THEORETICAL 1.Which of the
following is not normally
considered an act of
concealing
Business Accounting
Arellano University (AU)
16 pag.
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THEORETICAL
1. Which of the following is not normally considered an act of concealing cash shortage?
a. Lapping
b. Banking
c. Window dressing
d. Kiting
2. This occurs when collection of receivable from one customer is misappropriated and then
concealed by applying a subsequent collection from another customer.
a. Lapping
b. Window dressing
c. Kiting
d. Floating
3. This occurs when cash shortage is concealed by overstating the balance of cash. This is
performed by exploiting the float period(the time it needs for a check to clear at the bank it was
drawn).
a. Lapping
b. Window dressing
c. Kiting
d. Floating
4. The general cash account is considered significant in almost all audits
a. Where the ending balance is material
b. Where the beginning balance is material
c. Even when the ending balance is immaterial
d. Except those of not-for-profit organizations
5. When conducting surprise cash count, the auditor should simultaneously count all cash funds,
marketable securities and other negotiable assets to prevent
a. Time-out
b. Defalcation
c. Substitution
d. Misappropriation
6. A cash shortage may be concealed by transporting funds from one location to another or by
converting negotiable assets to cash. Because of this, which of the following is vital?
a. Simultaneous confirmations
b. Simultaneous bank reconciliations
c. Simultaneous verification
d. Simultaneous surprise cash count
7. The primary purpose of sending a standard bank confirmation request to financial institutions
with which the client had done business during the year is to:
a. Request information concerning contingent liabilities and collateral
b. Detect kiting activities that may otherwise not be discovered
c. Provide the data needed to prepare the bank section of a four-column proof of cash
d. Corroborate/ verify information regarding cash and loan balances.
8. As one of the year-end audit procedures, the auditor instructed the client’s personnel to prepare
a standard bank confirmation request for a bank account that had been closed during the year.
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9.
10.
11.
12.
13.
14.
15.
After the client’s treasurer had signed the request, it was mailed by the assistant treasurer. What
is the major flaw in this audit procedure?
a. The confirmation request was signed by the treasurer
b. Sending the request was meaningless because the account was closed before the year-end
c. The request was mailed by the assistant treasurer
d. The CPA did not sign the confirmation request before it was mailed.
In October, three months before year-end, the bookkeeper erroneously recorded the receipt of a
one year bank loan with a debit to cash and a credit to miscellaneous revenue. Select the most
effective method for detecting this type of error.
a. Foot the cash receipts journal for October
b. Send a bank confirmation as of year-end
c. Prepare bank reconciliation as of year-end
d. Prepare a bank transfer schedule as of year-end
Which of the following is not confirmed on the standard form used for cash balances at financial
institutions?
a. Cash checking account balances
b. Cash savings account balances
c. Loans payable
d. Securities held for the client by the financial institution.
The primary assertion being addressed by sending bank confirmation is
a. Existence
b. Completeness
c. rights and obligation
d. Classification
Which of the following assertions is least likely to be addressed by sending bank confirmation?
a. Existence
b. Completeness
c. rights and obligation
d. Classification
This document is a bank statement prepared for a few days after month-end. Its purpose is to
help auditors verify reconciling items on the year-end bank reconciliation.
a. Cut-off bank statement
b. Bank reconciliation
c. Bank transfer schedule
d. Proof of cash
An auditor who is engaged to examine the financial statements of a business enterprise will
request a cut off bank statement primarily in order to
a. Verify the cash balance reported on the bank confirmation inquiry form
b. Verify reconciling items on the client’s bank reconciliation
c. Detect lapping
d. Detect kiting
The auditors use a bank cut off statement to compare:
a. Deposits in transit on the year-end cash general ledger account to deposits in the cash
receipts journal.
b. Checks dated prior to year-end to the outstanding checks listed on the year-end bank
reconciliation.
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16.
17.
18.
19.
20.
21.
c. Deposits listed on the cut off statement to disbursements in the cash disbursements journal
d. Checks dated subsequent to year-end to the outstanding checks listed on the year-end bank
statement.
Which procedure is an auditor most likely to use to detect a check outstanding at year-end that
was not recorded as outstanding on the year-end bank reconciliation?
a. Prepare a bank transfer schedule using the client’s cash receipts and cash disbursements
journal.
b. Receive a cut off statement directly from the client’s bank.
c. Prepare a four column bank reconciliation using the year-end bank statement
d. Confirm the year-end balance using the standard form to confirm account balance
information with financial institutions
A reconciliation that includes proof of receipts and disbursements that is useful in discovering
possible discrepancies in handling cash over a certain period of time.
a. Bank statement
b. Bank reconciliation
c. Proof of cash
d. Cash requirements report
Proof of cash or four-column-bank reconciliation is normally prepared by
a. The auditor
b. The client
c. Either the client or auditor
d. Neither client nor auditor
The following specific scenarios are normally uncovered using proof of cash. Select the
exception:
a. Cash receipts and disbursements recorded in the accounting records, but not on the bank
statement.
b. Cash deposits and disbursements recorded on the bank statement, but not on the
accounting records.
c. Cash receipts and disbursements not recorded in the accounting records and on the bank
statement
d. Cash receipts and disbursements recorded at different amounts by the bank than in the
accounting records.
By preparing a four-column bank reconciliation (proof of cash) at year-end, an auditor will
generally be able to detect:
a. An unrecorded deposit made at the bank at the end of the month.
b. A second payment of an account payable which had already been paid in full two months
earlier
c. An embezzlement of cash receipts not recorded in the cash receipts journal before they had
been deposited into the bank
d. A receivable collected that had previously been written off as uncollectible
This document shows the dates of all transfers of cash among the various bank accounts. Its
primary purpose is to help auditors detect kiting.
a. Cut-off bank statement
b. Bank reconciliation
c. Bank transfer schedule
d. Proof of cash
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22. Kiting would least likely be detected by:
a. Analysing details of large cash deposits around year end
b. Comparing customer remittance advices with recorded disbursements in the cash
disbursements journal
c. Preparing four-column bank reconciliation for all major cash accounts
d. Preparing a schedule of interbank transfers by using the client’s records and bank statements
around year-end
The next two questions are based on the following information:
The information below was taken form the bank transfer schedule prepared during the audit of Boom
Panes Co.’s financial statements for the year ended December 31, 2015. Assume all checks are dated and
issued on December 30, 2015.
Check
no.
101
202
303
404
Bank accounts
From
To
Bebe
John
Chinito
Labidab
s
Pinrito
Lloyd
Disbursement date
Per books Per
bank
Dec. 30
Jan. 4
Jan. 3
Jan. 2
Receipt date
Per books Per bank
Dec. 30
Dec. 30
Jan. 3
Dec. 31
Chinito
Dec. 31
Jan. 3
Jan. 2
Jan. 2
Labidab
Jan. 2
Jan. 2
Jan. 2
Dec. 31
s
23. Which of the following checks might indicate kiting?
a. #101 and # 303
b. #101 and #404
c. #202 and #404
d. #202 and # 303
24. Which of the following checks illustrate deposits/ transfer in transit at December 31, 2104?
a. #101 and #202
b. #202 and #404
c. #101 and #303
d. #303 and #404
25. A practical and effective audit procedure for the detection of lapping is:
a. Preparing an interbank transfer schedule
b. Comparing recorded cash receipts in detail against items making up the bank deposit as
shown on duplicate deposit slips validated by the bank
c. Tracing recorded cash receipts to postings in customers’ ledger cards
d. Preparing a proof of cash
PROBLEM 7-1 CASH AND CASH EQUIVALENTS
The following pertains to Kerry Corporation on December 31, 2015:
Postal money order
Correct cash balance in a general checking account with BPI
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50,000
320,00
0
Overdraft in a special checking account with RCBC Bank(Kerry does not have another
account with RCBC bank)
Cash accumulated in a special fund that will be used for plant expansion in five years
20,000
150,00
0
32,000
12,000
20,000
1,000
Cash surrender value of life insurance policy
Cash travel advances in the hands of sales personnel
Treasury warrants
Currency and coins in a petty cash fund(the company has not replenished the fund to the
imprest amount of P5,000)
How much cash and cash equivalent should Kerry corp. report on the December 31, 2015 statement of
financial position?
a.
b.
c.
d.
P383,000
P391,000
P372,000
P 352,000
PROBLEM 7-2 CASH AND CASH EQUIVALENTS
Total cash and cash equivalents of P6,325,000 reported by Kristine Co. on December 31, 2015 include
the following information:
a)
b)
c)
d)
Two certificates of deposits, each totalling P500,000, having a maturity of P120 days
A check that is dated January 12,2016 in the amount of P125,000
A commercial paper of P2,100,000 which is due in 90 days
Currency and coins on hand amounted to P7,700
a.
b.
c.
d.
Kristine Co. had agreed to maintain a cash balance of P500,000 in one of its banks at all times to
ensure future credit availability (this amount is legally restricted as to withdrawal and was
included in above balance).
How much is the correct amount of cash and cash equivalents that Kristine should report in its
December 31, 2015 statement of financial position?
P4,700,000
P3,100,000
P5,200,000
P 6,200,000
PROBLEM 7-3 CASH AND CASH EQUIVALENTS
The cash account of Ria on December 31, 2015 has a balance of P151,000 and it consists of the
following:
Bills and coins on hand
Traveler’s check
Credit memo from supplier’s for purchase returns
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P52,780
22,400
6,500
Postage stamps
Petty cash including paid cash vouchers of P1,650
Balance in Savings account with a bank closed by the BSP
Customer’s check dated January 15, 2016
Money order
IOU of an employee
Checking Account Balance in Bank of Philippine Island
Total
120
2,000
36,000
8,000
800
400
22,000
P151,00
0
The correct cash and cash equivalents balance on December 31, 2015 is
a.
b.
c.
d.
98,900
98,730
97,530
98,330
PROBLEM 7-4 CASH AND CASH EQUIVALENTS
Assume the following data of Dianne Corporation of its cash and short-term, highly liquid investments
for December 31, 2015:
Cash on hand
Checking account No. 143-BPI
Checking account No. 155-BPI
P80,000
200,000
(30,000)
Securities
120-day certificate of deposit
BSP- Teasury Bill(No. 1)
Date acquired
12/10/2015
11/30/2015
Maturity date
01/31/2016
04/30/2016
BSP- Teasury Bill(No. 2)
10/31/2015
01/20/2016
180 days commercial paper
12/01/2015
06/20/2016
Money market funds
11/21/2015
02/10/2016
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Amount
P600,000
5,000,00
0
1,000,00
0
1,400,00
0
2,000,00
0
The correct cash and cash equivalents balance on December 31, 2015 is
a.
b.
c.
d.
3,850,000
3,880,000
5,250,000
5,280,000
PROBLEM 7-5 CASH AND CASH EQUIVALENTS
STEVE Company had the following account balances on December 31, 2015:
Cash in bank- checking account
5,000,000
Cash in bank- payroll account
1,000,000
Cash on hand
500,000
Cash in bank-restricted account for building 3,000,000
construction expected to be disbursed in 2016
Treasury bills, purchased December 15, 2015 and 2,000,000
due March 15, 2016
On December 31, 2015, Steve drew a check amounting to P100,000 in payment of accounts payable
which was mailed to the supplier only on January 8, 2016. The cash on hand includes a P200,000 check
payable to Steve, dated January 15, 2016.
What would be reported as “cash and cash equivalents” on December 31, 2015?
a.
b.
c.
d.
6,300,000
8,400,000
8,300,000
8,700,000
PROBLEM 7-6 CASH AND CASH EQUIVALENTS
The December 31, 2015 trial balance of Agree Company includes the following accounts:
Petty cash fund
Current account- Metro bank
Current account- BPI (overdraft)
120- day money placement-RCBC
Time deposit-PNB
Additional information:



70,000
4,000,000
(250,000)
1,000,000
2,000,000
The petty cash includes unreplenished December 2015 petty cash expense vouchers for P15,000
and an employee check for P5,000 dated January 31,2016.
A check for P100,000 was drawn against Metro Bank current account dated and recorded
December 27, 2015 but delivered to payee on January 10, 2016.
The PNB time deposit is set aside for land acquisition in early January 2016.
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What should be reported as “cash and cash equivalents” on December 31, 2015?
a.
b.
c.
d.
5,130,000
5,150,000
4,150,000
4,880,000
PROBLEM 7-8 (PETTY CASH FUND)
The following fund of Mylene Company on December 31,2015 is composed of the following:
Currencies
Coins
Petty cash vouchers:
Transportation
Office supplies
Repair of computer
Loans to employees
Miscellaneous expenses
Postage
Unused stamps
A check drawn by the company payable to the order of the petty cash custodian, representing
her salary
An employee’s check returned by the bank because of insufficient funds
A piece of paper with names of several employees together with a contribution for a wedding
gift for an employee. Attached to the sheet of paper is a currency of
3,000
450
650
160
400
600
240
200
50
3,800
1,200
500
The petty cash general ledger account has an imprest balance of P10,000.
Required: based on the above data,
1) Determine the amount of petty cash fund that should be shown on the statement of financial
position as of December 31,2015.
2) Determine the amount of cash shortage or overage.
3) Prepare the necessary audit adjusting entries.
PROBLEM 7-9 PETTY CASH FUND
The petty cash fund of Abigail Company on December 31,2015 is composed of the following:
Coins and currencies
17,00
0
Petty cash vouchers:
Transportation
Supplies
Cash advances to employees
Employee’s check returned by bank marked NSF
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1,000
2,000
3,000
4,000
Check drawn by the company payable to the order of the petty cash custodian, representing
salary for the month
A sheet of paper with names of employees together with contribution
Total
18,00
0
5,000
50,00
0
The petty cash ledger account has an imprest balance of P50,000. What is the correct amount of petty
cash on December 31,2015?
a.
b.
c.
d.
50,000
40,000
35,000
39,000
PROBLEM 7-10BANK RECONCILIATION
On October 31,2015, the bank statement for the checking account Driftwood Company shows a balance
P126,300, while the company’s records show a balance of P123,310. Information that might be useful in
preparing a bank reconciliation is as follows:
a) Outstanding checks are P14,300 which includes a certified check for P2,000.
b) The October 31 cash receipts of P7,850 are not deposited in the bank until November 2
c) One check written in payment of utilities for P1,370 is correctly recorded by the bank but is
recorded by Driftwood as a disbursement of P1,730.
d) In accordance with prior authorization, the bank withdraws P6,500 directly from the checking
account as payment of note payable. The interest portion of that pay is P6,000. Driftwood has
not recorded the direct withdrawal.
e) Bank service charges of P240 are listed on the bank statement.
f) A deposit of P5,670 is recorded by the bank on October 31, but it did not belong to Driftwood.
The deposit should have been made to the checking account of Hollybuster Company, a separate
company.
g) The bank statement includes a charge of P750 for an NSF check. The check is returned with the
bank statement and the company will seek payment from the customer.
Required:
Prepare a bank reconciliation and the necessary adjusting entries as of October 31,2015.
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PROBLEM 7-11BANK RECONCILIATION
The accounting period of Laurieleen Company ends on December 31. The following information is
available about the company’s cash.
Laurieleen Company
Bank reconciliation
October 31
Balance per bank statement
Add deposit in transit
Deduct: outstanding checks
No. 143
No. 144
Correct cash balance
Balance per boos
Add: note collected by bank
Principal
Interest
Total
Deduct bank service charge
Correct cash balance
P18,005
1,790
P4,563
2,118
6,681
P13,114
P11,534
P1,50
100
1,600
P13,124
20
P13,124
PASSABLE NATIONAL BANK
GENERAL ACCOUNT: LAURIELEEN COMPANY
DATE
DEBITS
CREDITS
BALANCE
10/31
P18,005
11/01
1,790
19,757
11/02
4,563
15,232
11/04
2,118
5,967
19,081
11/04
4,567
14,514
11/05
963
13,551
11/06
3,410
16,961
11/07
2,515
14,446
11/11
1,037
15,483
11/13
2,264
13,319
11/18
3,325
9,894
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11/24
11/28
11/29
11/29
11/30
11/30
TOTAL
964
619
3,000
35 DM
665 NSF
22 SC
25,620
4,255
750 CM
500 CM
13,185
13,316
10,816
10,781
10,116
10,094
17,709
Legend: DM: debit memo
CM: credit memo
NSF: no sufficient fund check
SC: service charge
Laurileen Company’s Cash Account
Taken from General Ledger
Cash
Balance, Oct. 31
11,534 Balance, Nov. 30
CR, Journal, Nov. 31
18,269 CD Journal Nov. 30
Legend: CR: cash receipts; CD: cash disbursements
8,228
21,575
Information taken from Laurileen Company:
Cash receipts journal
date
Cash debit
11/03 5,967
11/06 3,410
11/11 1,037
11/23 4,255
11/30 3,600
18,269
Cash disbursements journal
date
Check No. Cash credit
11/01 145
4,567
11/04 146
963
11/05 147
2,515
11/10 148
3,264
11/17 149
3,325
11/22 150
694
11/27 151
619
11/28 152
760
11/29 153
3,000
11/30 154
1,868
21,575
Additional information:
1) After preparing the October 31 reconciliation, Laurileen failed to record the necessary
journal entries.
2) The NSF check had been received during November from a customer on account. Laurileen
has not yet recorded the return of the check.
3) The credit memos shown on the bank statement pertain to P750 of bond interest that
Laurileen earned during the current accounting period and that the bank collected on the
company’s behalf (collection not yet recorded on the Laurileen’s books) and a P500
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collection made for Dulawan Company that the bank erroneously credited to Laurileen’s
account.
4) The P35 debit memo shown on the bank statement pertains to the rental of a safe deposit
box during November.
5) Laurileen made two errors in recording cash payments during November:
Check no.
Actual amount of check
Amount recorded
148
P2,264
P3,264
150
964
694
Check No 148 was issued to purchase equipment, check No. 150 was for advertising
expense.
Questions:
Based on the above data and the result of your audit, compute the following:
1. Deposit in transit on November 30
a. 2,600
b. 3,600
c. 1,600
d. 600
2. Outstanding checks on November 30
a. 2,628
b. 2,826
c. 3,268
d. 1,628
3. Adjusted receipts in November
a. 17,519
b. 19,019
c. 15,419
d. 21,309
4. Correct cash balance on November 30
a. 10,094
b. 13,694
c. 11,066
d. 10,566
5. Assuming each reconciling item will be given an adjusting entry, how many adjusting
entries will be made on November 30
a. 8
b. 4
c. 6
d. 5
PROBLEM 7-12 DEPOSIT IN TRANSIT
In your audit of the cash account of Karen Mae Company, you have ascertained the following data
relative to the debits per books and credits per bank:
Book debits in February
Bank credits in February
40,000
360,00
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CM for interest earned in January but taken up in the books in March
CM for interest earned in February but taken up in the books in March
Check from customer in January amounting to P40,000 but was taken up in the books as
Check from customer in February amounting to P20,000 but was taken up in the books as
Check by the company issued to supplier in January amounting to P3,000 but was taken up
in the books as
Erroneous bank credit- February
Erroneous bank charge- January
Deposit in transit- January
How much is the undeposited collections at the end of February?
a.
b.
c.
d.
0
5,000
6,000
4,000
4,000
30,000
2,500
1,000
50,000
47,500
31,500
15,500
46,500
PROBLEM 7-13 outstanding checks
Based on the following information, the causes of the discrepancies between the book credits and bank
debits are ascertained:
Book credits in May
85,800
Bank debits in May
97,650
Check issued on May 29 for P5,700 erroneously 7,500
recorded in the books of the depositors as
Customer’s DAIF check, returned by the bank of 2,300
the depositor in May
April bank service charges, taken up in the books in 30
May
Payment of VISA credit card automatically debited 3,000
by the bank on May 25, as per ADA, but taken up
in the books of the depositor in June
Outstanding checks as of May 31
4,500
How much is the outstanding checks at the beginning of the period?
a.
b.
c.
d.
4,500
12,880
5,300
11,880
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PROBLEM 7-14 proof of cash
Your client, Aira Marie Zhon Company, presented you the following data:
Reconciling items
Undeposited
collections:
September 30
October 31
Outstanding checks:
September 30
October 31
NSF checks:
September 30
October 31
Customer’s
notes
collected by bank:
September 30
October 31
October transactions:
Bank services charges:
5,200
?
8,007
?
526
700
1,500
4,277
September 30
October 31
Erroneous bank debits:
September 30
October 31
Erroneous bank credit:
September 30
October 31
Balances:
Book- Oct. 31, 2015
Bank- Sept. 30, 2015
Receipts:
Book
151,230
Bank
149,951
Disbursements:
Book
111,423
Bank
110,098
Questions:
Based on the above data and the result of your audits, compute for the following:
1. How much is the total disbursements in October?
a. 154,007
b. 111,612
c. 110,098
d. 115,412
2. How much is the undeposited collection, Oct. 31, 2015?
a. 12,856
b. 12,586
c. 21,856
d. 21,586
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50
65
600
900
1,000
3,000
166,236
130,560
3. How much is the total outstanding checks, Oct. 31, 2015?
a. 14,112
b. 11,421
c. 12,124
d. 12,142
4. How much is the adjusted balance of cash, Sept. 30, 2015?
a. 127,353
b. 154,007
c. 111,612
d. 169,748
5. How much is the adjusted balance of cash, Oct. 31, 2015?
a. 127,353
b. 154,007
c. 111,612
d. 169,748
PROBLEM 7-15 proof of cash
Reconciliation of Jazz Company’s bank account at May 31 of the current year is:
Balance per bank statement
Deposits outstanding
Bank service charge
Erroneous bank charge
Outstanding checks
Erroneous bank credit
CM for collection of note
Balance per book
2,600,000
300,000
10,000
40,000
(100,000)
(60,000)
(600,000)
2,190,000
June data are as follows:
Checks recorded
Correction of erroneous bank
credit in May
Deposits recorded
Correction of erroneous bank
charge
Service charges recorded
CM for collection by bank
NSF checks returned with June
30
statement
(will
be
redeposited)
Bank
2,200,000
60,000
Book
2,500,000
-
1,600,000
40,000
1,800,000
-
50,000
550,000
100,000
600,000
-
Questions:
Based on the above
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e data and the result of your audit, compute for the following:
1. How much is the total outstanding checks on June 30?
a. 400,000
b. 510,000
c. 190,000
d. 340,000
2. How much is the total deposit in transit on June 30?
a. 510,000
b. 500,000
c. 100,000
d. 90,000
3. How much is the total adjusted cash receipts in June?
a. 2,350,000
b. 2,400,000
c. 2,190,000
d. 2,030,000
4. How much is the total adjusted cash disbursements in June?
a. 2,650,000
b. 2,410,000
c. 2,500,000
d. 2,350,000
5. How much is the total adjusted cash balance as of June 30?
a. 2,480,000
b. 2,280,000
c. 2,370,000
d. 2,490,000
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