Page 60
2. The journal entry to correct the outstanding checks should
include a
A. Debit to cash in bank of P 4,000
B. Credit to cash in bank of P 4,000
C. Debit to accounts payable of P 4,000
D. No journal entry is necessary
3. The correct amount of "unlocated difference" is
A. P 32,600
C. P 36,600
B. P 35,600
D. P 0
4. The cash in bank to be shown on the company's December 31,
201
A. P 34,750
C. P 33,750
B. P 37,350
D. P 37,750
5. The journal entry to adjust the cash in bank account as of
December 31 should be
A. Debit to cash in bank of P 8,000
B. Credit to cash in bank of P 8,600
C. Net credit to cash in bank of P 600
D. Net debit to cash in bank of P 600
Solution 1-31
1. Outstanding checks, Dec. 31
Answer: B
(P 22,625)
2. No journal entry is necessary. There is no information in the
problem that will indicate that those included in the list of
outstanding checks were not taken up properly on books.
Answer: D
3. A correct reconciliation (see no.4) shows that there is
actually no "unlocated difference".
Answer: D
Page 61
4.
Unadjusted balances
Deposits in transit
Customer's check returned
Bank service charge
Outstanding checks
Credit memo for note collected
Understatement of book
Disbursement
Book
P 34,350
Bank
P 51,050
5,325
(4,000)
(1,000)
(22,625)
8,000
(3,600)
Adjusted balances
Answer: C
P 33,750
P 33,750
5. ADJUSTING JOURNAL ENTRIES
December 31, 2010
a. Accounts receivable
4,000
Cash in bank
b. Bank service charges
1,000
Cash in bank
c. Cash in bank
8,000
Notes receivable
d. Accounts payable
3,600
Cash in bank
Debit to cash in bank
Credit to cash in bank (P 4,000+P 1,000+ P 3,600)
Net credit to cash in bank
Answer: C
4,000
1,000
8,000
3,600
P 8,000
(8,600)
(P 600)
Page 62
Problem 1-32
Computation of Book Disbursement
In connection with your audit of the MARCELO COMPANY at December
31, 2010, the following bank reconciliation was submitted to you
by an employee of your client:
Balance per bank
Deposits in transit
Outstanding checks
Balance per books
P 30,534
37,856
P 68,390
42,756
P 25,634
As part of your verification, you obtained the bank statement
and canceled checks from the bank on January 15, 2011. According
to the records of the company, checks issued from January 1 to
January 15, 2011, amounted to P 22,482. Checks returned by the
bank on January 15, 2011, totaled P 58,438. Of the checks
outstanding on December 31, 2010, P9,600
were not returned
by the bank with the January 15, 2011, bank statement ; and of
those issued, according to the records of the company, in
January 2011, P 7,200 were not returned by the bank.
Based on the above data, calculate the disbursements per company
records.
1. The difference between the disbursements per books as
computed and as reported is
A. P 61,912
C. P 10,000
B. P 2,800
D. P 29,874
2. Suggest three possible explanations for the difference
between the disbursements per company as computed and as
reported.
Page 63
Solution 1-32
1. Outstanding checks, January 15:
From December or before
P 9,600
From January
7,200
Add: Disbursements per bank statement
Total
Less: Outstanding checks, December 31
Disbursements per books as computed
Disbursements per books as reported
Difference in disbursements
Answer: C
P 16,800
58,438
P 75,238
42,756
P 32,482
22,482
P 10,000
2. Three possible explanations for the above difference:
a. The bank disbursements (P 58,438) may be overstated by P
10,000. Another company check for P 10,000 may have been
erroneously by the bank against the client's account.
b. The December 31 outstanding checks may be understated by P
10,000. Since the bank reconciliation given in the problem was
prepared by a company employee. There is no assurance that it is
correct.
c. The client's employee may have failed to record check/s
issued in January thus understanding the book disbursements (P
22,482).
Page 64
Problem 1-33
Bank Reconciliation: Unadjusted to Adjusted Balance Format
In auditing the HECTOR COMPANY, you obtained the bank statement,
canceled checks, and other memoranda which relate to the
company's bank account for December 2010. In reconciling the
bank balance with that shown on the company's books, you
observed the facts set forth below:
(1) Balance per bank statement, 12/31/10
P 47,174
(2) Balance per books, 12/31/10
19,289
(3) Outstanding checks, 12/31/10
63,000
(4) Receipts of 12/31/10, deposited 1/2/11
6,260
(5) Service charge for November, per bank
Memo of 12/15/10
1,000
(6) Proceeds of bank loan, 12/15/10,
Discounted for 3 months at 18% per
Annum, omitted from company books
(7) Deposits of 12/22/10, omitted from
Bank statement
(8) Check of Milano Company, returned on
12/21/10, for absence of counter-signature
And deposited with complete signature on
1/3/11, no entry on the books having been
Made for the return or redeposit
(9) Error on bank statement in entering deposit
Of 12/18/10:
Correct amount
P 1,600
47,750
9,170
77,320
Entered in statement
160
1,440
(10) Check No. 021261 of Yek Company,
Charged by bank in error to
Company's account
13,600
Page 65
(11) Proceeds of note of Harthur Co.,
Collected by bank, 12/10/10, not
Entered in cash book (principal amount of
P 25,000 plus interest of P 1,125, less collection
Fee)
25,625
(12) Erroneous debit memo of 12/28/10, to charge
Company's account with settlement of bank
Loan which was paid by check no. 112170 on
Same date
5,000
(13) Error on bank statement in entering
Deposit of 12/4/10:
Entered as
P 14,200.62
Correct amount
12,400.62
1,800
(14) Deposit of Bunso Co. of 12/02/10,
Credited in error to this company
3,500
1. What is the principal amount of the loan obtained from bank
in December?
A. P 50,000
C. P 48,125
B. P 47,750
D. P 49,625
2. What amount of prepaid interest should be shown on Hector's
December 31, 2010 statement of financial position?
A. P 2,250
C. P 375
B. P 0
D. P 1,875
3. The amount of collection of fee is
A. P 625
C. P 500
B. P 1,625
D. P 0
4. What is the adjusted cash in bank balance as of December 31,
2010?
A. P 14,344
B. P 11,464
C. P 17,944
D. P 9,344
Page 66
5. The cash in bank per ledger as of December 31, 2010, should
be increased (decreased) by
A. P 4,945
C. P (4,945)
B. P 5,945
D. P (5,945)
Solution 1-33
1.
Proceeds =
47,750
47,750
47,750
P
P
Answer: A
=
=
=
=
=
Principal-Interest
P-(Px18%x3/12)
P-0.045P
0.955 P
47,750 /0.955
P 50,000
2. Prepaid interest, Dec. 31 (P 2,250x2.5/3)
Answer: D
3. Principal
Interest income
Maturity value
Collection fee (SQUEEZE)
Proceeds
Answer: C
P 1,875
P 25,000
1,125
26,125
(500)
P 25,625
4.
Book
Unadjusted balances
P 19,289
Outstanding checks
Receipts of 12/31/10, deposited 1/01/11
Service charge for November
(1,000)
Proceeds of bank loan
47,750
Deposit of 12/22/10, omitted from bank
Statement
Check of Milano Company charged back
(77,320)
Error in entering deposit of 12/18/10
Check of Yek Company charged in
Error to Hector Company
Proceeds of note of Harthur Co.
25,625
Bank
P 47,174
(63,000)
6,260
9,170
1,440
13,600
Erroneous debit memo of 12/28/10,
Charged by bank in settlement
Of loan paid by check no. 112170
Error in entering deposit of 12/04/10
Deposit of Bunso Co., credited in error
To Hector Company
Adjusted Balances
P 14,344
Answer: A
5. Adjusted Cash in bank balance (see no. 4)
Cash in bank balance per ledger
Net adjustment - decrease
Answer: C
5,000
Page 67
(1,800)
(3,500)
P 14,344
P 14,344
19,289
P 4,945
Problem 1-34
Bank Reconciliation
You are auditing general cash for the DION COMPANY for the
fiscal year ended July 31, 2010. The client has not prepared the
July 31 bank reconciliation. After a brief discussion with the
owner you agree to prepare the reconciliation, with assistance
from one of Dion Company's clerks. You obtain the following
information:
General Ledger
Bank Statement
Beginning Balance
P 46,110
P 57,530
Deposits
250,560
Cash receipts journal
254,560
Checks cleared
(236,150)
Page 68
Cash disbursements journal
July bank service charge
Note paid directly
NSF check
Ending balance
(218,110)
P82,560
June 30 Bank Reconciliation
Information in General Ledger and Bank Statement
(870)
(61,000)
(3,110)
P 6,960
Balance per bank
Deposit in transit
Outstanding checks
Balance per books
P57,530
6,000
17,420
46,110
Additional information obtained is:
1. Checks clearing that were outstanding on June 30 totaled
P16,920.
2. Checks clearing that were recorded in the July
disbursements journal totaled P204,670.
3. A check for P10,600 cleared the bank, but had not been
recorded in the cash disbursements journal. It was for an
acquisition of inventory. Dion uses the periodic inventory
method.
4. A check for P3,960 was charged to Dion Company but had been
written on a different company’s bank account.
5. Deposits included P6,000 from June and P244,560 for July.
6. The bank charged Dion Company’s account for a nonsufficient
check totaling P3,110. 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.
Page 69
7. A note for P58,000, plus interest, was paid directly to the
bank under an agreement signed four months ago. The note
payable was recoreded at P58,000 on Dion Company’s books.
Based on facts given, answer the following:
1. The checks outstanding on June 30 amount to
A. P9,980
C. P13,940
B. P10,830
D. P3,340
2. The deposits in transit on June 30 amount to
A. P6,890
C. P6,000
B. P10,000
D. P9,110
3. The adjusted cash balance on July 31 is
A. P6,980
C. P3,870
B. P10,940
D. P3,020
4. Which of the following audit procedures would be used to
verify the payment of note in July?
A. Examine checks returned with July bank statement.
B. Check for absence of note on July 31 bank
confirmation.
C. Trace payment to duplicate deposit slip.
D. Obtain cutoff bank statement.
5. The auditor would perform the following procedures to
verify the unrecorded check of P10,600, except
A. Obtain cutoff bank statement.
B. Examine checks returned with July bank statement.
C. Trace check number to absence in July cash
disbursements journal and recording in August.
D. Examine supporting documentation.
Solution 1-34
1. Outstanding checks, June 30
Add: Checks issued in July(P218,110 per
P17,420
Page 70
Cash disbursements journal + P10,600
Unrecorded check)
Total
Less: Checks paid by bank in July
(P236,150 – P3,960 erroneous check
Charged by bank)
Outstanding checks, July 31
Answer: C
Alternative computation:
P228,710
246,130
232,190
P13,940
Checks outstanding on June 30 that did not
clear in July (P17,420 – P16,920)
Checks issued in July that did not clear in July
(P218,110 – P204,670)
Outstanding checks, July 31
2. Deposits in transit, June 30
Add: July deposits per cash receipts journal
Total
Less: Deposits credited by bank in July
Deposits in transit, July 31
P500
13,440
P13,940
P 6,000
254,560
260,560
250,560
P10,000
Answer: B
3.
Book
P82,560
Unadjusted balances
Outstanding checks(see no. 1)
Deposits in transit(see no. 2)
Bank service charge
(870)
Unrecorded check
(10,600)
Check erroneously charged to Dion
NSF check
(3,110)
Note payment (P58,000 principal +
P3,000 interest)
(61,000)
Adjusted balances
P 6,980
Bank
P 6,960
(13,940)
10,000
3,960
P 6,980
Answer: A
Page 71
4. The following audit procedures would be performed to verify
the note payment:
1. Examine cancelled check.
2. Recompute interest.
3. Check for absence of note on July 31 bank
confirmation.
5. The following audit procedures would be performed to verify
the unrecorded check:
1. Examine check returned with July bank statement.
2. Trace number to absence in July cash disbursements
journal and recording in August.
3. Examine supporting documentation.
4. Investigate why it was unrecorded.
The cutoff bank statement will no longer show the unrecorded
check because it was already paid by bank in July.
Answer: A
Problem 1-35
Cash Transfers
In the audit of the DENISSE SUPPLY COMPANY, a large branch that
maintains its own bank account, cash is periodically transferred
to the central account in Makati City. On the branch account’s
records, bank transfers are recorded as a debit to the home
office clearing account and a credit to the branch account.
Similarly, the home office account is recorded as a debit to the
central bank account and a credit to the branch office clearing
account. Ram V. is the head bookkeeper for both the home office
and the branch bank accounts. Since he also reconciles the bank
account, the senior auditor, Hershey de Jesus, is concerned
about the internal control weakness. As part of the
Page 73
year-end audit of bank transfers, Hershey asks you to schedule
the transfers for the last few days in 2010 and the first few
days of 2011. You prepare the following list:
Date recorded
Amount
Date Recorded
In the Home
in the Branch
Date Deposited
Office Cash
Office Cash
in the Home
Of
Receipts
Transfer
Journal
P120,000
P260,000
12-27-10
12-28-10
Disbursements
Journal
12-29-10
01-02-11
Office Bank
Date
cleared
the Branch
Account
Bank Account
12-26-10
12-28-10
12-27-10
12-29-10
P140,000
P110,000
P150,000
P280,000
P370,000
01-02-11
12-26-10
01-02-11
01-07-11
01-04-11
12-30-10
12-26-10
01-02-11
01-05-11
01-06-11
12-28-10
12-28-10
12-28-10
12-28-10
01-03-01
12-29-10
01-03-11
12-31-10
01-03-10
01-05-11
1. In verifying the bank transfers, which of the following
audit procedures should be performed?
A. List bank transfers made a few days before and after the
end of the reporting period.
B. Trace bank transfers included in the schedule of bank
transfers to the appropriate accounting records, bank
reconciliations, and bank records to determine propriety
of recording.
C. Both A and B.
D. A only.
2. Which of the following transfers would be included as
deposits in transit in the December 31, 2010 bank
reconciliation for the Home Office account?
A. 3, 5, and 6
B. 1, 2, and 4
C. C. 3 and 5
D. D. No deposits in transit on December 31
3. Which of the following transfers would be included as
outstanding checks in the December 31, 2010, bank
reconciliation for the Branch Office account?
A. 1, 2, and 3
B. 7
Page 73
C. 4 and 6
D. No outstanding checks on December 31
4. The cash in bank account on Home Office books should be
increased by
A. P290,000
C. P860,000
B. P570,000
D. P430,000
5. The cash in bank account on Branch Office books should be
decreased by
A. P430,000
C. P740,000
B. P280,000
D. P690,000
Solution 1-35
1. The following procedures should be performed to verify the
bank transfers:
a. List bank transfers made a few days before and after the end
of the reporting period.
b. Trace these bank transfers to the appropriate accounting
records, bank reconciliations, and bank records to verify the
propriety of recording.
Answer: C
2. There are no deposits in transit on December 31. The lsit of
transfers does not disclose transfers recorded in December 2010
on Home Office cash receipts journal but deposited in January
2011.
Answer: D
3.
Transfer no. 4
Transfer no. 6
Total
P110,000
280,000
P390,000
These checks were issued (i.e., deposited in the Home
Page 74
Office bank account) in December 2010 but cleared the
Branch Office bank account in January 2011.
Answer : C
4.
Transfer no. 3
Transfer no. 5
Transfer no. 6
Total
P140,000
150,000
280,000
P570,000
These transfers were deposited in the Home Office bank account
in December 2010 but recorded in January 2011.
Answer: B
5.
Transfer no. 2
Transfer no. 5
Transfer no. 6
Total
P260,000
150,000
280,000
P690,000
These checks were issued (i.e., deposited in the Home Office
bank account) in December 2010 but recorded in the Branch Office
cash disbursements journal in January 2011.
Answer: D
Problem 1-36
Proof of Cash: Unadjusted to Adjusted Balances Format
The cash account of VELASCO COMPANY shows the following
activities:
Date
Debit
Nov.30 Balance
Dec. 2 November bank charges
4 November bank credit for
notes receivable
collected
P10,000
15 NSF check
20 Loan proceeds
48,500
21 December bank charges
31 Cash receipt book 703,300
31 Cash disbursements book
Credit
P50
1,300
60
408,000
Balance
P115,000
114,950
Page 75
124,950
123,650
172,150
172,090
879,390
471,390
CASH BOOKS
RECEIPTS
Date
Dec. 1
2
3
OR NO.
110-120
121-136
137-150
PAYMENTS
Amount
P11,000
21,300
20,000
Check No.
801
802
803
Amount
P2,000
3,000
1,000
4
5
8
9
10
11
12
15
16
17
18
19
22
23
23
23
26
28
28
29
29
29
Totals
151-165
166-190
191-210
211-232
233-250
251-275
276-300
301-309
310-350
351-390
391-420
110-480
110-500
110-525
526-525
556-611
612-630
-
56,000
39,000
66,000
88,000
77,000
21,000
30,000
55,000
8,000
9,000
19,000
17,000
21,000
32,000
74,000
5,000
38,000
P703,300
804
805
806
807
808
809
810
811
812
813
814
816
817
818
819
820
821
822
823
824
825
826
3,000
12,000
19,000
26,000
30,000
61,000
7,000
8,000
16,000
20,000
22,000
36,000
11,000
50,000
7,000
4,000
3,000
12,000
13,000
29,000
2,000
11,000
P408,000
Page 76
BANK STATEMENT
Date
Check No.
Dec. 1
2
3
4
5
8
9
10
11
12
15
16
17
18
19
22
23
23
23
26
28
28
29
29
29
Totals
792
802
804
EC
805
CM 16
799
DM 57
808
803
809
DM 61
813
CM 20
815
816
811
801
814
818
DM 112
821
CM 36
820
Charges
P2,500
3,000
3,000
81,000
12,000
7,050
1,300
30,000
1,000
61,000
60
20,000
6,000
36,000
8,000
2,000
22,000
50,000
120
3,000
4,000
P353,030
Credits
P8,500
11,500
21,300
20,000
81,000
95,000
12,000
154,000
77,000
21,000
85,000
8,000
19,000
48,500
47,000
32,000
74,000
5,000
12,000
P831,300
Additional information:
1. DMs 61 and 112 are for service charges.
2. EC is error corrected
3. DM 57 is for an NSF check.
4. CM 20 is for loan proceeds, net of P150 interest charges for
90 days.
5. CM 16 is for the correction of an erroneous November bank
charge.
Page 77
6. CM 36 is for customer’s notes collected by bank in December.
7. Bank balance on December 31 is P592,270.
1. The total outstanding checks at November 30 should be
A. P9,550
C. P13,050
B. P7,050
D. P15,550
2. The total outstanding checks at December 31 should be
A. P147,000
C. P153,000
B. P162,550
D. P159,000
3. The deposit in transit at November 30 should be
A. P8,500
C. P48,500
B. P19,500
D. P 0
4. The deposit in transit at December 31 should be
A. P44,000
C. P46,500
B. P 0
D. P38,000
5. The adjusted book balance at November 30 should be
A. P125,000
C. P115,000
B. P124,950
D. P136,950
6. The adjusted bank receipts for the month of December should
be
A. P763,800
C. P115,000
B. P773,800
D. P136,950
7. The adjusted book disbursements for the month of December
should be
A. P403,480
C. P415,480
B. P415,540
D. P409,480
8. The adjusted bank balance at December 31 should be
A. P592,270
C. P558,270
B. P477,270
D. P483,270
Page 78
Solution 1-36
1. OUTSTANDING CHECKS, NOVEMBER 30:
Check no.792
799
Total
P2,500
7,050
P9,550
Answer: A
2. OUTSTANDING CHECKS, DECEMBER 31:
Check no. 806
807
810
812
817
819
822
823
824
825
826
Total
P19,000
26,000
7,000
16,000
11,000
7,000
12,000
13,000
29,000
2,000
11,000
P153,000
Answer: C
3. Deposits in transit, November 30
P8,500
Answer: A
4. Deposit in transit, November 30(see no. 3)
Add: Collections per cash receipts book
Total
Less: Deposits credited by bank:
Bank receipts
P831,300
Correction of erroneous bank
charge in December
(81,000)
Correction of erroneous bank
charge in November
(12,000)
Loan proceeds
(48,500)
P8,500
707,300
715,800
Page 79
Note collected
Deposits in transit, December 31
Answer: D
(12,000)
677,800
P38,000
PROOF OF CASH
December 1-31
Balance
Nov.30
Balances per bank
Receipts
P114,000 P831,300
Bank error corrected
the same date
(81,000)
Erroneous bank charge
in November
12,000
(12,000)
Balance
Disbursements Dec.31
P353,030
P592,270
(81,000)
Deposits in transit:
November 30
8,500
December 31
(8,500)
38,000
38,000
Outstanding checks
November 30
(9,550)
(9,550)
December 31
Adj. bank balances P124,950
153,000
P767,800
P415,480
(153,000)
P477,270
Balance
Nov.30
Balances per books P115,000
Receipts
Balance
Disbursements Dec.31
P765,800
P409,410
P471,390
Bank service charges
November 30
(50)
(50)
December 31
120
(120)
Notes collected by bank:
November 30
10,000
December 31
(10,000)
12,000
12,000
Unrecoreded disbursement –
Check no. 815
Adj. bank balances P124,950
6,000
P767,800
P415,480
(6,000)
P477,270
Page 80
5. Adjusted book balance, November 30
P124,950
Answer: B
6. Adjusted bank receipts in December
P767,800
Answer: D
7. Adjusted book disbursements in December
P415,480
Answer: C
8. Adjusted bank balance, December 31
P477,270
Answer: B
Problem 1-37
Proof of Cash: Bank to Book Balances Format
Shown below is the may 31, 2010, bank reconciliation prepared by
your client’s staff.
RECONCILIATION
May 31, 2010
Bank balance
P652,000
Add: Deposit in transit
10,000
Total
Less:
P662,000
Outstanding checks
No. 640
P10,000
652
8,000
653
2,000
20,000
Adjusted bank balance
P642,000
Book balance
P570,800
Add: Proceeds of note receivable
collected in May
Deposit on may 31 not
recorded on books until June
P70,000
2,000
72,000
Page 81
Total
Less: Bank service charge
Adjusted book balance
The June 2010 bank statement is shown below:
Pasig bank
Period covered: May 31, 2010 – Jun 30, 2010
Account no.: 0021261
P642,800
800
P642,000
Date
Checks
Deposit
10,000
June
1
8,000
June
8
2,000
June
11
14,000
June
13
1,000 DM
June
16
4,000
June
21
12,000
June
27
18,000
June
29
1,000 EC
June
30
200 SV
June
30
3,000 DM
20,000
1,000
56,000
1,000 EC
SV - Service Charges
DM – Debit Memo
EC – Error Corrected
CM – Credit Memo
The paid checks accompanying this bank statement (all clearing
in June) are the following:
No. 652
No. 653
P8,000
P2,000
No. 654
No. 655
P14,000
P 4,000
No. 657
No. 658
P12,000
P18,000
The check register reveals that the last check issued in June is
No. 659 for P5,000 and that check no. 656 is for P2,600.
Cash received for the period of June 22 through June 30 of
P70,000 was deposited in the bank on July 1.
The debit memos
checks returned
The June 13 NSF
The June 30 NSF
on June 13 and June 30 represent customer’s NSF
by the bank.
Page 82
check was immediately redeposited without entry.
check was redeposited on July 1 without entry.
1. What is the total bank receipts in June?
A. P87,000
C. P77,000
B. P88,000
D. P78,000
2. What is the total bank disbursements in June?
A. P59,200
C. P58,200
B. P58,000
D. P63,200
3. What is the balance per bank statement on June 30, 2007?
A. P676,800
C. P732,400
B. P627,200
D. P729,200
4. What is the total book receipts in June?
A. P88,000
C. P146,000
B. P220,000
D. P218,000
5. What
A.
B.
6. What
A.
B.
is the total book disbursements
P53,000
P57,500
is the book balance on June 30,
P732,200
P729,200
in June?
C. P56,400
D. P63,200
2007?
C. P732,400
D. P676,800
Solution 1-37
1. Bank receipts in June (arrived at by footing the
Deposits column of the bank statement)
P88,000
Answer: B
2. Bank disbursements in June (arrived at by footing the
Checks column of the bank statement)
P63,200
Answer: D
Page 83
3. Bank balance, May 31
Add: Bank receipts in June
Total
P652,000
88,000
740,000
Less: Bank disbursements in June
Bank balance, June 30
Answer: A
63,200
P676,800
PROOF OF CASH
June 1-30, 2010
Balance
May 31
Bank balances
P652,000
J u n e
Balance
Receipts
Disbursements June 30
P88,000
P63,200
P676,800
Deposits in transit:
May 31
10,000
June 30
(10,000)
70,000
70,000
Outstanding checks:
May 31
(20,000)
(20,000)
June 30
17,600
(17,600)
Bank service charges
May 31
800
800
June 30
Bank collection
in May
(200)
(70,000)
70,000
May deposited recorded
by the company
in June
(2,000)
2,000
200
NSF checks:
Already redeposited
(1,000)
Not yet redeposited
Bank error corrected
on the same date
Book balances
P570,800
(1,000)
(3,000)
(1,000)
P218,000
3,000
(1,000)
P56,400
P732,400
4. Total book receipts in June
P218,000
Answer: D
Page 84
5. Total book disbursements in June
P56,400
Answer: C
6. Book balance on June 30, 2010
P732,400
Answer: C
Problem 1-38
Proof of Cash: Bank to Book Balances Format
The following information was obtained in an audit of the cash
account of CHELSEE COMPANY as of December 31, 2010. Assume that
the CPA has satisfied himself as to the propriety of the cash
book, the bank statements, and the returned checks, except as
noted:
1. The bookkeeper’s bank reconciliation at November 30, 2010.
Balance per bank statement
P194,000
Add: Deposit in transit
11,000
Total
P205,000
Less: Outstanding checks
No. 1434
P1,400
1562
7,500
1571
5,800
1584
8,000
1591
Balance per books
300
23,000
P182,000
2. A summary of the bank statement for December 2010.
Balance brought forward
P
Deposits
194,000
1,487,000
Total
P1,681,000
Charges
(1,325,000)
Balance, December 31, 2010
P
356,000
Page 85
3. Included with cancelled checks returned with the December
statement were the checks listed below.
4. The Chelsee Company discounted its own 60-day note for
P90,000 with the bank on December 1, 2010. The discount rate
was 6 percent. The accountant recorded the proceeds as a cash
receipt at the face value of the note.
5. The accountant records customer’s dishonored checks as a
reduction of cash receipts. When the dishonored checks are
redeposited they are recorded as a regular cash receipt. Two
NSF checks for P1,800 and P2,200 were returned by the bank
during December. Both checks were redeposited and were
recorded by the accountant.
6. Cancellations of Chelsee Company checks are recorded by a
reduction of cash disbursements.
7. December bank charges were P200. In addition, a P100 service
charge was made in December for the collection of a note
receivable in November. These charges were not recorded on
the books
8. Check no. 1434 listed in the November outstanding checks was
drawn in 2008. Since the payee cannot be located, the
president of Chelsee Company agreed to the CPA’s suggestion
that the check be written back into the accounts by a journal
entry.
9. Oustanding checks at December 31, 2010, totaled P49,400,
including checks 1434 and 1584.
10. The cutoff bank statement disclosed that the bank had
recorded a deposit of P24,000 on January 2, 2011. The
accountant had recorded this deposit on the books on December
31, 2010, and then mailed the deposit to the bank.
Page 86
Cancelled Checks Returned with the December Bank Statement
Number
Date of Check
Amount of Check
C o m m e n t s
1562
11/28/10
P750
This check was in payment
of an invoice for P7,500
and was recorded in the
cash book as P7,500
1571
11/28/10
5,800
This check was in payment
of an invoice for P5,800
and was recorded in the
cash book as P5,800.
1583
12/04/10
1,500
Examination of this check
revealed that it was
unsigned. A discussion
with the client disclosed
that it had been mailed
inadvertently before it
was signed. The check
was endorsed and deposited
by the payee and processed
by the bank even though it
was a legal nullity. The
check was recorded in the
cash disbursements journal.
1588
12/12/10
8,000
This check replaced 1584,
which was returned by the
payee because it was
mutilated. Check 1584
was not cancelled on
the books.
----
12/19/10
2,000
This was a counter check
drawn at the bank by the
president of the company
as a cash advance for
travel expense. The
president overlooked
informing the bookkeeper
about the check.
----
12/20/10
3,000
The drawer of this check
was the Chelsea Company.
Page 87
1595
12/20/10
3,500
This check had been
labeled NSF and returned
bank had erroneously
believed that the check
was drawn by the Chelseen
Company. Subsequently,
the payee was advised to
redeposit the check.
1599
01/05/11
100,000
This check was given to
the payee on December 30
, 2010, as a postdated
check with the understanding that it would
not be deposited until
January 5. The check was
not recorded on the books
in December.
1. What is the correct amount of outstanding checks on December
31?
A. P41,400
C. P48,000
B. P33,250
D. P40,000
2. What is the amount of cash receipts per book in December?
A. P1,496,900
C. P1,495,100
B. P1,504,900
D. P1,487,000
3. What is the amount of cash disbursements per book in
December?
A. P1,254,850
C. P1,256,850
B. P1,252,850
D. P1,248,850
4. What is the cash in bank balance per book as of December 31?
A. P426,050
C. P430,050
B. P428,250
D. P343,050
5. What is the adjusted cash balance as of December 31?
A. P343,000
C. P347,000
B. P340,200
D. P344,200
Page 88
1. Outstanding checks, December 31
(P49,400 – P1,400 – P8,000)
P40,000
Answer: D
Balance
Nov. 30
Per bank statement P194,000
December
Receipts
Disbursements
P1,487,000
P1,325,000
Balance
Dec. 31
P356,000
Outstanding checks:
Nov. 30
(23,000)
(23,000)
Dec. 31
40,000
(40,000)
Deposit in transit:
Nov. 30
11,000
Dec. 31
Interest on note discounted
(P90,000 x 6% 60/360)
(11,000)
24,000
24,000
900
900
NSF checks
(4,000)
(4,000)
Bank service charge
(300)
Cancellation of check no. 1434
1,400
300
(1,400)
Error in recording check no. 1562
(P7,500 – P750)
6,750
(6,750)
Cancellation of check no. 1584
8,000
(8,000)
Counter check drawn by president
(2,000)
2,000
Check of Chelsea charge in error
(3,000)
3,000
Post dated check presented
for payment
Per book balances
100,000
100,000
P182,000 P1,496,900 P1,248,850 P430,050
2. Book receipts in December
P1,496,900
Answer: A
3. Book disbursements in December
P1,248,850
Answer: D
4. Book balance on December 31
P430,050
Answer: C
5.
Unadjusted balances
Book
P430,050
Outstanding checks
Bank
P356,000
(40,000)
Deposits in transit
24,000
Interest on note discounted
(900)
Bank service charge
(300)
Cancellation of check no. 1434
1,400
Error in recording check no. 1562
6,750
Cancellation of check no. 1584
8,000
Counter check
(2,000)
Check of Chelsea charged in error
3,000
Postdated check presented for payment(100,000)
Adjusted balance
P343,000
P343,000
Answer: A
Problem 1-39
Proof of Cash: Book to Bank Balances Format
The following information was obtained in connection with the
audit of PINKY COMPANY’s cash account as of December 31, 2010.
Outstanding checks, 11/30/10
P16,250
Outstanding checks, 12/31/10
12,500
Deposit in transit, 11/30/10
12,500
Cash balance per general ledger 12/31/10
37,500
Actual company collections from its customers
during December
152,500
Company checks paid by bank in December
130,000
Bank service charges recorded on company
books in December
2,500
Bank service charges per December bank statement
3,250
Deposits credited by bank during December
145,000
Page 90
November bank service charges recorded on
company books in December
1,500
The cash receipts book of December is underfooted by P2,500.
The bank erroneously charged the company’s account for a P3,750
check of another depositor. This bank error was corrected in
January 2011.
1. How much is the deposit in transit on December 31, 2010?
A. P5,000
C. P22,500
B. P20,000
D. P17,500
2. The total unrecorded bank service charges as of December 31,
2010 is
A. P750
C. P1,750
B. P2,250
D. P4,250
3. What is the total book receipts in December?
A. P150,000
C. P155,000
B. P152,500
D. P147,500
4. What is the total amount of company checks issued in
December?
A. P130,000
C. P133,750
B. P123,000
D. P126,250
5. What is the total book disbursements in December?
A. P123,750
C. P133,750
B. P128,500
D. P126,750
6. What is the book balance on November 30, 2010?
A. P16,250
C. P37,500
B. P21,250
D. P35,000
7. What is the bank balance on November 30, 2010?
A. P23,000
C. P43,500
B. P18,500
D. P16,250
Page 91
8. What is the total bank receipts in December?
A. P120,000
C. P145,000
B. P140,000
D. P150,000
9. What is the total bank disbursements in December?
A. P154,500
C. P129,500
B. P132,500
D. P137,000
10. What is the bank balance on December 31, 2010?
A. P21,500
C. P31,000
B. P26,500
D. P33,250
Solution 1-39
1. Deposit in transit, November 30
P12,500
Add: Company collections in December
152,500
Total
165,000
Less: Deposits credited by bank in December
145,000
Deposits in transit, December 31
P 20,000
Answer: B
2. Bank service charges per December bank statement
P3,250
Less: December bank service charges recorded
on company books in December (P2,500 – P1,500)
1,000
Unrecorded December bank service charges
P2,250
Answer: B
3. Actual company collections in December
Less: Underfooting of December cash
receipts book
Book receipts in December
Answer: A
P152,500
2,500
P150,000
Page 92
4. Outstanding checks, December 31
P12,500
Add: Checks paid by bank in December
130,000
Total
142,500
Less: Outstanding checks, November 30
16,250
Checks issued in December
P126,250
Answer: D
5. Checks issued in December (see no. 4)
P126,250
Add: Bank service charges recorded in December
Book disbursements in December
2,500
P128,750
Answer: D
6. Book balance, December 31
P 37,500
Add: Book disbursements in December (see no. 5)
128,750
Total
166,250
Less: Book receipts in December (see no. 3)
150,000
Book balance, November 30
P 16,250
Answer: A
Pinky Co.
PROOF OF CASH
For the Month of December 2010
Book balances
Balance
Nov. 30
December
Receipts
Disbursements
P16,250
P150,000
P128,750
Balance
Dec. 31
P37,500
Outstanding checks:
Nov. 30
16,250
16,250
Dec. 31
(12,500)
12,500
Deposits in transit:
Nov. 30
Dec. 31
(12,500)
12,500
(20,000)
(20,000)
Bank service charges:
Nov. 30
(1,500)
(1,500)
Page 93
Dec. 31
2,250
Underfooting of December
book receipts
2,500
Erroneous bank charge
in December
Bank balances
P18,500
P145,000
(2,250)
2,500
3,750
(3,750
P137,000
P26,500
7. Bank balance, November 30, 2010
P18,500
Answer: B
8. Total bank receipts in December
P145,000
Answer: C
9. Total bank disbursements in December
P137,000
Answer: D
10. Bank balance, December 31
P26,500
Answer: B
Problem 1-40
Proof of Cash: Unadjusted to Adjusted Balances Format
In your audit of HARRY INC.’s cash account as of December 31,
2010, you ascertain the following information:
The bookkeeper’s bank reconciliation on November 30, 2010, is as
follows:
Balance per bank statement, November 30
Add: Deposits in transit
P24,298
3,648
Total
P27,946
Less: Outstanding checks
No. 3408
P440
No. 3413
300
Page 94
No. 3414
6,820
No. 3416
3,924
No. 3417
800
Balance
Add: Bank service charge for November
Balance per general ledger, November 30
P12,284
P15,662
36*
P15,698
*Entered in Check Register in December
The Cash Receipts Journal shows total receipts for December of
P371,766. The Check Register reflects total checks issued in
December of P377,632. A collection of P5,912 was recorded on
company books on December 31 but was not deposited until January
2, 2011.
Your examination reveals the following additional information:
1.) Check no. 3413 dated November 24, 2010, was entered in the
Check Register as P300. Your examination of the paid checks
returned with the December bank statement reveals that the
amount of this check is P30.
2.) Check no. 3417 was mutilated and returned by the payee. A
replacement check (no. 3453) was issued. Both checks were
entered in the Check Register but no entry was made to
cancel check no. 3417.
3.) The December bank statement includes an erroneous charge of
P480.
4.) On January 3, 2011, the bank informed your client that a
December bank service charge of P42 was omitted from the
statement.
5.) Your examination of the bank credit memo accompanying the
December bank statement discloses that it represents
proceeds from the note receivable collection in December for
P4,000.
Page 95
6.) The outstanding checks at December 31, 2010, are as follows:
No. 3408
P440
No. 3418
P2,814
No. 3417
800
No. 3419
5,788
1. What is the total book disbursements for the month of
December?
A. P377,668
C. P377,632
B. P377,710
D. P377,596
2. What is the book balance at December 31?
A. P9,832
C. P9,754
B. P9,868
D. P9,796
3. The outstanding checks at December 31 totaled
A. P8,602
C. P9,042
B. P9,072
D. P9,842
4. What is the adjusted bank balance on November 30?
A. P16,690
C. P16,804
B. P16,732
D. P16,774
5. The adjusted book receipts for the month of December should
be
A. P375,724
C. P371,238
B. P371,766
D. P375,766
6. The adjusted book disbursements for the month of December
should
A. P377,590
C. P377,674
B. P377,662
D. P377,632
7. What is the adjusted book balance on December 31?
A. P14,824
C. P14,908
B. P14,866
D. P14,782
8. A proof of cash used by an auditor
A. Provides that the client’s year-end balance of cash is
fairly stated.
B. Confirms that the client has properly separated the
custody function from the recording unction with respect
to cash.
Page 96
C. Validates that the client’s bank did not make an error
during the period being examined.
D. Determines whether any unauthorized disbursements or
unrecorded deposits were made for the given time period.
Solution 1-10
1. Company checks issued in December
Add: November bank service charge
Total book disbursements in December
P377,632
36
P377,668
Answer: A
2. Book balance, November 30
Add: December book receipts
Total
Less: December book disbursements
Book balance, December 31
P 15,698
371,766
387,464
377,668
P 9,796
Answer: D
3. Outstanding checks, December 31:
Check no. 3408
3418
3419
Total
Answer: C
P
440
2,814
5,788
P9,042
Balance
Nov. 30
Book balances
December
Balance
Receipts Disbursements Dec. 31
P15,698
P371,766
P377,668
P
9,796
Bank service charges:
November 30
(36)
(36)
December 31
42
Overstatement of Nov.
disbursement
(check #3413)
270
(42)
270
Page 97
Mutilated check (#3417)
800
Note collected by
bank
800
4,000
Adj book balances
P16,732
Balance
Nov. 30
Bank balances
P24,298
P375,766
4,000
P377,674
December
Receipts Disbursements
P375,502
P380,284
P14,824
Balance
Dec. 31
P17,516
Deposits in transit:
November 30
3,648
December 31
(3,648)
5,912
Erroneous bank charge
Bank service charge
5,912
(480)
480
42
(42)
Outstanding checks:
November 30
(11,214)
(11,214)
December 31
Adj. bank balances P16,732
9,042
P375,766
P377,674
(9,042)
P14,824
4. Adjusted bank balance, November 30
P16,732
Answer: B
5. Adjusted book receipts in December
P375,766
Answer: D
6. Adjusted book disbursements in December
P377,674
Answer: C
7. Adjusted book balance, December 31
P14,824
Answer: A
8. A proof of cash usually consists of four columns, with
reconciliation of beginning and end-of-period cash balances
and reconciliations of cash receipts and disbursements during
the period. The amounts appearing in the ledger and on bank
statement should reconcile both horizontally and vertically.
This reconciliation therefore detects unauthorized Page 98
disbursements and unrecorded deposits for the period. This is
useful when internal control over cash transactions is weak
or inadequate.
Answer: D
Problem 1-41
Proof of Cash: Unadjusted to Adjusted Balances Format
The following data are assembled by the accountant of the HAROLD
COMPANY:
Nov. 30, 2010
Cash account balance
41,175.00
P100,712.50
267,705.00
344,542.50
Deposits in transit
20,502.50
32,200.00
Outstanding checks
69,295.00
75,280.00
1,800.00
1,500.00
Bank statement balance
Bank service charges
NSF check *
P
Dec. 31, 2010
20,625.00
Company’s notes receivable
collected by bank
179,537.50
202,250.00
*Redeposited in the same month. No entries made to take up the
return and redeposit.
The bank statement and the company’s cash records show the
following totals:
Canceled checks and debit memos
per bank statement
P545,932.50
Cash receipts per cash book
411,592.50
Checks written per cash book
529,792.50
Deposits and credit memos per bank statement
622,770.00
1. What is the total book receipts in December?
A. P613,842.50
C. P411,592.50
B. P591,130.00
D. P580,330.00
Page 99
2. What is the total book disbursements in December?
A. P531,592.50
C. P533,092.50
B. P529,792.50
D. P531,292.50
3. What is the adjusted book balance on November 30?
A. P220,712.50
C. P218,912.50
B. P222,512.50
D. P217,412.50
4. The adjusted bank receipts in December should be
A. P634,168.50
C. P632,667.50
B. P622,770.00
D. P634,467.50
5. The adjusted book balance on December 31 shoueld be
A. P545,932.50
C. P548,917.50
B. P552,517.50
D. P551,917.50
6. What is the adjusted book balance on December 31?
A. P301,462.50
C. P322,087.50
B. P302,662.50
D. P280,537.50
Solution 1-41
1.
Cash receipts per cash book
Add: Notes collected by bank in November
Total book receipts in December
P411,592.50
179,537.50
P591,130.00
Answer: B
2. Checks written per cash book
Add: Bank service charge in November
Total book disbursements in December
P529,792.50
1,800.00
P531,592.50
Answer: A
Balance
Nov. 30
Balance per
Bank
statement P267,705.00
Deposits in transit
Nov. 30
20,502.50
Dec. 31
Outstanding checks
Nov. 30
(69,295.00)
Dec. 31
_________
Correct bank
balance
P218,912.50
Balance
Nov. 30
Balance per
Books
P41,175.00
Bank service charges:
November
(1,800.00)
December
NSF check
Collections of notes
receivable:
November
179,537.50
December
_________
Correct book
December
Receipts
Disbursements
P622,770.00
Page 100
Balance
Dec. 31
P545,932.50
P344,542.50
________
(69,295.00)
_75,280.00
_(75,280.00)
P634,467.50
P551,917.50
P301,462.50
(20,502.50)
32,200.00
December
Receipts
Disbursements
P591,130.00
P531,592.50
20,625.00
(1,800.00)
1,500.00
20,625.00
(179,537.50)
202,250.00
__________
Balance
Dec. 31
P100,712.50
(1,500.00)
202,250.00
balance
4.
5.
6.
P218,912.50
P634,467.50
P551,917.50
Adjust book balance, November 30
Answer: C
Adjust bank receipts in December
Answer: D
Adjusted book disbursements in December
Answer: D
Adjusted book balance, December 31
Answer: A
P301,462.50
P218,912.50
P634,467.50
P551,917.50
P301,462.50
Page 101
Problem 1-42
Proof of Cash: Book to Bank Balances Format
The auditor of TSIKOY COMPANY gathered the following
information:
1. The November 30 bank statement balance included bank service
charges of P2,000
2. The November 30 cash balance in the general ledger was
P244,500.
3. Outstanding checks on November 30 were P63,000 while
undeposited receipts were P36,000.
4. The bank service charges as shown on the bank statement
totalled P3,000.
5. The December 31 cash balance in the general ledger was
P319,750, which recognized P482,750 for December receipts and
P405,500 for checks written during December. In transit to the
bank were receipts of P28,750. Checks of P15,000 written prior
to December and checks of P60,500 written in December had not
yet cleared the bank.
1. What
A.
B.
2. What
A.
B.
3. What
A.
B.
is the total book disbursements for December?
P403,500
C. P407,500
P404,500
D. P405,500
is the November 30 bank balance?
P271,500
C. P268,500
P269,500
D. P266,500
is the total bank receipts in December?
P490,000
C. P497,250
P482,750
D. P488,000
4. What
A.
B.
5. What
is the total bank disbursements in December?
P419,000
C. P408,500
P405,500
D. P396,000
is the bank balance on December 31?
Page 102
A. P316,750
B. P363,500
C. P322,750
D. P366,500
Solution 1-42
1. Checks written during December
Add: November bank service charges recorded
On company books in December
Total book disbursements in December
P405,500
___2,000
P407,500
Answer: C
Balance
Nov. 30
Balance per
books
P244,500
Undeposited receipts:
Nov. 30
(36,000)
Dec. 31
Outstanding checks:
Nov. 30
63,000
Dec. 31
Bank service charges
Nov. 30
(2,000)
Dec. 31
________
Balance per
Bank
P269,500
December
Receipts
Disbursements
P482,750
P407,500
36,000
(28,750)
Balance
Dec. 31
P319,750
(28,750)
63,000
(75,500)
75,500
________
(2,000)
___3,000
__(3,000)
P490,000
P396,000
P363,500_
2. Bank balance, November 30
Answer: B
3. Total bank receipt in December
Answer: A
4. Total bank disbursements in December
Answer: D
5. Bank balance, December 31
Answer: B
P269,500
P490,000
Page 103
P396,000
P363,500
Problem 1-43
Proof of Cash: Unadjusted to Adjusted Balances Format
RODELIO CO. Has a current account in Pinoy Bank. Your audit of the
company’s cash account reveals the following:
1. Balances taken from the company’s general ledger:
Cash balance, Nov. 30, 2010
Cash balance, Dec. 31, 2010
P637,860
576,420
Receipts, Dec. 1-31, 2010
2. Balances taken from the December bank statement:
Cash balance, Nov. 30, 2010
Cash balance, Dec. 31, 2010
Disbursements (debits)
306,220
P685,150
637,220
356,080
3. Outstanding checks, Nov. 30, 2010 (P26,140 was
Paid by bank in December)
64,140
4. Checks written and recorded in December; not
included in the checks returned with the
December bank statement
36,080
5. Deposit in transit, Nov. 30, 2010
15,260
6. Deposit in transit, Dec. 31, 2010
16,140
7. A bank credit memo was issued in December to
Correct an erroneous charge made in November
8. Note collected by bank in December (company was
not informed of the collection)
1,500
Page 104
2,060
9. A check for P2,020 (payable to a supplier) was
recorded in the check register in December
as P3,000
980
10. A check for P2,240 was charged by the bank
As P2,420 in December
180
11. Rodelio Co. issued a stop payment order to the
bank in December. This pertains to a check
written in December which was not received
by the payee. A new check was written and recorded
in the Check Register in December. The old check
was written off by a journal entry also in December
780
12. Bank service charge, Nov. 30, 2010
1. What is the total book disbursements in December?
A. P367,660
C. P369,720
B. P244,780
D. P368,540
2. What is the total bank receipts in December?
A. P260,160
C. P306,060
60
B. P308,120
D. P309,020
3. What is the total outstanding checks in December 31?
A. P100,220
C. P62,220
B. P38,000
D. P72,080
4. What is the adjusted bank balance on November 30?
A. P636,300
C. P637,800
B. P685,180
D. P634,800
Page 105
5. What is the adjusted book receipts in December?
A. P307,500
C. P303,380
B. P306,220
D. P305,440
6. What is the adjusted bank disbursements in December?
A. P353,980
C. P345,960
B. P365,840
D. P366,020
7. What is the adjusted book balance in December 31?
A. P577,500
C. P576,420
B. P577,400
D. P579,460
Solution 1-43
1. Book balance, November 30
Add: Book receipts in December
Total
Less: Book disbursements in December
(SQUEEZE)
Book balance, December 31
Answer: A
P637,860
306,220
944,080
2. Bank balance, November 30
Add: Bank receipts in December (SQUEEZE)
Total
Less: Bank disbursements in December
Bank balance, December 31
Answer: B
P685,180
308,120
993,300
356,080
P637,220
3. Checks issued prior to December
(P64,140-P26,140)
Checks issued in December
Total outstanding checks, December 31
Answer: D
Balance
December
367,660
P576,420
P38,000
36,080
P74,080
Page 106
Balance
Nov. 30
Balance per
Books
P637,860
Note collected
By bank in
December
Overstatement of
December book
disbursement
(P3,000-P2,020)
Check stopped for
Payment
Bank service
charge in
November
____(60)
Adj. book
balances
P637,800
Balance
Nov. 30
Bank balances P685,180
Outstanding
checks:
November 30
(64,140)
December 31
Deposits in transit:
November 30
15,260
December 31
Erroneous bank charge
in November
1,500
Overstatment of
bank disbursement
in December
_______
Adj. bank
Balances
P637,800
Receipts
P306,220
Disbursements
P367,660
2,060
P576,420
2,060
(980)
(780)
Dec. 31
980
(780)
________
____(60)
________
P307,500
P365,840
P579,460
December
Receipts
Disbursements
P308,120
P356,080
(64,140)
74,080
(15,260)
16,140
Balance
Dec. 31
P637,220
(74,080)
16,140
(1,500)
________
P307,500
_________(180)
P365,840
____180
P579,460
4. Adjusted bank balance, November 30
Answer: C
P637,800
5. Adjusted book receipts in December
Answer: A
P307,500
Page 107
6. Adjusted bank disbursements in December
Answer: B
P365,840
7. Adjusted book balance, December 31
Answer: D
P579,460
Problem 1-44
Proof of Cash: Unadjusted to Adjusted Balances Format
Data for the ANNABELLE, INC. are shown below:
Cash account balance
Bank statement balance
Deposit in transit
Outstanding checks
Bank service charges for the month,
not shown on company books
NSF checks returned by bank, not
shown on company books
Bank collections from company
customers, not shown on company books
Additional information:
1.
2.
3.
4.
Nov. 30
P20,340
107,060
8,200
27,700
Dec. 31
P48,540
137,820
12,880
30,100
720
600
4,300
8,240
72,240
80,900
Deposits and credit memos per bank statement
Canceled checks and debit memos per bank statement
Cash receipts per cash book
Checks written per cash book
P249,100
218,430
172,880
211,900
1. What is the total book receipts in December?
A. P172,880
C. P253,780
B. P245,120
D. P181,540
Page 108
2. What is the total book disbursements in December?
A. P211,900
C. P211,180
B. P216,200
D. P216,920
3. What is the adjusted cash balance on Novemer 30?
A. P89,000
C. P71,160
B. P87,560
D. P96,160
4. What is the adjusted cash balance on December 31?
A. P120,600
C. P137,080
B. P94,840
D. P155,040
5. What is the adjusted book receipts in December?
A. P253,780
C. P244,420
B. P236,460
D. P270,180
6. What is the adjusted bank disbursements in December?
A. P215,940
C. P248,440
B. P220,740
D. P204,260
Solution 1-44
1. Cash receipts per cash book
Add: November bank collections
Total book eceipts(debits)in December
Answer: B
P172,880
72,240
P245,120
2. Checks written per cash book
Add: Bank service charges in November
P 720
NSF checks returned in November
4,300
Total book disbursements(credits) in December
P211,900
5,020
P216,920
Answer: D
Balance
Nov. 30
Unadj. bank
balances
P20,340
Bank service
charges:
November 30
(720)
December 31
NSF checks:
November 30
(4,300)
December 31
Bank collections:
November 30
72,240
December 31
_______
Adj. bank
Balances
P87,560
Balance
Nov. 30
Unadj. bank
balances
P102,060
December
Receipts
Disbursements
Page 109
Balance
Dec. 31
P245,120
P48,540
P216,920
(720)
600
(4,300)
8,240
(72,240)
__80,900
P253,780
(8,240)
_____________
__80,900
P220,740
P120,600
December
Receipts
Disbursements
P249,100
600
P218,340
Balance
Dec. 31
P137,820
Deposits in
Transit:
November 30
8,200
December 31
Outstanding checks:
November 30
(27,700)
December 31
_______
Adj. bank
Balances
P87,560
(8,200)
12,880
12,880
________
(27,700)
_______30,100
P253,780
P220,740
(30,100)
P120,600
3. Adjusted cash balance, November 30
Answer: B
P87,560
4. Adjusted cash balance, December 31
Answer: A
P120,600
5. Adjusted book receipts in December
Answer: A
P253,780
6. Adjusted bank disbursements in December
Answer: B
P220,740
Page 110
Problem 1-45
Cash Shortage Computation
The bookkeeper-cashier of the TANYING COMPANY absconded on the
evening of April 16,2011, apparently with a large portion of the
company’s cash. He had taken with him certain accounting records,
including the cash journals and the general ledger. You are called
upon to ascertain, if possible, the shortage with thick the
missing employee may be charged.
You obtained the following information from
subsidiary journals, ledgers, and other data.
the
available
Balances at close of business, April 6, 2011:
Accounts receivable
Accounts payable
Cash in bank, less checks outstanding
P442,550
201,300
98,830
Transactions, January 1-April 16,2011:
Sales, per receivable clerk
Cash sales
P5,876,170
none
Sales allowable in customers’ accounts
18,330
Cash purchase of furniture, per dealer’s invoice
3,000
Total merchandise purchases
3,615,260
Expenses paid, supported by paid
invoices and payrolls
1,865,830
Cash dividend declared, P50,000 (of which,
P10,000 remains unpaid)
40,000
Page 111
A check for P100,000 had been cashed by the bookkeeper shortly
before his departure. Although the signature on the check had been
obviously forged, it was paid by the bank and returned with other
cancelled checks.
A statement of financial position prepared from the books and
other files follows:
Tanying Company
Statement of Financial Position
December 31, 2010
ASSETS
Cash
Accounts receivable
Inventory (at cost)
Furniture
Less: Accumulated depreciation
Total Assets
P 32,670
226,230
440,350
P74,560
31,800
42,760
P742,010
LIABILITIES AND SHAREHOLDER’S EQUITY
Accounts payable
Capital stock
Retained earnings
Total Liabilities and shareholder’s equity
P114,720
500,000
127,290
P742,010
1. What is the total amount paid for merchandise purchases?
A. P3,615,260
C. P3,522,680
B. P3,293,240
D. P3,707,840
2. What is the total amount of collections from sales?
A. P5,641,520
C. P6,074,160
B. P5,659,850
D. P6,092,490
3. What is the total amount of cash disbursements from January 1April 1, 2011?
A. P5,524,090
C. P5,431,510
B. P5,202,070
D. P6,092,490
Page 112
4. What is the cashier’s accountability (correct cash balance
before shortage) on April 15, 2011?
A. P242,680
C. P143,850
B. P98,830
D. P43,850
5. What is the amount of cash shortage chargeable against the
cashier?
A. P100,000
C. P143,850
B. P43,850
D. P242,680
Solution 1-45
1. Accounts payable, Dec. 31, 2010
Purchases
Total
Accounts payable, April 16, 2011
Payments for merchandise purchases
Answer: C
P114,720
3,615,260
3,729,980
(207,300)
P3,522,680
2. Accounts receivable, Dec. 31, 2010
Net sales(P5,876,170-P18,330)
Total
Accounts receivable, April 16,2011
Collections from sales
Answer: A
P 226,230
5,857,840
6,084,070
442,550
P5,641,520
3. Payments for purchases
Furniture
Expenses
Dividends
Total cash disbursements
P3,522,680
3,000
1,865,830
40,000
P5,431,510
4. Cash balance, Dec. 31, 2010
Collections
P
Disbursements
Cash balance, April 16,2011(accountability)
Answer: A
5. Cash accountability
Cash accounted
Total shortage
32,670
5,641,520
Page 113
(5,431,510)
P 242,680
P
242,680
(98,830)
143,850
Shortage chargeable against bank
Shortage chargeable against the cashier
Answer: B
(100,000)
43,850
P
Problem 1-46
Computation of Cash Shortage
The JUNNEL COMPANY had weak internal controls over its cash
transactions. Facts about its cash position at November 30,2010
Were as follows:
The cash books showed a balnce of P94,508 which included
undeposited receipts. A credit of P500 on the bank’s records did
not appear on the books of the company. The balance per bank
statement was P77,750. Outstanding checks were no. 8420 for P581,
no. 8422 for P750, no. 8430 for P1,266, no. 8621 for P954, no.
8623 for P1,034 and no. 8632 for P726.
The cashier stole all undeposited receipts in excess for P18,972
and prepared the following reconciliation:
Balance per books, Nov.30,2010
Add: Outstanding checks
8621
P 954
8623
1,034
8632
726
P94,508
2,214
Page 114
96,722
18,972
77,750
500
P77,250
Less: Undeposited receipts
Balance per bank, Nov. 30
Less: Unrecorded credit
True cash, Nov. 30,2010
1. What
deposit
A.
B.
is the correct amount of cash that should be hand for
on November 30,2010?
P23,069
C. P22,569
P18,972
D. P22,069
2. How much was stoln by the cashier?
A. P3,597
B. P3,097
C. P4,097
D. P0
3. The cashier attempted to conceal his theft by
I. Not listing all outstanding checks
II. Underfooting outstanding checks shown on the
reconciliation.
III. Adding an item to the bank balance that should be
deducted from the book balance
A. I and II only
C. I and III only
B. II and III only
D. I, II and III
4. Taking only the information given, which of the following
internal control deficiencies allowed the cashier to steal cash
and conceal his theft?
A. The cashier is also responsible for preparing the
reconciliation
B. No one othe rhtan the cashier is responsible for preparing
the reconciliation to the deposits in the bank.
C. Both A and B.
D. Neither A and B
5. What is the adjusted cash balance as og November 30,2010?
A. P95,008
C. P94,008
B. P91,411
D. P87,814
Page 115
Solution 1-46
1.
Cash balance per books, Nov. 30
Add: Bank Credit
Adjusted cash balance (on hand and in bank)
Less: Adjusted bank balance:
Bank balance, Nov. 30
P77,750
Less: Outstanding checks
No.8420
P
581
8422
750
8430
1,266
8621
954
8623
1,034
8632
726
5,311
Cash that should be on hand for deposit
Answer: C
2. Cash that should be on hand for deposit
(see no. 1)
Cash reported
Amount of theft
Answer: A
3. The cashier attempted to conceal his theft by:
1. Not listing all outstanding checks.
2. Underfooting outstanding checks shown on the
reconciliation.
P94,508
500
95,008
72,439
P22,569
P22,569
18,972
P3,597
3. Subtracting an item from the bank balance that should be
added to book balance.
Answer: A
4. The following internal control deficiencies are noticeable:
1. The cashier is also responsible for preparing the cash
reconciliation.
Page 116
2. No one other than the cashier is responsible for tracing
cash receipts to the deposits in the bank.
Answer: C
5.
Unadjusted balances
Unrecorded credit
Outstanding checks
Undeposited receipts
Corrected balances
Cash shortage(amount of theft)
Adjusted cash balances
Answer: B
Book
P94,508
500
_______
95,008
(3,597)
P91,411_
Bank
P77,750
(5,311)
18,972
91,411
______
P91,411
Problem 1-47
Computation of Cash Shortage
Presented below is the cash receipts book of APPL, INC.:
CASH RECEIPTS BOOK
June 1-20,2010
Date
June 1 Cash Sales
10 BA
15 BO
20 BE
20 Cash Sales
25 BU
26 BO
Accounts
Receivable
Cash
Sales
P 800
P 3,200
6,000
4,800
Sales
Discount
P 64
120
96
P2,400
10,800
4,000
216
Net
Cash
P 800
P3,136
5,880
4,664
2,400
10,504
4,000
26 BE
30 BO
30 BA
12,000
3,600
800
P45,200
_____
240
3,600
_______
11,680
P936
P47,464
P3,200
800
Page 117
The following are the company’s accounts receivable subsidiary
ledgers. All the debits represent sales. The credit terms are 2%10days, net 30 days.
BA
June 3 3,200
4 4,800
BO
June 10 3,200
30
800
BU
June 2 6,000
10 4,800
June 25 10,800
June 2 6,000
9 4,000
15 3,600
June 15 6,000
26 4,000
30 3,600
BE
June 15 4,800
16 12,000
June 20 4,800
26 12,000
1. What is the correct amount of cash receipts in June?
A. P47,800
C. P48,000
B. P47,600
D. P47,664
2. What is the cash shortage on June 30?
A. P336
C. P200
B. P 0
D. P536
Solution 1-47
1. Cash receipts per book
Understatemet of cash receipts by:
Recording sales discounts for collections
made beyond the discount period:
June 15
P120
June 25
216
Overfooting the sales discounts column
(P936-P736)
Cash receipts as corrected
P47,464
336
200
P48,000
Page 118
*To balance, the following extensions to the “Cash” column are
understated:
Correct
Amount
Amount
Extended Understatement
June 20(P4,800-P96)
June 25(P10,800-P216)
June 26(P12,000-P240)
Total
Answer: C
P4,704
10,584
11,760
P4,664
10,504
11,680
P 40
80
80
P200
2. Cash receipts as corrected
Cash receipts per book
Cash shortage,June 30
Answer: D
P48,000
47,464
P
536
Problem 1-48
Computation of Cash Shortage
You star5ted the audit of the financial statements of ARCHIE, INC.
on January 15,2011 for the year ended December 31,2010. The
general ledger shows cash account balance of P247,200 as at
December 31,2010.
The following items are included in
reconciliation prepared by the cashier:
the
December
Cash per records, December 31,2010
Cash per bank statement, Dec. 31,2010
Outstanding checks
Check of Tsikoy Co., charged bank in
error on Dec. 28,2010; corrected by
bank on January 2,2011
Deposit in transit
31,2010,
P247,200
264,095
25,325
750
3,500
Page 119
From January 2,2011, to January 15,2011, the date of your cash
count, total cash receipts appearing in the cash records amounted
to P53,500. During the same period, the bank had credited total
deposits of P47,965. The following cash and cash items were on
hand at the close of business on January 15,2011:
Currency
Customer’s check
Expense vouchers
P1,425
1,950
375
Your further investigation revealed the following:
a. Cash received on account from customers:
DATE
AMOUNT
ENTRY MADE
07/05/10
P4,000
Allowance for bad debts
Accounts receivable
12/10/10
P3,000
Inventory
4,000
4,000
3,000
12/15/10
P3,500
Accounts receivable
Not recorded
3,000
b. Unrecorded but deposited checks received from customer from
January 2,2011 to January 15,2011 totaled P2,000
c. The cashier presented receipts for collections from customers
on January 10,2011 totalling P4,500; these were unrecorded and
undeposited.
1. What adjusting entries would you provide for items (a) through
(c)?
2. What is the total cash shortage as of December 31, 2010?
A. P21,180
C. P14,680
B. P16,180
D. P4,180
3. What is the total cash shortage as of January 15, 2011?
A. P26,465
C. P27,965
B. P18,430
D. P24,930
Page 120
Solution 1-48
1. ADJUSTING JOURNAL ENTRIES:
a. 1. Cash
4,000
Allowance for bad debts
2. Cash
3,000
Inventory
3. Cash
3,500
Accounts receivable
b. 4. Cash
2,000
Accounts receivable
c. 5. Cash
4,500
Accounts receivable
2.
Unadjusted balances
Outstanding checks
Bank error
Deposit in transit
AJE 1
2
3
Corrected balances
SHORTAGE as of Dec. 31, 2010
Book
P247,200
4,000
3,000
3,500
P257,700
(14,680)
4,000
3,000
3,500
2,000
4,500
Bank
P264,095
(25,325)
750
3,500
_____
P243,020
_____
Adjusted balances
P243,020_
P243,020
3. Deposit in transit, Dec. 30, 2010
Add: Company collections, Jan.2-15,2011
P 3,500
Page 121
Per records
P53,500
AJE 4
P2,000
5
4,500
6,500
Total
Less: Deposits credited by bank,
Jan.2-15,2011
Deposit in transit, Jan.15,2011
Cash and cash items per count on
Jan.15,2011
Cash shortage, Jan.2-15,2011
Add: Cash shortage as of Dec. 31,2010
Total shortage as of January 15,2011
Answer: A
60,000
63,500
47,965
15,535
(3,750)
P11,785
14,680
P26,465
Problem 1-49
Computation of Cash Shortage
The LEINOR COMPANY does not have adequate controls over its
cash transactions. During an adult, you found the following date
connecting its cash position at December 31,2010.
1. On the company’s records the cash balance is P173,500
2. A credit of P2,500 for a note collected by the bank does
not appear on the company’s records.
3. The bank statement balance is P135,000
4. Outstanding checks are as follows:
Number
Amount
1428
P5,200
1431
3,600
1445
4,080
1446
3,460
The cashier made the following reconciliation:
Balance per bank statement
Deduct: Outstanding checks:
P135,000
Page 122
No. 1431
1445
1446
Add: Undeposited collections
P3,600
4,080
3,460
10,140
P124,500
(per count)
Collected note
Cash per books, December 31,2010
P46,140
2,500
48,640
P173,500
1. What is the total shortage?
A. P11,200
C. P5,000
B. P8,700
D. P6,000
2. How did the cashier attempt to conceal the shortage?
Solution 1-49
1.
Unadjusted balances
Note collected by the bank
Outstanding checks
Undeposited collections
Corrected balances
SHORTAGE
Adjusted Balances
Answer: A
Book
P173,500
2,500
________
P176,000
(11,200)
P164,800
Bank
P135,000
(16,340)
46,140
P164,800
________
P164,800
2. Concealment of shortage:
Omission of outstanding check no. 1428
Underfooting of outstanding checks in
Reconciliation(P11,140-P10,140)
Adding(instead of deducting) the unrecorded
Note collected by the bank
Total shortage
P5,200
1,000
5,000
P11,200
Page 123
Problem 1-50
Computation of Cash Shortage
The following table summarizes the cash receipts and
disbursements of LOI COMPANY for the last six months of 2010:
Month
July
August
September
October
November
December
Additional information:
Receipts
P102,000
70,000
120,000
172,000
260,000
280,000
P964,000
Disbursements
P 60,000
110,000
68,000
92,000
122,000
180,000
P668,000
1. Bank balance, July 1, 2010
2. Bank balance, December 31,2010
3. Outstanding checks, December 31,2010
(No checks were outstanding on July 1)
4. Undeposited receipts, December 31,2010
(Included in the December receipts)
5. Bank deposits, July 1 through December 31
P200,000
524,000
42,000
24,000
914,000
1. What is the total shortage?
A. P 0
C. P30,000
B. P76,000
D. P66,000
Solution 1-50
Book balance, July 1 (see note 1)
P 200,000
Add: Total book receipts as corrected (see note 2) 1,004,000
Total
Less: Total book disbursements as corrected
Corrected book balance, December 31
Bank balance, December 31
Add: Undeposited receipts
Total
Less: Outstanding checks
Adjusted bank balance
Corrected book (accountability)
Cash shortage
Answer: D
Page 124
1,204,000
632,000
P 572,000
P 524,000
24,000
548,000
42,000
506,000
(572,000)
P (66,000)
NOTES:
1. Because there were no book and bank reconciling items on July
1, the bank balance on that date was also the cash balance per
books.
2. The receipts column of the table of cash receipts and
disbursements is underfooted by P40,000 (P1,004,000 correct totalP964,000) while the disbursements column is overfooted by P36,000
(P668,000-P632,000 correct total)
Problem 1-51
Computation of Cash Shortage
In connection with the audit of the financial statements of JEM
COMPANY for the year ended October 31,2010, you conducted a
surprise count of undeposited receipts on October 31,2010. It was
witnessed by the company’s cashier whose accountability on
October31 was determined to be P80,000. You count revealed the
following:
Currency and coins
Unused postage stamps
P48,840
440
Page 125
Checks:
Date
Payee
Maker
1-22
Cash
Cashier
10-19
Jem Company
DWU, Inc.
10-28
Jem Company
PSU Co.
10-31
CCP Co.
Jem Company
Office supplies paid out of receipts
Total per count
4,000
9,400
7,840
3,600
6,400
P80,520
1. What is the cash shortage on October 31,2010?
A. P7,080
C. P3,080
B. P3,480
D. P7,600
2. 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
Solution 1-51
1. Cashier’s accountability
Accounted for as follows:
Total per count
Less: Cashier’s stale check
Unreleased
Disbursement check
Cash shortage
Answer: A
P80,000
P80,520
P4,000
3,600
7,600
72,920
P7,080
2. Simultaneous verification
Answer: C
Page 126
Problem 1-52
Computation of Working Capital and Current Ratio
KAMP COMPANY’s unadjusted trial
included the following accounts:
balance
at
Debit
P 69,200
102,650
947,160
Cash
Accounts receivable
Merchandise inventory
Accounts payable
Accrued expenses
December
31,2010,
Credit
P789,715
13,214
Jam Co.’s year end December 31. At the end of 2010, it held is
cash book open so that its statement of financial position would
show a more favourable financial condition. You audit revealed the
following items:
1. The December cash book included January cash receipts of
P65,460, of which P36,010 represents cash sales and P29,450
represents collections from customers, net of 5% cash
discounts.
2. The December check register included payments if accounts
to suppliers of P37,240 on which discounts of P1,240 were
taken.
3. The merchandise inventory account balance was determined
by physical count on December 31, 2010.
1. What are Jam’s working capital and current ratio at December
31,2010, based on balances per company books?
Page 127
A.
B.
C.
D.
Working
Capital
P244,381
278,831
330,835
280,381
Current
Ratio
1.29
0.33
1.40
1.33
Solution 1-52
ADJUSTING JOURNAL ENTRIES
December 31,2010
a. Accounts receivable (P29,450/95%)
31,000
Sales
Cash
Sales discounts(P31,000x5%)
b. Cash
Purchase discounts
Accounts payable
36,000
65,460
1,550
36,000
1,240
32,240
COMPUTATION OF WORKING CAPITAL AND CURRENT RATIO
Per Books
Current assets:
Cash(P69,200-P65,460+P36,000) P69,200
Accounts receivable
(P102,650+P31,000)
102,650
Merchandise inventory
947,160
Total
P1,119,010
Current liabilities:
Accounts payable
(P789,650+P37,240)
Accrued expenses
Total
P789,715
13,214
P802,929
Per Audit
P 39,740
133,650
947,160
P1,120,550
P826,955
13,214
P840,169
Page 128
Working Capital (CA-CL)
Current ratio (CA/CL)
P316,081
1.39
P280,381
1.33
1. Answer: B
2. Answer: D
Problem 1-53
Computation of Cash Shortage
FE COMPANY, organized March1,2010, has a very poor internal
control system. The company’s cashier is also its accountant.
After 9 months of operations, the company’s manager suspects that
the
cashier
accountant
has
been
misappropriating
company
collections. You have been engaged to audit the company’s accounts
to determine the extent of fraud, if any.
You started the audit on November 15. On that date the on hand per
your surprise count was P5,140. Also on that date, the bank
confirmed that the balance of the company’s current account was
P26,328. Your examination of the records reveals that a check for
P1,852 was outstanding on November 15. The company’s mark up is
40% of sales.
Further examination of the company’s records reveals the following
balances at November 15,2010:
Ordinary share capital
Share premium
Real property purchased for cash
Mortgage payable
Furniture and fixtures(of the
Acquisition cost,P6,000 remains
Unpaid as of Nov. 15)
Notes payable-bank
Accounts payable-trade
Expenses paid(excluding purchases)
P300,000
20,000
200,000
80,000
29,000
32,000
46,284
60,756
Page 129
Merchandise inventory at cost
Accounts receivable-trade
Total sales
93,920
85,380
340,000
1. How much was paid for inventory purchases?
A. P157,716
C. P183,636
B. P293,716
D. P251,636
2. How much was collected from customers?
A. P118,620
C. P50,620
B. P254,620
D. P340,000
3. How much is the cashier’s accountability at November 15,2010?
A. P131,228
C. P145,228
B. P83,228
D. P151,228
4. What is the adjusted bank balance as of November 15,2010?
A. P31,468
C. P29,616
B. P26,328
D. P23,040
5. The cash shortage as of November 15,2010 totaled
A. P121,612
C. P127,612
B. P101,612
D. P206,992
Solution 1-53
1. Cost of sales(P340,000 total sales x 60%)
Add: Merchandise inventory, November 15
Purchases
Less: Accounts payable-trade, November15
Payments for purchases
Answer: D
P204,000
93,920
297,920
46,284
P251,636
Page 130
2. Sales
Less: Accounts receivable-trade, November 15
Collections from sales
Answer: B
3. Cashier’s Accountability
Receipts:
Issuance of ordinary shares
(P300,000+P20,000)
Mortgage payable
Note payable-bank
Collections from sales(see no.2)
Total
Disbursements:
Real property
200,000
Furniture and fixtures
(P29,000-P6,000)
23,000
Expenses
60,756
Purchases(see no.1)
251,636
Cash balance
Answer: D
4. Bank balance, Nov. 15
Add: Undeposited collections
Total
Less: Outstanding check
Adjusted bank balance, Nov.15
Answer: C
5. Cashier’s accountability(see no.3)
Cash accounted(see no.4)
Cash shortage as of Nov. 15,2010
Answer: A
P340,000
85,380
P254,620
P320,000
80,000
32,000
254,620
686,620
535,392
P151,228
P26,328
5,140
31,468
1,852
P29,616
P151,228
(29,616)
P121,612
Page 131
Problem 1-54
Computation of Cash Shortage
Your client, a successful small business, has given much attention
to a sound internal control. In its employ is Alex Coopit, the
company’s cashier-bookkeeper. Alex handles cash receipts, makes
small disbursements from the cash receipts, maintains accounting
records and prepares the monthly bank reconciliation.
The bank statement for the month ended March 31,2010, shows a cash
balance of P590,000. The following checks are outstanding on March
31:
No.
No.
No.
No.
No.
No.
7163
7284
7285
8722
8724
8733
P8,623
7,320
10,612
6,322
12,280
6,200
The bank company’s general ledger shows a cash balance of {696,499
on March 31,2010.
Realizing that being the cashier-accountant of the company he can
easily misappropriate collections and conceal it, Alex removed all
the cash on hand in excess of P127,301 and then prepared the
following reconciliation in an effort to conceal this theft.
BANK RECONCILIATION
Balance per accounting records
Add: Outstanding checks
No. 8722
P6,322
No. 8724
12,280
No. 8733
6,200
Total
Deduct: Cash on Hand
Balance per bank statement, March 31
P696,499
20,802
717,301
127,301
P690,000
Page 132
1. How much was taken by the cashier-accountant?
A. P30,555
C. P4,000
B. P157,856
D. P26,555
2. What is the amount of cash that should be on hand at November
15,2010?
A. P127,301
C. P157,856
B. P131,301
D. P30,555
Solution 1-54
1.
Unadjusted balances
Outstanding checks
No. 7163
No. 7284
No. 7285
No. 8722
No. 8724
No. 8733
Undeposited collections
Corrected balances
CASH SHORTAGE
Adjusted balances
Book
P696,499
P8,623
7,320
10,612
6,322
12,280
6,200
P696,499
(30,555)
P665,944
Bank
P590,000
(51,357)
127,301
P665,944
P665,944
Answer: A
Cash on hand
Add: Cash shortage (see no. 1)
Cash that should be on hand, Nov. 15
Answer: C
P127,301
30,555
P157,856