CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila
AUDITING PROBLEMS
AP-8708
CPA Review
AUDIT OF CASH
PROBLEM NO.1
The bank statement for the checking account of MSU, INC. showed a December 31, 2020,
balance of P1,463,212. Information that might be useful in preparing a bank reconciliation is as
follows:
a) Outstanding checks were P132,025.
b) The December 31, 2020, cash receipts of P57,500 were not deposited in the bank until
January 2, 2021.
c) One check written in payment of rent for P24,600 was correctly recorded by the bank
but was recorded by MSU as P26,400 disbursement.
d) In accordance with prior authorization, the bank withdrew P45,000 directly from the
checking account as payment on a mortgage note payable. The interest portion of that
payment was P35,000. MSU has made no entry to record the automatic payment.
e) Bank service charges of P1,400 were listed on the bank statement.
f) A deposit of P87,500 was recorded by the bank on December 13, but it did not belong
to MSU. The deposit should have been made to the checking account of SUM, Inc.
g) The bank statement included a charge of P8,500 for an NSF check. The check was
returned with the bank statement and the company will seek payment from the
customer.
h) MSU maintains a P20,000 petty cash fund that was appropriately reimbursed at the end
of December.
i)
According to instruction for MSU on December 30, the bank withdrew P1,000,000 from
the account and purchased Treasury Bills for MSU. MSU recorded the transaction in its
books on December 31 when it received notice from the bank. Half of the treasury bills
mature in two months and the other half in six months.
Questions:
1. What is the cash in bank balance per books on December 31, 2020?
A. P1,354,287
B. P1,357,887
C. P1,337,287
D. P1,264,287
2. What is the corrected cash in bank balance on December 31, 2020?
A. P1,304,787
B. P1,301,187
C. P1,284,187
D. P1,211,187
3. What amount of cash and cash equivalents should be reported in the current asset section
of the balance sheet on December 31, 2020?
A. P1,821,187
B. P2,321,187
C. P1,301,187
D. P1,874,287
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PROBLEM NO. 2
From the following information, prepare the following:
1. A four-column reconciliation that would end at adjusted balances.
Page 1 of 9 Pages
CPAR - MANILA
AP8708 – AUDIT OF CASH
2. Adjusting journal entries as of December 31, 2020.
Reconciling items:
November 30
Deposits in transit
P10,400
Outstanding checks
16,014
NSF checks
1,052
Customers’ notes collected by bank
3,000
Bank service charges
100
Erroneous bank debits
1,200
Erroneous bank credits
2,000
Book balances
Bank balances
December 31
?
?
P1,400
8,554
130
1,800
6,000
?
261,120
332,472
?
December transactions:
Books
Bank
Receipts
P302,460
P299,902
Disbursements
222,846
220,196
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PROBLEM NO. 3
The cash account of NUNAL COMPANY shows the following activities:
Date
Nov. 30
Dec. 2
4
15
20
21
31
31
Date
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
Debit
Balance
November bank charges
November bank credit for notes
receivable collected
P 30,000
NSF check
Loan proceeds
145,500
December bank charges
Cash receipts book
2,121,900
Cash disbursements book
CASH BOOKS
RECEIPTS
OR No.
110-120
121-136
137-150
151-165
166-190
191-210
211-232
233-250
251-275
276-300
301-309
310-350
351-390
391-420
421-480
481-500
501-525
526-555
556-611
612-630
-
Amount
P 33,000
63,900
60,000
168,000
117,000
198,000
264,000
231,000
63,000
90,000
165,000
24,000
57,000
27,000
51,000
63,000
96,000
222,000
15,000
114,000
-
Page 2 of 9 Pages
Credit
P
150
3,900
180
1,224,000
Balance
P345,000
344,850
374,850
370,950
516,450
516,270
2,638,170
1,414,170
PAYMENTS
Check No.
801
802
803
804
805
806
807
808
809
810
811
812
813
814
816
817
818
819
820
821
822
823
824
825
826
Amount
P 6,000
9,000
3,000
9,000
36,000
57,000
78,000
90,000
183,000
21,000
24,000
48,000
60,000
66,000
108,000
33,000
150,000
21,000
12,000
9,000
36,000
39,000
87,000
6,000
33,000
CPAR - MANILA
Totals
Date
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
AP8708 – AUDIT OF CASH
P2,121,900
BANK STATEMENT
Check
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
P 7,500
9,000
9,000
243,000
36,000
21,150
3.900
90,000
3,000
183,000
180
60,000
18,000
108,000
24,000
6,000
66,000
150,000
360
9,000
12,000
P1,059,090
P1,224,000
Credits
P 25,500
33,000
63,900
60,000
243,000
285,000
36,000
462,000
231,000
63,000
255,000
24,000
57,000
145,500
141,000
96,000
222,000
15,000
36,000
P2,493,900
Additional information:
1.
2.
3.
4.
5.
6.
7.
DMs 61 and 112 are for service charges.
EC is error corrected.
DM 57 is for an NSF check.
CM 20 is for loan proceeds, net of P450 interest charges for 90 days.
CM 16 is for the correction of an erroneous November bank charge.
CM 36 is for customers’ notes collected by bank in December.
Bank balance on December 31 is P1,776,810
Based on the preceding information, determine the following:
1. Outstanding checks at December 31
A. P459,000
B. P477,000
C. P441,000
D. P487,650
2. Deposit in transit at December 31
A. P114,000
B. P139,500
C. P132,000
D. P 0
3. Adjusted bank receipts for the month of December
A. P2,297,400
B. P2,291,400
C. P2,303,400
D. P2,321,400
4. Adjusted book disbursements for the month of December
A. P1,228,440
B. P1,246,440
C. P1,210,440
D. P1,246,620
5. Adjusted bank balance at December 31
A. P1,449,810
B. P1,674,810
C. P1,431,810
D. P1,776,810
-----------------------------oooOOOooo-----------------------------
PROBLEM NO. 4
Page 3 of 9 Pages
CPAR - MANILA
AP8708 – AUDIT OF CASH
The following information was obtained in connection with the audit of SOLEDAD COMPANY’s
cash account as of December 31, 2020.
Outstanding checks, 11/30/20
P48,750
Outstanding checks, 12/31/20
37,500
Deposit in transit, 11/30/20
37,500
Cash balance per general ledger 12/31/20
112,500
Actual company collections from its customers during December
457,500
Company checks paid by bank in December
390,000
Bank service charges recorded on company books in December
7,500
Bank service charges per December bank statement
9,750
Deposits credited by bank during December
435,000
November bank service charges recorded on company books in December
4,500
The cash receipts book of December is underfooted by P7,500.
The bank erroneously charged the company’s account for a P11,250 check of another depositor.
This bank error was corrected in January 2021.
Questions:
1. How much is the deposit in transit on December 31, 2020?
A. P15,000
B. P67,500
C. P52,500
D. P60,000
2. The total unrecorded bank service charges as of December 31, 2020, is
A. P6,750
B. P2,250
C. P5,250
D. P12,750
3. What is the total book receipts in December?
A. P457,500
B. P465,000
C. P450,000
D. P442,500
4. What is the total amount of company checks issued in December?
A. P390,000
B. P378,750
C. P369,000
D. P401,250
5. What is the total book disbursements in December?
A. P386,250
B. P371,250
C. P385,500
D. P378,750
6. What is the book balance on November 30, 2020?
A. P63,750
B. P48,750
C. P112,500
D. P105,000
7. What is the bank balance on November 30, 2020?
A. P55,500
B. P69,000
C. P130,500
D. P48,750
8. What is the total bank receipts in December?
A. P360,000
B. P420,000
C. P435,000
D. P450,000
9. What is the total bank disbursements in December?
A. P411,000
B. P463,500
C. P397,500
D. P388,500
10. What is the bank balance on December 31, 2020?
A. P64,500
B. P93,000
C. P99,750
D. P79,500
-----------------------------oooOOOooo-----------------------------
PROBLEM NO. 5
The auditor for RAKI-RAKI, INC. examined the petty cash fund immediately after the close of
business, June 30, 2020, the end of the company’s fiscal year. The following fund composition
was arrived at:
Currency
Fund vouchers:
Office supplies expense
Travel expense
Office equipment repairs
P1,272
388
240
170
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CPAR - MANILA
AP8708 – AUDIT OF CASH
Loans to officers and employees
A check drawn by Raki-Raki, Inc., payable to the order of Jingle, fund custodian
An employee’s check, returned by bank, stamped NSF
A sheet of paper bearing the signatures of several employees, together with
their contributions (total P200) for a gift for a departing employee.
Attached to the paper is currency of
400
1,100
230
200
P4,000
The petty cash fund general ledger account has an imprest balance of P4,000.
Required:
1. What audit adjustment should be prepared as of June 30, 2020?
2. At what amount should the cash fund be shown in the balance sheet as of June 30, 2020?
-----------------------------oooOOOooo-----------------------------
PROBLEM NO. 6
You have been asked by the proprietor of the SANDOVAL CO. to verify the accountability of the
cashier-bookkeeper, who was allowed to take a vacation leave a few days ago.
A. The bank reconciliation statements prepared by the cashier-bookkeeper are presented
below:
November 30, 2020
Balance per bank statement
Cash on hand
Total
Outstanding checks:
No. 2520
2521
2522
Erroneous bank charge
Erroneous bank credit
Book balance
P21,500
500
22,000
P 2,000
1,400
1,900
(3,300)
2,000
(500)
P20,200
December 31, 2020
Balance per bank statement
Cash on hand
Total
Outstanding checks:
No. 2674
2675
2676
Erroneous bank charge
Erroneous bank credit
Book balance
P 135,000
6,300
141,300
P31,000
10,300
5,000
(41,300)
3,000
(600)
P102,400
B. The Cash in Bank account in the general ledger shows the following debits and credits
during December:
Cash in Bank
Dec.
1 Balance
2 Received
7 Received
12 Received
17 Received
23 Received
27 Received
31 Received
from
from
from
from
from
from
from
P20,200
customers 4,500
customers 5,000
customers 20,000
customers 30,000
customers 9,000
customers 70,000
customers 48,500
Dec.
1 Checks
5 Checks
14 Checks
24 Checks
28 Checks
issued P2,000
issued 5,200
issued 31,000
issued 46,000
issued 7,600
31 Balance
Page 5 of 9 Pages
102,400
CPAR - MANILA
Total
AP8708 – AUDIT OF CASH
P198,200
Total
P198,200
C. The following summarized transactions were taken from the bank statement for the month
of December 2020:
Balance, December 1, 2020
P16,500
Total deposits
P173,700
The total deposits per bank statement include:
a. Collection of notes receivable
b. Correction of November erroneous bank charge
c. December 10 deposit of Lava, Inc. credited in error
to SANDOVAL
Total
P5,000
2,000
600
P7,600
Total checks
P65,200
The total checks per bank statement include:
a. Correction of November erroneous bank credit
b. December check of Nile Co. charged in error
to SANDOVAL
Total
P 500
3,000
P3,500
D. Cash on hand per count in the morning of January 2, 2021, amounted to P6,300.
E. Before leaving his company for a one-week vacation, the proprietor had left several signed
blank checks that the cashier-bookkeeper had cashed for his personal use.
Questions:
1. What is the adjusted cash balance on November 30, 2020?
A. P16,500
B. P13,200
C. P20,200
D. P14,500
2. The amount of unaccounted receipts in December is
A. P11,000
B. P13,200
C. P9,000
D. P15,100
3. The amount of unrecorded/unsupported disbursements in December is
A. P15,100
B. P10,900
C. P7,000
D. P5,000
4. What is the total cash shortage as of December 31, 2020?
A. P26,000
B. P15,100
C. P33,000
D. P7,000
5. What is the adjusted cash balance on December 31, 2020?
A. P102,400
B. P125,000
C. P87,400
D. P111,400
-----------------------------oooOOOooo-----------------------------
PROBLEM NO. 7
On January 10, 2021, you started the audit of the financial records of the KEMIRARA COMPANY
for the year ended December 31, 2020. From your investigation, you discovered the following:
1. The bookkeeper acts also as the cashier.
reconciliation contained the following items:
Her December 31, 2020, year-end cash
Cash per ledger, Dec. 31, 2020
Cash per bank, Dec. 31, 2020
Checks outstanding
Amnesia Co. check charged by the bank in error
Dec. 20, 2020; corrected by the bank on Jan. 5, 2021
Cash in transit, credited by the bank on Jan. 2, 2021
Page 6 of 9 Pages
P184,200
194,550
15,660
450
2,160
CPAR - MANILA
AP8708 – AUDIT OF CASH
2. The cash account balances per ledger as of December 31, 2020 were:
Cash
P184,200
Petty cash
450
3. The count of the cash on hand at the close of the business on January 10, 2021, including
the petty cash, was as follows:
Currency and coins
Expense vouchers
Employees’ IOU’s dated Jan. 5, 2021
Customers’ checks in payment of account
P1,155
60
165
870
4. From January 2, 2021 to January 10, 2021, the date of your cash count, total cash
receipts appearing in the cash records were P25,800. According to the bank statement for
the period from January 2, 2021 to January 10, 2021, total deposits were P22,800.
5. On July 5, 2020, cash of P1,200 was received on account from a customer; the Allowance
for Doubtful Accounts was charged and Accounts Receivable was credited.
6. On December 5, 2020, cash of P900 was received on account from a customer; Inventory
was charged and Accounts Receivable was credited.
7. Cash of P2,190 received during 2020 was not recorded.
8. Checks received from customers from January 2, 2021 to January 10, 2021, totaling
P1,260, were not recorded but were deposited in the bank.
9. On July 1, 2020, the bank refunded interest of P60 because a note of the Kemirara
Company was paid before maturity. No entry was made for the refund.
10. In the cashier’s petty cash, there were receipts for collection from the customers on
January 9, 2021, totaling P2,550; these were unrecorded and undeposited.
11. In the outstanding checks, there is one for P150 made payable to a trade creditor;
investigation shows that this check had been returned by the creditor on November 14,
2020 and a new check for P300 was issued in its place; the original check for P150 was
made in error as to amount.
Required:
1. Compute the correct bank balance as of December 31, 2020.
2. Compute the cash shortage as of December 31, 2020.
3. Compute the cash shortage for the period January 1, 2021 to January 10, 2021.
PROBLEM NO. 8
Select the best answer for each of the following:
1. As one of the year-end audit procedures, the auditor instructed the client’s personnel to
prepare a standard bank confirmation request for a bank account that had been closed
during the year. After the client’s treasurer had signed the request, it was mailed by the
assistant treasurer. What is the major flaw in this audit procedure?
A. The confirmation request was signed by the treasurer.
B. Sending the request was meaningless because the account was closed before yearend.
C. The request was mailed by the assistant treasurer.
D. The CPA did not sign the confirmation request before it was mailed.
2. On receiving the bank cutoff statement, the auditor should trace
A. Deposits in transit on the year-end bank reconciliation to deposits in the cash receipts
journal.
Page 7 of 9 Pages
CPAR - MANILA
AP8708 – AUDIT OF CASH
B. Checks dated prior to year-end to the outstanding checks listed on the year-end bank
reconciliation.
C. Deposits listed on the cutoff bank statement to deposits in the cash receipts journal.
D. Checks dated subsequent to year-end to the outstanding checks listed on the year-end
bank reconciliation.
3. An unrecorded check issued during the last week of the year would most likely be
discovered by the auditor when
A. Check register for the last month is reviewed.
B. Cutoff bank statement is reconciled.
C. Bank confirmation is reviewed.
D. Search for unrecorded liabilities is performed.
4. To gather evidence regarding the balance per bank in a bank reconciliation, an auditor
would examine all of the following except
A. Cutoff bank statement
B. Year-end bank statement
C. Bank confirmation
D. General ledger
5. An auditor compares information on cancelled checks with information contained in the
cash disbursements journal. The objective of this test is to determine that
A. Recorded cash disbursement transactions are properly authorized.
B. Proper cash purchase discounts have been recorded.
C. Cash disbursements are for goods and services actually received.
D. No discrepancies exist between the data on the checks and the data in the journal.
6. When counting cash on hand, the auditor must exercise control over all cash and other
negotiable assets to prevent
A. Theft
C. Substitution
B. Irregular endorsement
D. Deposit in transit
7. If the balance shown on an entity’s bank statement is less than the correct cash balance
and neither the entity nor the bank has made any errors, there must be
A. Deposits credited by the bank but not yet recorded by the entity.
B. Outstanding checks.
C. Deposits in transit.
D. Bank charges not yet recorded by the entity.
8. If the cash balance shown on an entity’s accounting records is less than the correct cash
balance and neither the entity nor the bank has made any errors, there must be
A. Deposits credited by the bank but not yet recorded by the entity.
B. Deposits in transit.
C. Outstanding checks.
D. Bank charges not yet recorded by the entity.
9. The usefulness of the standard bank confirmation request may be limited because the
bank employee who completes the form may
A. Not believe that the bank is obligated to verify confidential information to a third
party.
B. Sign and return the form without inspecting the accuracy of the client’s bank
reconciliation.
C. Not have access to the client’s cutoff bank statement.
D. Be unaware of all the financial relationships that the bank has with the client.
10. The best evidence regarding year-end bank balances is documented in the
A. Cutoff bank statement.
B. Bank reconciliations.
C. Interbank transfer schedule.
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AP8708 – AUDIT OF CASH
D. Bank deposit lead schedule.
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Page 9 of 9 Pages