ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY
FARAP-4701
CPA Review Batch 47  May 2024 CPA Licensure Examination
FINANCIAL ACCOUNTING & REPORTING / AUDITING PRACTICE
S. IRENEO  G. MACARIOLA  C. ESPENILLA  J. BINALUYO
CASH & CASH EQUIVALENTS
Composition of Cash
a. Undeposited currency and coins
b. Demand deposits deposited in checking and savings account that can be withdrawn anytime, without
advance notice
c. Undeposited negotiable checks payable to the company or bearer awaiting deposit
d. Foreign currencies converted to Philippine peso at the exchange rate as at reporting date
e. Bank drafts are commitments by banking institutions to advance funds on demand by the party
to whom the draft was directed
f. Money orders are similar to bank drafts but are drawn generally from authorized post offices or other financial
institutions.
g. Other short-term funds for current operations like Petty Cash Fund (Coins, bills, replenishment checks and
employees’ checks), Dividend Fund, Change Fund, Tax Fund, Interest Fund, Payroll Fund and Fund for the
Acquisition of Current Assets.
Cash Equivalents
Cash equivalents are short-term highly liquid investments that are readily convertible into cash and so near their
maturity that they present insignificant risk of changes in value due to changes in interest rates. Only highly liquid
investments that are acquired three months, or less than three months, before maturity can qualify as cash equivalents
such as the following:
a. Three-month commercial paper or money market instrument
b. Three-month time deposit
c. Three-month treasury bills
Valuation of Cash in the Statement of Financial Position
a. Generally valued at face amount
b. Cash in foreign currency is valued in PhP using the current exchange rate as of the reporting date
Cash in Closed Banks or in Banks having Financial Difficulty
Cash in bank or in financial institutions having financial difficulty or in bankruptcy should be shown at its estimated
realizable or recoverable value and is presented as Receivables.
Financial Statement Presentation
Cash and Cash Equivalents are the first item shown among the current assets, the details of which are presented in the
notes to financial statements.
Compensating Balance
The minimum amount to be maintained in a bank account to act as collateral for the payment of a depositor’s loan.
Its presentation in the financial statements is dependent on whether the balance is legally restricted or unrestricted:
1. Legally restricted compensating balance if held as collateral for:
a. Short-term borrowing--Shown separately under current assets but not part of “Cash and Cash
Equivalents”. The account title, Cash Held as Compensating Balance, may be used.
b. Long-term borrowings—Shown separately as non-current asset either as Long-term Investments or
Other Assets
2. Unrestricted – Should presented as part of Cash
FINANCIAL ACCOUNTING AND REPORTING-THEORIES
1.
2.
3.
4.
5.
Cash equivalents are
a. Short-term and highly liquid investments that are readily convertible into cash.
b. Short-term and highly liquid investments that are readily convertible into cash with remaining maturity of
three-months.
c. Short-term and highly liquid investments that are readily convertible into cash and acquired three months
or less before maturity.
d. Short-term and highly liquid marketable equity securities.
A compensating balance
a. Must be included in “cash and cash equivalents”.
b. Which is legally restricted and related to a long-term loan is classified as current asset.
c. Which is legally restricted and related to a short-term loan is classified separately as current asset.
d. Which is not legally restricted as to withdrawal is classified separately as current asset.
Which of the following is usually considered cash?
a. Certificate of deposit.
c. Money market savings certificate.
b. Checking account.
d. Customer’s postdated check.
Petty cash fund is
a. Separately classified as current asset.
b. Money kept on hand for making minor disbursement of coin and currency rather than by writing checks.
c. Set aside for the payment of payroll.
d. Restricted cash.
The petty cash fund account under the Imprest fund system is debited
a. Only when the fund is created.
b. When the fund is created and every time it is replenished.
c. When the fund is created and when the size of the fund is increased.
d. When the fund is created and when the fund is decreased.
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CASH & CASH EQUIVALENTS
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
FARAP-4701
Which of the following statements is not true (false)?
a. Adjustment of the petty cash account is made at the end of the period to avoid understatement of
expenses and overstatement of cash.
b. Entries are made to the petty cash account to increase or decrease the size of the fund or to adjust the
balance if not replenished at year-end.
c. The Imprest petty cash system in effect adheres to the rule of disbursements by check.
d. The petty cash account is debited when the fund is replenished.
A cash short and over account is
a. A contra account to cash.
c. Debited when there is PCF shortage.
b. Debited when there is PCF overage.
d. Not generally accepted.
What is the major purpose of an Imprest petty cash fund?
a. To effectively plan cash inflows and outflows.
c. To determine the honesty of petty cashier.
b. To ease the payment of cash to vendors.
d. To effectively control cash disbursements.
If the cash balance shown in the company’s cash records is less than the correct cash balance and neither the
company nor the bank has made any errors, there must be
a. Outstanding checks.
b. A no-sufficient fund check returned by the bank.
c. Bank charges not yet recorded by the depositor.
d. An interest credited by the bank in the depositor’s account.
A bank reconciliation is
a. A formal financial statement that lists all of the bank account balances of an entity.
b. A merger of two banks that previously were competitors.
c. A statement sent by the bank to depositor on a monthly basis.
d. A schedule that accounts for the difference between an entity’s cash balance as shown in the bank
statement and the cash balance as shown in the general ledger.
Which of the following items must be added to the cash balance per ledger in preparing a bank reconciliation which
ends with adjusted cash balance?
a. Note collected by bank in favor of the depositor and credited to the account of the depositor.
b. NSF customer check.
c. Service charge.
d. Erroneous bank debit.
Bank reconciliation are normally prepared on a monthly basis to identify adjustments needed in the depositor’s
records and to identify bank errors. Adjustments on the part of the depositor should be recorded for
a. All items except bank errors, outstanding checks and deposits in transit.
b. Bank errors, outstanding checks and deposits in transit.
c. Book errors, bank errors, deposits in transit and outstanding checks.
d. Outstanding checks and deposits in transit.
Following are reconciling items in an enterprise’s bank reconciliation statement.
I. Deposits in transit
II. Company’s check for P32,500 recorded in the books for P23,500
III. Note collected by bank in behalf of the company
IV. Deposit of another company erroneously credited by bank to the company’s account
V. No sufficient fund check charged back by bank
VI. Company deposit for P32,500 recorded in the books for P23,500
Which of these adjustments would be shown as addition to the cash balance per books in order to arrive at
the correct cash balance?
a. II, III, and VI
c. II, V and VI
b. II and III
d. III and VI
Bank statements provide information about all of the following, except
a. Bank changes for the period.
c. Checks cleared during the period.
b. Errors made by the company.
d. No sufficient fund checks.
In preparing a bank reconciliation, interest paid by the bank on the depositor’s account is
a. Added to the bank balance.
c. Subtracted from bank balance.
b. Added to the book balance.
d. Subtracted from the book balance.
FINANCIAL ACCOUNTING AND REPORTING & AUDITING PRACTICE - PROBLEMS
Problem 1: On Dec. 31, 2023, the Cash and Cash Equivalents of Ochaco Company shows the ff. composition:
Petty Cash Fund
5,000 IOUs from the officers
3,000
Traveler’s check
10,000 Bank draft in a checking acct. with Allied Bank
70,000
Cash in Savings deposit*
104,000 Postal Money order
20,000
Manager’s check
23,000 Deposits segregated to pay dividends
100,000
Postage stamps
1,000
Securities:
Date Acquired
Maturity Date
Amount
BSP T. Bills (1yr.)
1/30/23
01/30/24
40,000
BSP T. Bills (6mos.)
11/01/23
04/01/24
30,000
MM Funds (9mos.)
12/01/23
02/28/24
50,000
*Cash in Savings deposit includes P10,000 of compensating balances. It was noted that 40% of that amount
are legally restricted as to withdrawal.
How much is the amount of Cash and Cash Equivalents to be presented in the SFP on December 31, 2023?
a. 218,000
b. 238,000
c. 328,000
d. 378,000
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FARAP-4701
CASH & CASH EQUIVALENTS
Problem 2: Midoriya Corp. checkbook balance on December 31, 2023, was P12,000. In addition, Midoriya
Corporation held the following items in its safe on December 31:
a. Check payable to Midoriya Corp., dated Jan. 2, 2024, not included in Dec. 31 book balance
2,000
b. Check payable to Midoriya Corp., deposited Dec. 20, and included in Dec. 31 checkbook
balance, but returned by bank on Dec. 30, stamped "NSF." The check was redeposited on
500
Jan. 2, 2024, and cleared on Jan. 7, 2024.
c.
d.
e.
f.
Check payable to Midoriya Corp., deposited Dec. 23, and not included in Dec. 31 checkbook
balance, returned by bank on Dec. 30, stamped "DAUD." The check was redeposited on
Dec. 28, 2023, and cleared on Jan. 3, 2024.
Check payable to Midoriya Corp., undeposited, dated May 1, 2023, included in Dec. 31
checkbook balance
Check drawn on Midoriya Corp.’s account, payable to a vendor, dated and recorded on Dec.
31, 2023 but not mailed until Jan. 15, 2024.
Check drawn on Midoriya Corp.’s account, payable to a supplier, dated Jan. 3, 2024, was
delivered and recorded on Dec. 30, 2023.
The proper amount to be shown as Cash in the SFP on December 31, 2023 is
a. 11,200
b. 12,350
c. 12,400
1,200
950
1,000
850
d. 13,600
Problem 3: The December 31, 2023 trial balance of Tsuyu Company included the following accounts:
Cash on hand
P 1,000,000
Petty cash fund
40,000
Cash in bank at Metrobank
2,700,000
Cash in bank at Landbank (60-day time deposit)
4,000,000
BSP treasury bills - 30 days
6,000,000
● Cash on hand included a customer postdated check of P200,000 and a postal money order of P80,000
● Petty cash fund included an unreplenished petty cash vouchers for P4,000 and an employee check for
P6,000 dated January 6, 2024.
● A check for P400,000 was drawn against Metro bank account, dated January 3, 2024, delivered to
the payee and recorded December 30, 2023.
● The Landbank time deposit is set aside for the acquisition of Land to be used as a factory site.
What is the total amount of Cash and Cash Equivalents that should be reported in the SFP on December 31, 2023?
a. 3,930,000
b. 9,530,000
c. 9,930,000
d. 13,930,000
Problem 4: Mount Lady Company established a petty cash fund of P5,000 on July 1, 2023. At the end of the
month, the count of cash on hand indicated that P675.40 remained in the fund. A review of the petty cash
vouchers disclosed the following expenses had been incurred during the month: Office supplies – P341.60;
Postage – P780.00; Representation – P1,000.00; Transportation – P 1,321.40; and Miscellaneous – P837.60
1. The above information indicates that there is a:
a. shortage 44.00
b. overage of 44.00
c. shortage of 1,394.80
d. overage of 1,394.80
2. Assuming replenishment is made on this date, the entry to record the replenishment should include credit to:
a. PCF at 4,280.60
b. PCF at 4,324.60
c. CIB at 4,280.60
d. CIB at 4,324.60
PROBLEM 5: (AUDIT PRACTICE – COMPOSITION AND CASH COUNT)
You were assigned to audit the cash and cash equivalents account of your audit client, Luzon Corp. for the
period ended December 31, 2023. As a result of your investigations, you were able to gather the following
from the Corp.’s trial balance:
Petty cash fund
25,000
Cash on hand – undeposited collections
1,250,000
Cash in bank – BPI Current Account No. 2099
3,780,000
Cash in bank – BDO Current Account No. 22013
(160,000)
Cash in bank – UCPB Savings Account No. 02312 3,500,000
Other Items
2,000,000
Audit notes:
1. The petty cash fund consisted of the following items as of December 31, 2023 (count date):
Currency and coins
P3,800
Employees’ vales/IOUs duly supported by promissory notes
2,500
Currencies/money in an envelope marked “collections for
Christmas Party” with names attached
5,200
Unreplenished petty cash expense vouchers
3,250
Check drawn by Luzon Corp., payable to the petty cashier
11,200
Unused postage stamps
900
Personal check of an officer dated 12/30/23, payable to Luzon Corp.
3,000
2. Cash on hand represents undeposited collections as of December 31, 2023 and includes the following:
a. A customer’s check for P125,000 returned by bank on December 28, 2023 due to insufficient
fund but subsequently redeposited and cleared by the bank on January 2, 2024.
b. Another customer’s check for P56,000 dated January 5, 2024, received on December 29, 2023.
c. A customer check for P99,000 dated June 1, 2023 received on the same date, still on hand
and yet to be deposited to the bank.
d. Postal money orders and bank drafts received from customers, P100,000.
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FARAP-4701
CASH & CASH EQUIVALENTS
3. Included among the checks drawn by Luzon Corp. against the BPI Current Account No. 2099 and
recorded in the cash disbursement journal in December 2023 are the following:
a. Check written on December 29, 2023 dated January 2, 2024, delivered to payee on
December 29, 2023, P94,000.
b. Check written and dated Dec. 29, 2023 and delivered to payee on January 2, 2024, P72,000.
c. Check dated April 1, 2023 amounting to P90,000 still outstanding by December 31, 2023 as
per the client-prepared December bank-reconciliation statement.
4. The credit balance in the BDO Current Account No. 22013 represents checks drawn in excess of the
deposit balance. These checks were still outstanding at December 31, 2023.
5. The UCPB Savings Account No. 02312 has been set by the board of directors for acquisition of new
computers. This account is expected to be disbursed in the next 3 months from the balance sheet date.
6. Other items included:
a. P1.2M time deposit with BPI which was purchased on November 1, 2023 and shall mature on
November 1, 2024 (This deposit is not allowed to be pre-terminated as per the signed
agreement with the bank)
b. P500K money market placements purchased Dec. 1, 2023 and shall mature on Mar. 1, 2024,
c. P200,000 investment in ordinary shares designated as FVPL, purchased on November 15,
2023, expected to be sold by February 14, 2024.
d. P100,000 investment in redeemable preference shares purchased on December 1, 2023 with
a mandatory redemption date on February 28, 2024.
Determine the audited balances of the following:
1. Petty cash fund
2. Petty cash shortage/overage
3. Cash on hand – undeposited collections
4. Total cash in banks (excluding undeposited collections)
5. Total Cash and cash equivalents to be reported in the 2023 statement of financial position
PROBLEM 6: (AUDIT PRACTICE - CASH COUNT)
Your petty cash count conducted on January 4, 2024 in the presence of Jon Tan, the custodian of your client,
Visayas Inc. revealed the following:
Coins and currency
P 2,900
Paid vouchers:
12/27 Transportation
P 550
12/27 Gasoline
420
12/28 Office Supplies
590
12/29 Postage stamps
300
12/30 Employee IOU (with promissory note)
500
1/2 Office repairs
375
1/3 Representation expense
325
3,060
Officer’s check returned by bank marked “NSF”
1,000
Check drawn by company to the order of Jon Tan
3,000
Unused postage stamps
300
12/28 Petty cash receipt voucher for the return of
a travel advance. A total travel advance of P1,500
was made in October and fully replenished in
500
November for P1,500.*
The petty cash fund had an Imprest balance of P10,000 as reflected in the company’s general ledger.
*The company does not maintain a separate travel fund, instead, the company makes use of the petty cash
fund for travel expenses. After your cash count, you were able to confirm that the P500 cash was subsequently
deposited to the company’s current account.
1. What is the petty cash shortage?
2. What is the correct/adjusted balance of the Petty Cash Fund account as of December 31,
2023?
Problem 7: (AUDIT PRACTICE - CASH COUNT)
A count of the undeposited receipts under the custody of Mr. Gor, the cashier of Macario Corp., on
September 30, 2023 showed the following composition:
Currency and coins
P24,620
Unused postage and documentary stamps
220
Employee IOU’s (supported by promissory notes)
2,000
Other disbursement vouchers paid from cash receipts
1,600
Checks:
Date
Payee
Drawer
3-24-23
Macario Corp.
Rita Co. (Customer)
2,000
9-20-23
Macario Corp.
Tams Co. (Customer)
4,700
9-27-23
Macario Corp.
Jonli Inc. (Customer)
3,920 **
9-30-23
MERALCO
Macario Corp.
5,700
10-2-23
Macario Corp.
X24E Co. (Customer)
1,500
Total per count
P 44,760
**Marked NSF by the bank (replaced by the customer and redeposited on October 5)
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FARAP-4701
CASH & CASH EQUIVALENTS
Assuming the cashier’s accountability is P33,540 per the client’s records as of September 30:
1. What was the amount of shortage/overage on September 30?
2. What is the adjusted balance of undeposited collections as of September 30?
Problem 8: Fatgum Company prepares a reconciliation of the bank and books balances on a regular monthly
basis. The December 31, 2023 reconciliation shows a balance per bank of P581,050, balance per books of
P615,900, outstanding checks of P84,300, deposits in transit of P120,000, interest earned on the bank balance
of P1,250, and service charges of P400.
How much is the correct cash in bank on December 31, 2023?
a. 616,750
b. 616,570
c. 615,100
d. 545,350
Problem 9: Tenya Co. keeps all its cash in checking account. An examination of the company’s accounting records
and bank statement for the month ended December 31, 2023 revealed the following information: Cash balance
per bank statement – P846,900; Cash balance per ledger – _________.
A deposit of P95,000 placed in bank’s night depository on December 29, 2023 does not appear on the bank
statement. The bank statement shows that on December 26, 2023, the bank collected a note for Tenya Co. and
credited the proceeds of P93,500 to the company’s account. The proceeds included P3,500 interest, all of which
Tenya Co. earned during the current accounting period. Tenya Co. has not yet recorded the collection. Checks
outstanding on December 31, 2023 totaled P30,000 of which P3,000 has been certified by the bankC.
Tenya Co. discovered that Check No. 032759 written in December 2023 for P18,300 in payment of an account
had been recorded in the company’s records as P13,800. Included with the December 31, 2023 bank statement
was an NSF check for P25,000 that Tenya Co. had received from Ida Company on December 20, 2023. Tenya Co.
has not yet recorded the returned check. The bank statement shows a P1,500 service charge for December.
1. The net adjustment to the cash balance per books as of December 31, 2023 is:
a. debit to cash of 93,500 b. credit to cash of 31,000 c. debit to cash of 62,500
2. The unadjusted balance per the general ledger as of December 31 is:
a. 852,400
b. 855,400
c. 825,400
d. debit to cash of 62,500
d. 854,200
Problem 10: In reconciling the Cash in Bank of Jiro Company with the bank statement balance for the month
of November 2023, the following data are summarized:
Book receipts- November
P800,000
Bank receipts - November
900,000
Credit memo for note collection:
October
60,000
November
75,000
Credit memo for November bank loan
100,000
Deposit in transit for October
120,000
Erroneous bank credit in November corrected in December
25,000
Erroneous bank credit in October corrected in November
50,000
Erroneous book credit in November corrected in December
5,000
Erroneous book credit in October corrected in November
10,000
Debit memo for service charge - October
6,000
Debit memo for service charge – November
8,000
Erroneous book debit – November corrected in December
20,000
Erroneous bank debit – November corrected in December
65,000
Book disbursement – November
600,000
Bank disbursement – November
700,000
Outstanding check – October
80,000
Cash in bank balance per books – October
225,000
Cash in bank balance per bank – October
299,000
1. In a 4-column “Proof of Cash Statement”, what is the correct undeposited collections for November?
a. 120,000
b. 130,000
c. 150,000
d. 160,000
2. In a 4-column “Proof Cash Statement”, what is the correct outstanding checks for November?
a. 92,000
b. 97,000
c. 82,000
d. 87,000
3. In a 4-column “Proof Cash Statement”, what is the correct cash in bank balance as of November 30?
a. 527,000
b. 522,000
c. 577,000
d. 572,000
PROBLEM 11: (AUDIT PRACTICE - BANK RECONCILIATION AND PROOF OF CASH)
You obtained the following information pertinent to the current account of Park Corp. during your examination
of its financial statements for the year ended December 31, 2023.
a. November items:
● The bank statement on November 30, 2023 showed a balance of P1,872,000.
● Among the bank credits in November was customer’s note for P600,000 collected for the account of
the company which the company recorded in the cash receipts journal in December.
● Included in the Nov. bank debits were cost of checkbooks amounting to P7,200. Likewise included
in the Nov. bank debits was a P240,000 check which was charged by the bank in error against Park
Corp.’s account. Bank errors are usually corrected the following month.
● November deposits in transit amounted to P480,000 and outstanding checks totaling P1,050,000,
30,000 of which has been certified by the bank in November.
● A P195,000 customer collection in November was recorded in the books at P159,000. This was
discovered and corrected in the cash receipt journal in December.
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b.
December items:
● The bank statement for Dec. showed total credits of P4,496,000 and total charges of P1,724,000.
● The company’s books, on the other hand, showed total December debits of P4,413,600, total credits
of 2,443,200. The December cash balance per books was at P2,913,600.
● A Dec. credit memo for bank loan proceeds at P800,000 was among the year-end bank credits.
● Bank debit memos for December were: No. 121 for service charges, P9,600 and No. 122 on a
customer’s returned check marked “NSF” for P144,000.
● The total bank credit and the total bank debit for the month of December both included a P23,000
customer check. This check bounced in December but subsequently redeposited and cleared the
bank also in December. Examination revealed that the return and redeposit were no longer recorded
in the books since they will have no effect on the ending cash balance.
● A P95,000 collection check of Perk Corp. was erroneously credited by the bank to the company’s
account in December.
● On December 31, 2023 the company authorized the bank to automatically settle a P360,000 note
to a supplier. The note matures on January 5, 2024. The company treated this note as part of its
disbursements although the bank was able to settle the note only at maturity date.
● A check for P11,880 was recorded in the company’s cash disbursements books in December as
P118,800. This error was discovered by the company in December and the necessary correction has
already been made to the cash account in the general ledger also in December.
● A P75,000 December bank credits for a customer deposit was erroneously credited by the bank at
P57,000. The error was detected and corrected by the bank in December.
1.
2.
3.
4.
How
How
How
How
much
much
much
much
is
is
is
is
the
the
the
the
undeposited collections as of December 31?
outstanding checks as of December 31?
adjusted cash balance as of November 30?
adjusted cash balance as of December 31?
AUDIT PRACTICE - RAP, TOC AND ST
(Business Process – Order to Cash and Purchase to Pay)
1.
2.
3.
4.
5.
6.
7.
Cash is the most inherently risky among assets in the perspective of the auditor. This is mostly associated to
the fact that cash has the highest risk of misappropriation either from within or outside the entity. Which of the
following controls most likely would reduce the risk of diversion of customer receipts by an entity’s employees?
a. Daily deposit of cash receipts.
c. Prenumbered Remittance Advice
b. Monthly bank reconciliations.
d. A bank lockbox system
Which of the following is not consistent with the requirements of the imprest system with regard to protecting
receipts from possible loss due to misappropriation?
a. Requiring customers, where possible, to pay through checks.
b. Requiring the company’s personnel who receives the check first to automatically
restrictively endorse check collections.
c. Requiring the treasury department to prepare monthly bank reconciliation statements to
reconcile bank records against the company’s books.
d. Requesting customers, where possible, to remit payments directly to the bank.
Which of the following is not a universal rule for achieving strong internal control over cash receipts?
a. Separate the cash handling function, record keeping function and regular bank
reconciliation functions.
b. Decentralize the receiving of cash as much as possible.
c. Deposit each days’ cash receipts by the end of the day.
d. Where collections are made through cash and not through checks, cash receipts should be
reconciled with the prenumbered official receipt at the end of the operating day.
As payments are received, one mailroom employee is assigned the responsibility of prelisting check receipts and
preparing the deposit slip prior to forwarding the check receipts, the deposit slip, and the remittance advices to
accounts receivable for posting. Accounts receivable personnel refoot the deposit slip, stamp a restrictive
endorsement on the back of each check, and then forward the receipts and the deposit slip to the treasury
department. Which of the following is a reasonable assessment of internal control on this process?
a. Internal control is adequate.
b. Internal control is inadequate because mailroom employees should not have access to cash.
c. Internal control is inadequate because treasury employees should prepare the deposit slip.
d. Internal control is inadequate because of a lack of segregation of duties.
Which of the following would the auditor consider to be an incompatible operation for a cashier if the cashier
receives remittances from the mailroom?
Posting the receipts to the accounts receivable subsidiary ledger cards.
a.
Making the daily deposit at the local bank.
b.
c.
Preparing the daily deposit.
Endorsing the checks.
d.
Which of the following is not consistent with the requirement of the Imprest system with regard to the internal
control measures in handing and processing disbursements?
a. All disbursements, without exception, should be made through checks.
b. For immaterial disbursements, the company may be allowed to use undeposited collections.
c. Documents in the voucher package (e.g., sales invoice, purchase order, receiving reports)
should be automatically cancelled once disbursement checks are signed.
d. Checks should be released immediately to the payees, preferably by the one who signed last.
Which of the following is a standard internal accounting control for cash disbursements?
a. Checks should be signed by the controller and at least one other employee of the company.
b. Checks should be sequentially numbered and the numerical sequence should be accounted
for by the person preparing the bank reconciliation statement.
c. Checks and supporting documents should be marked “paid” immediately after the check is returned
with the bank statement.
d. Checks should be sent directly to the payee by the employee who prepares documents that
authorize check preparation.
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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY
CASH & CASH EQUIVALENTS
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FARAP-4701
Which of the following cash fraud activities involves the postponement of the recording of receipts and can be
well perpetrated where there is lack of segregation of duties between recordkeeping and custodial functions?
a. Kiting
c. Window dressing
b. Lapping
d. Salami fraud.
An auditor suspects that a client’s cashier is misappropriating cash receipts for personal use by lapping
customer checks received in the mail. In attempting to uncover this embezzlement scheme, the auditor
most likely would compare the:
a. Dates uncollectible accounts are authorized to be written off with the dates the write- offs are
actually recorded.
b. Individual bank deposits slips with the details of the monthly bank statements.
c. Daily cash summaries with the sums of the cash receipts journal entries.
d. Dates checks are deposited per bank statements with the dates remittance credits are recorded.
Which of the following characteristics most likely would be indicative of check kiting?
a. High turnover of employees who have access to cash.
b. Many large checks that are recorded on Mondays.
c. Frequent cash withdrawals from checking accounts.
d. Low average balance compared to high level deposits.
Which of the following audit procedures will likely detect or uncover kiting activities of the client?
a. Sending confirmation to banks.
b. Vouch check issuances representing disbursements to source documents.
c. Render cash count on a surprise basis.
d. Simultaneously validate bank reconciliations statements.
For the most effective internal control, monthly bank statements should be received directly from the banks
and reviewed by the
a. Controller.
c. Cash disbursement accountant.
b. Cash receipts accountant.
d. Internal auditor.
Which of the following assertions does the auditor most likely would like to validate in rendering cash counts?
a. Completeness
c. Valuation.
b. Existence
d. Rights and obligation.
In rendering cash counts, the accountability shall represent:
a. The cash items only.
b. Cash items and other evidences of the use of cash such as unreplenished paid vouchers.
c. Cash that should be on hand per collection activities of the custodian.
d. The difference between the cash balance per collection records against the valid cash items and
evidences supporting the use of cash.
In rendering cash counts, cash shortage results when:
a. Accountability is equal to valid cash and non-cash items.
b. Accountability is higher than valid cash and non-cash items.
c. Accountability is lower than valid cash and non-cash items.
d. Accountability is zero.
Which of the following is correct regarding cash counts?
a. Where the accountability is the petty cash fund balance, accommodated checks are considered
not valid support of NSF, post-dated or stale as of the count date.
b. Where the accountability is the undeposited collection balance, customer collection checks are
considered valid support even if they are NSF, post-dated or stale as of the count date.
c. Where the accountability is the petty cash fund balance, any evidence to claim that cash was
used to pay certain disbursements (e.g. postage stamps) shall be considered valid support.
d. Where the accountability is the undeposited collection balance, any evidence to claim that
collection was used to pay certain disbursements (e.g. postage stamps) shall be considered
valid support.
In validating bank reconciliation statements of the client, the auditor should trace back
outstanding checks and unrecorded bank debits to the:
a. Accounts payable voucher and cut-off bank statement of the subsequent month, respectively.
b. Cancelled checks returned by the bank and Accounts payable voucher, respectively.
c. Bank statement of the current month and cut-off bank statement, respectively.
d. Cut-off bank statement of the subsequent month and Bank statement of the current month,
respectively.
In preparing the bank reconciliation state. of the client, a cash in bank shortage normally occurs when:
a. The unadjusted balance per bank is lower than the unadjusted balance per books.
b. The adjusted balance per bank is higher than the unadjusted balance per books.
c. The unadjusted balance per bank is higher than the unadjusted balance per books.
d. The adjusted balance per bank is lower than the adjusted balance per books.
The proof of cash statements is usually prepared by the auditor when:
a. Internal control over cash is strong and control risk is placed at the maximum.
b. Internal control over cash is weak and control risk is place at the maximum.
c. Cash balance is very significant.
d. Cash balance is very insignificant.
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 parity.
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.
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