CHAPTER 6
Audit Evidence, Audit Objectives,
Audit Programs, and Audit Working
Papers
Learning Check
6-1.
Top-down audit evidence focuses on obtaining evidence an understanding of the business and
industry, management’s goals, how management uses its resources to attain those goals, the
organizations competitive advantage in the marketplace, core business process and the earnings
and cash flow that results. The auditor uses his or her business acumen to evaluate the clients
business and assess the reasonableness of the financial statements. Top-down evidence is
particularly useful in assessing the reasonableness of accounting estimates in the financial
statements.
Bottom up evidence focuses on directly testing transactions, account balances and they systems
that record the transactions and resulting account balances. Tests of controls, tests of
transactions, and tests of balances all represent bottom-up audit procedures. Bottom-up
procedures usually involve sampling individual transactions and projecting the results of the
sample on the audit population to draw a conclusion about fair presentation in the financial
statements.
6-2.
Four important decisions made during the audit about the collection of evidence for an
assertion are (1) the nature of evidence to collect, (2) the timing of when audit evidence is
collected, (2) the extent of evidence collection, and (4) staffing decisions about who on the
audit team will initially collect and evaluate evidence.
6-3.
Audit objectives are based on management’s assertions and they refine the process of collecting
evidence for an assertion. Of example, when auditing the valuation assertion for accounts
receivable the auditor needs to collect evidence that receivables represent the correct gross
claims on customers and that the allowance for uncollectible accounts is a reasonable estimate
of the difference between the gross amount and the net realizable value. Each audit objective
needs different evidence, and specific audit objectives guide in the collection of that evidence.
6-4.
The five audit assertions are a useful starting point for the development of specific audit
objectives.
6-5.
Following is a summary of nine specific audit objectives and related assertions. Recall that
each audit objective requires different evidence.
Assertions
Existence and Occurrence
Completeness
Rights and Obligations
Valuation and Allocation
Presentation and
Disclosure
6-6.
Specific Audit Objectives
Validity: All recorded assets, liabilities and equities are
valid and are appropriately recorded on the balance sheet.
Cutoff (Occurrence): All recorded transactions actually
occurred during the accounting period.
Completeness: Balance included in the balance sheet
include all appropriate assets, liabilities, and equities.
Cutoff (Completeness): All transactions that occurred during
the period have been recorded.
Ownership: The entity has appropriate title to assets and
claims against those assets have been recorded and
disclosed.
Application of GAAP: Balances are appropriately valued to
reflect the application of GAAP with respect to their gross
valuation and inter-period allocation of amounts (e.g.,
amortization).
Posting and Summarization: Transactions are properly
posted and summarized in the journals and ledgers.
Net Realizable Value: Balances are appropriately valued at
their net realizable value.
Classification: Transactions and balances are properly
classified in the financial statements.
Disclosure: All disclosures required by GAAP are included
in the financial statements.
The following table summarizes the types of corroborating evidence and its reliability.
Type of
Corroborating Evidence
Analytical evidence
Documentary evidence
Electronic evidence
Confirmations
Mathematical evidence
Physical evidence
Reliability of Corroborating Evidence
Depends on the relevance of the data used in developing
auditor expected values.
Externally generated documents are generally more
reliable than internally generated documents. Also the
physical characteristics of documents, such as
endorsements, signatures of third parties on internally
prepared documents, or mikering of check by a bank
improve the reliability of an internal document.
Depends on the reliability of controls over the creation,
alternation, and completeness of data or the competence of
audit tools used to access electronic evidence.
Very reliable but also considered a costly procedure.
Generally considered to be reliable as it was independently
verified by the auditor. Also has relatively low cost.
Usually very reliable. However, the auditor may not be
qualified to determine quality, condition, or value based on
Type of
Corroborating Evidence
Client representations
6-7.
Externally generated documents sent directly to the auditor are the most reliable source of
documentary evidence, followed by externally generated documents held by the client,
internally generated documents that have been circulated externally, and internally generated
documents not circulated externally. In general, having a document validated by external
circulation improves the reliability of evidence.
6-8. a.
b.
6-9.
Reliability of Corroborating Evidence
physical evidence and may have to use a specialist.
Not regarded as highly reliable and usually requires
corroborating evidence. The primary value is in directing
the auditor to other sources of evidence
The types of audit procedures that may be used to obtain and evaluate evidence include:
 Analytical procedures
 Tracing
 Vouching
 Inspecting
 Counting
 Observing
 Inquiring
 Confirming
 Reperforming
 Computer-Assisted Audit Techniques
Two factors that should be considered in selecting the procedures to be used to obtain
evidence about a particular account or assertion are (1) the potential effectiveness of a
procedure in meeting the specific audit objectives, and (2) the cost of performing the
procedure.
In tracing, the direction of testing is from documents to the accounting records. Tracing
pertains to the audit objective of completeness. In vouching, the direction of testing is from the
accounting records to the documents. Vouching pertains to the audit objective of existence or
occurrence.
6-10. Following are two examples of how a client might maintain in electronic form document or
corroborating evidence that is usually available in paper copy. First, in many modern
purchasing systems purchase requisitions only exist electronically and are approved
electronically. The purchase order may also only exist electronically and may be electronically
sent to a vendor. Second, in many image processing systems documents that were once in
physical form as scanned into digital form, and the original document is destroyed.
6-11. Assume that a typical manufacturing client maintains its inventory records, including the costs
associated with manufacturing (raw material, payroll, and overheads) and much of the
supporting documentation is maintained only in digital form. This will usually influence the
audit procedures used to obtain an understanding of the internal control system. The auditor
may also wish to use computer-assisted audit techniques to directly access and test records
maintained by the client. If it is important to inspect documents that are destroyed after
recorded in an image processing system the auditor will need to coordinate the timing of tests
to accommodate the inspection of such documents. If information is maintained in electronic
form, the auditor may be able to use computer-assisted audit techniques to select unusual
transactions for testing throughout the period based on the predetermined criteria. Having
records in electronic form will usually require that a computer audit specialist be part of the
audit team.
Second, the use of electronic records may have little impact on an audit of a school district or a
university where inventories and supplies of rarely material to the financial statements taken as
a whole.
6-12. If the client maintains significant records only in electronic form the auditor will likely change
the nature of audit procedures in the following three ways. Procedures to obtain an
understanding of internal controls will likely involve significant inquiries and observations
regarding computer systems. Tests of controls will likely involve computer-assisted audit
techniques. Finally, the auditor will likely use computer-assisted audit techniques and
generalized audit software in the execution of substantive tests.
6-13. If the client maintains significant records only in electronic form the auditor may change the
timing of audit procedures. For example, if it is important to inspect original documentary
evidence that the client later destroys after storing the data in electronic form, the auditor must
plan the timing of tests consistent with the existence of appropriate documentary evidence. The
auditor may also plan to assess control risk below the maximum based on test of controls and
may want to perform those tests of controls at an interim period.
6-14. If the client maintains significant records only in electronic form the auditor may likely take
advantage of this situation to change the extent of audit procedures. The auditor may use
computer-assisted audit techniques to screen every transaction in an audit population and have
transaction that meet particular criteria identified for more detailed audit procedures. Also,
having records in electronic form makes it easier to apply statistical sampling techniques which
might reduce sample size and maintain a reliable sample.
6-15. If the client maintains significant records only in electronic form the auditor may likely change
the staffing of the audit to respond to this fact. The audit team will likely include someone with
significant computer skills to ensure that computer risks are appropriately assessed and that the
audit responds to those risks in a cost-effective manner.
6-16. An audit program states the audit procedures that the auditor believes are necessary to
accomplish the objectives of the audit. In addition, audit programs provide a written
documentation of audit strategy, the procedures performed, and eventually, who performed the
audit procedures.
6-17. Working papers may be defined as the records kept by the auditor of procedures applied, the
tests performed, the information obtained, and the pertinent conclusions reached in the audit.
Working papers provide the principal support for the auditor's report, evidence that the audit
was made in accordance with GAAS, and a means for coordinating and supervising the audit.
6-18. Four major types of working papers are (a) working trial balance, (b) schedules and analyses,
(c) audit memoranda and documentation of corroborating information, and (d) adjusting and
reclassifying entries.
6-19. Five essential techniques of good working paper documentation are:

Heading. Each working paper should contain the name of the client, a descriptive title
identifying the content of the working paper, such as Bank Reconciliation---City
National Bank, and the balance sheet date or the period covered by the audit.

Index Number. Each working paper is given an index or reference number, such as A-1,
B-2, and so forth, for identification and filing purposes.

Cross-referencing. Data on a working paper that is taken from another working paper or
that is carried forward to another working paper should be cross-referenced with the
index numbers of those working papers.

Tick Marks. Tick marks are symbols, such as check marks, that are used on working
papers to indicate that the auditor has performed some procedure on the item to which
the tick mark is affixed, or that additional information about the item is available
elsewhere on the working paper. A legend on the working paper should explain the
nature and extent of the work represented by each tick mark or provide the additional
information applicable to the items so marked.

Signature and dates. Upon completing their respective tasks, both the preparer and
reviewer of a working paper should initial and date it. This establishes responsibility for
the work performed and the review.
6-20. Two categories of working paper files are (1) the current file and (2) the permanent file. The
current file contains corroborating information pertaining to the execution of the current year's
audit program. The permanent file typically includes such items as:






Copies of the articles of incorporation and bylaws.
Chart of accounts and procedure manuals.
Organization charts.
Plant layout, manufacturing processes, and principal products.
Terms of capital stock and bond issues.
Copies of long-term contracts, such as leases, pension plans, and profit-sharing and bonus
agreements.


6-21.
Schedules for amortization of long-term debt and depreciation of plant assets.
Summary of accounting principles used by the client.
a. Working papers belong to the auditor who is responsible for their custody and
safekeeping.
b. The AICPA's Code of Professional Conduct stipulates that a CPA shall not disclose any
confidential information obtained during the course of a professional engagement
without the consent of the client, except for certain circumstances as stated in the rule.
The latter include disclosing the contents of working papers in order to comply with a
validly issued and enforceable subpoena or summons or applicable law or government
regulation, making the working papers available for a quality or peer review under
AICPA, state CPA society, or Board of Accountancy authorization, or in responding to
any inquiry made by the Professional Ethics Division or Trial Board of the AICPA or a
duly constituted investigative or disciplinary body of a state CPA society or Board of
Accountancy
Objective Questions
6-22.
6-23.
6-24.
1. b
1. d
1. c
2. a
2. b
2. c
3. c
3. c
3. c
4. a
4. d
4. d
5. a
Comprehensive Questions
6-25. (Estimated time – 15 minutes)
a.
Top-down audit evidence focuses on obtaining evidence an understanding of the
business and industry, management’s goals, how management uses its resources to
attain those goals, the organizations competitive advantage in the marketplace, core
business process and the earnings and cash flow that results. For example an auditor
uses top-down audit procedures when he or she performs initial procedures to obtain an
understanding of competitive factors in the industry. WWI’s ability to keep its products
on the cutting edge of technology may help the auditor develop an expectation of sales
volumes, sales prices, and profit margins. The auditor also uses top-down procedures
when he or she uses analytical procedures to compare WWI’s ratios with industry
statistics. For example, the auditor might compare the ratio of bad debt expense to sales
with industry statistics when auditing the accounting estimate associated with bad debts.
b.
Bottom-up evidence focuses on directly testing transactions, account balances and they
systems that record the transactions and resulting account balances. For example, when
auditing sales and accounts receivable an auditor might select a sample of credit memos
issued after year-end, examine supporting documentation such as dated receiving
reports, and determine that returns were recorded in the proper period. Another
example is sending confirmations to major customers who will confirm the amount that
they owe the audit client, thereby confirming the existence of receivables.
6-26. (Estimated time – 20 minutes)
a.
Following are two alternative audit procedures that the auditor might consider when
testing the existence of accounts receivable. On one hand, the auditor might confirm
receivables. On the other hand, the auditor might vouch sales included in receivable to
underlying shipping documents and vouch receivables to subsequent cash collections
associated with customer payments of receivables.
b.
When the auditor might consider several alternatives related to the timing of sending
confirmations to test the existence of accounts receivable. On one hand, the auditor
might send confirmation as of balance sheet date, directly confirming the amounts
recorded on the balance sheet. On the other hand, the auditor might send confirmations
at and interim date, say one month before year-end. In this case the auditor will have to
perform additions tests to tests the transactions between the date of the audit
conclusions (one month before balance sheet date) and balance sheet date.
c.
The auditor might consider a variety of options regarding the extent of audit tests,
particularly when sending confirmations. For example, the auditor might use
nonstatistical sampling and send confirmations to the WWI’s 10 largest customers and
send only a confirmations to only a small sample of the remaining customers, thereby
testing a significant portion of the dollars but a smaller portion of the number of
customers. Alternatively, the auditor might consider using a statistical sampling
program which will likely result in a different sample size.
d.
The auditor’s choice of staffing will likely be vary by audit objective and the need for
professional judgement when evaluating audit evidence. For example, confirmations
may be very straight-forward and a junior member of the audit team might be
responsible for sending and evaluating confirmations. Alternatively, a more senior
member of the audit team may be responsible for evaluating the accounting estimate
related to bad debts, or revenue recognition and sale adjustments if sales have a
significant right of return.
6-27. (Estimated time – 20 minutes)
a.
An audit program states the audit procedures that the auditor believes are necessary to
accomplish the objectives of the audit. In addition, audit programs provide a written
documentation of audit strategy, the procedures performed, and eventually, who
performed the audit procedures.
b.
Audit objectives are based on management’s assertions and they refine the process of
collecting evidence for an assertion. Each audit objective requires different evidence.
For example, when auditing the valuation assertion for accounts receivable the auditor
might confirm receivable to obtain evidence that receivables represent the correct gross
claims on customers. However, confirmations will not provide competent evidence
regarding the collectable of receivables and the adequacy of the allowance for
uncollectible accounts. Specific audit objectives guide in the collection of that evidence.
c.
When auditing the existence and occurrence assertion for sales and accounts receivables
the auditor wants to audit two specific audit objectives. First, the auditor wants to know
that all recorded receivables are valid and represent amounts owed to the company by
customers. Second, the auditor also want to know that all sales transactions recorded
during the period actually occurred during the financial statement period. This last
objective includes issues of proper cutoff so that no sales belonging in the subsequent
period were included in the current period.
d.
When auditing the valuation and allocation assertion for sales and accounts receivable
the auditor wants to address three specific audit objectives. First, the auditor should
ensure that GAAP was followed properly with respect to revenue recognition and the
appropriate value of sales and receivables at the time of sale. Second, the auditor needs
to ensure that the sum of sales transactions are properly posted and summarized in the
journals and general ledger. Finally, the auditor needs to ensure that receivables are
properly recorded at their net realizable value.
6-28. (Estimated Time – 20 minutes)
a.
The books of original entry, general and subsidiary ledgers, related accounting manuals,
and less formal accounting records such as worksheets are the primary sources of
evidence supporting the financial statements. The auditor tests this data by analysis and
review, by retracing the procedural steps followed in the accounting process and in
developing the worksheets, by recalculation, and by reconciling related types and
applications of the same information.
While the underlying accounting data is absolutely necessary to form an opinion on the
financial statements, it is not, by itself, sufficient support. The auditor must gather and
examine corroborating evidence to support the underlying accounting data and
representations in the financial statements. This corroborating evidence includes
documentary material such as checks, invoices, contracts, and minutes of meetings;
confirmations and other written representations by knowledgeable people; information
obtained by the auditor by inquiry, observation, inspection, and physical examination;
and other information developed by or available to the auditor which permits reaching
conclusions through valid reasoning.
In determining how to gather sufficient competent evidential matter the auditor might
consider using statistical sampling techniques which have been found to be
advantageous in certain instances. The use of statistical sampling, however, does not
reduce the use of judgment by the auditor.
To be of any value in forming an opinion on the financial statements, the evidence must
be relevant to the situation and it must be valid. The validity of audit evidence is
primarily dependent upon the circumstances under which it is obtained.
b.
Evidential matter obtained from independent sources outside an enterprise provides
greater assurance of reliability than that which is secured solely within the enterprise.
Accounting data and financial statements developed under satisfactory conditions of
internal control are more reliable than those developed under unsatisfactory conditions
of internal control.
Direct personal knowledge obtained by the independent auditor through physical
examination, observation, computation, and inspection is more persuasive than
information obtained indirectly.
6-29. (Estimated Time – 30 minutes)
a.
1.
An auditor should consider the following factors in evaluating oral evidence
provided by client officers and employees in response to his questions:



2.
b.
The competence of the questioned individual concerning the topic. For
example, the perpetual inventory clerk would be more likely to know about
slow-moving inventory items than current market prices.
The disinterestedness of the questioned party. If internal control is strong,
more weight generally may be given to client responses.
The logic and reasonableness of the response. As an auditor becomes
familiar with the client's operations and personnel, he or she becomes more
adept at choosing the right person to question and evaluating the answer. He
or she also will observe a pattern of response forming and determine whether
it is internally consistent.
The auditor relies heavily upon the responses of client personnel, but must
recognize that this information may lack reliability. The reliance placed upon
such evidence will vary based upon the factors discussed above, but heavier
weight generally is accorded to evidence generated independently of the client.
The auditor should seek additional evidence in instances where he or she judges
a client's response to be uninformed or unreliable. In crucial matters, the auditor
should ask the client to confirm his representations in writing and also obtain
additional evidence from independent sources.
The evidence provided by ratio analysis usually is classified as circumstantial. As such,
it ranks lower in reliability and validity than direct evidence such as that provided by
confirmation, physical observation, and inspection of original documents. However,
ratio analysis has an important supplemental role in the auditor's examination,
particularly in larger engagements where a relatively small portion of the direct
evidence is reviewed. The use of ratio analysis provides a broad overview and enables
the auditor to determine unusual areas where additional inquiry is necessary.
c.
Physical examination is one of the most reliable sources of audit evidence. Where
inventories are material, it is almost always necessary for the auditor to make or observe
some physical counts. In this case, where the inventory consists of individually valuable
items, it may be practicable and desirable for the auditor to inspect the entire inventory.
While inspection provides unequivocal evidence as to physical existence, the procedure
does have limitations. The presence of the electronic equipment on client premises does
not necessarily denote ownership by the client--this evidence must be provided by the
auditor's review of contracts and sales procedures, supplemented by inquiry and client
representation. Also, the auditor in this situation probably will not have the technical
competence to determine the complexity or value of the electronic equipment by
physical inspection. For this determination he or she may rely in part on a review of the
accumulation of inventory costs, but must establish that the goods inspected are those
that were manufactured and the relationship of manufacturing cost to market price.
6-30. (Estimated time - 20 minutes)
a.
1.
2.
3.
4.
5.
6.
Directly from outsiders
Indirectly from outsiders
Entirely internal
Entirely internal
Entirely internal
Entirely internal
7.
8.
9.
10.
11.
12.
Entirely internal
Indirectly from outsiders
Entirely internal
Internally but validated externally
Indirectly from outsiders
Entirely internal
b. AU326.19 states the following general presumption among others about the reliability of
various types of evidence: "When evidential matter can be obtained from independent
sources outside an enterprise, it provides greater assurance of reliability for the purposes
of an independent audit than that secured solely within the enterprise."
Using this presumption as a guide, the four sources of evidence listed in
requirement (a) may be ranked from most to least reliable as follows: (1) directly from
outsiders, (2) indirectly from outsiders, (3) internal but validated externally, (4) entirely
internal.
6-31. (Estimated time - 25 minutes)
a. Type of Evidence
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
b.
1.
2.
Physical
Confirmation
Written representation
Mathematical
Oral
Analytical
Documentary
Written representation
Documentary
Physical
Documentary
Electronic
Assertion
Existence or occurrence
Existence or occurrence
Valuation or allocation
Valuation or allocation
Presentation and disclosure
Completeness
Rights and obligations
Presentation and disclosure
Existence or occurrence
Existence or occurrence
Completeness
Completeness
2, 3, 5
1, 4, 10, 12
6-32. (Estimated time - 20 minutes)
Procedure
No.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Type of
Substantive Test
Analytical procedure
Test of transactions
Test of balances
Test of balances
Analytical procedure
Test of balances
Test of transactions
Test of balances
Test of balances
Test of balances
Test of transactions
Test of balances
Type of
Corroborating Information
Analytical
Documentary
Mathematical
Confirmation
Analytical
Documentary/mathematical
Documentary
Physical
Documentary
Other written representation
Documentary
Oral
6-33. Following is a comparison of the audit issues that face a company like WWI which makes
significant use of EDI and does not have a significant paper trail and a company that maintains
a significant paper trail.
Significant use of EDI
and little or no paper trial
The auditor will need to invest significant
time understanding the entity’s system of
internal control, including its accounting
system. The auditor will also want to
understand controls of transactions that do
not have a significant paper trail.
The audit team will likely need a computer
audit specialist to assess the risks associated
with the engagement and to plan and perform
key audit steps.
The audit will need to take into account the
timing of inspection of documents. The
audit might use computer-assisted audit
techniques to flag transactions and the
auditor may need to be prepared to inspect
the documents supporting transaction on an
on-going basis.
The auditor may need to test controls over
electronic evidence to gain assurance that
electronic evidence has a low risk of
misstatement.
Significant paper trail
The auditor may not need the same level of
investment in understanding the system of
internal control, including the accounting
system when a significant paper trail exists.
The audit team will probably not need the use
of a computer audit specialist, or at least will
not need significant involvement form a
computer audit specialist.
With a significant paper trail the auditor has a
great deal of flexibility with respect to when to
perform audit procedures.
The auditor may not need to emphasize tests
of controls when a significant paper trail
exists.
6-34. (Estimated time - 30 minutes)
a. 1.
2.
The functions of working papers are to aid the CPA in the conduct of his work and to
provide support for the opinion and compliance with auditing standards.
Working papers are the CPA's records of the procedures followed, tests performed,
and conclusions reached in the audit. Working papers may include work programs,
analyses, memoranda, letters of confirmation and representation, abstracts of
company documents and schedules or commentaries prepared or obtained by the
auditor.
b. The factors that affect the CPA's judgment of the type and content of the working papers
for a particular engagement include:
1.
2.
3.
The nature of the auditor's report.
The nature of the client's business.
The nature of the financial statements, schedules or other information upon which
the CPA is reporting and the materiality of the items included therein.
4.
5.
c.
The nature and condition of the client's records and internal controls.
The needs for supervision and review of work performed by assistants.
Evidence which should be included in the working papers to support a CPA's compliance
with generally accepted auditing standards includes:
1.
Evidence that the financial statements or other information upon which the auditor
is reporting were in agreement or reconciled with the client's records.
2.
Evidence that the client's internal control structure was reviewed and evaluated to
determine the extent of the tests to which auditing procedures were restricted.
3.
Evidence of the auditing procedures followed and testing performed in obtaining
evidential matter for evaluation.
4.
Evidence of how exceptions and unusual matters disclosed by auditing procedures
were resolved or treated.
5.
Evidence of the auditor's conclusions on significant aspects of the engagement with
appropriate commentaries.
6-35. (Estimated time - 20 minutes)
Evidence found in the working papers to support the fact that the audit was adequately
planned and assistants were properly supervised would be:
 Documentation indicating discussions with client personnel concerning developments
affecting the financial statements.
 Documentation of a preaudit planning conference among audit firm personnel to develop
an audit strategy by considering matters noted in the review of prior years' working
papers, changes in accounting and auditing standards, etc.
 An internal control write-up documenting that the internal control structure had been
studied.
 Audit programs tailored to the strengths and weaknesses of the internal control structure.
 Audit programs indicating steps that were assigned to and completed by individual
assistants.
 A budget indicating the time to be spent in each audit area.
 Individual working papers signed by reviewers to document review, approval, and
responsibility.
 All questions raised by assistants were answered.
6-36. (Estimated time - 25 minutes)
1.
2.
3.
4.
5.
6.
7.
8.
9.
10
Office Supplies Expense
Office Supplies
Insurance Expense
Prepaid Insurance
Rent Income
Unearned Rent Income
Uncollectible Accounts Expense
Allowance for Uncollectibles
Advances to Suppliers
Accounts Payable
Interest Receivable
Interest Revenue
Machinery
Depreciation Expense
Accumulated Depreciation
Repairs Expense
Freight In
Freight Out
Accounts Receivable
Customers' Credit Balances
Bonds Payable
Current Maturities of Bonds Payable
2,700
2,700
6,200
6,200
5,000
5,000
8,000
8,000
10,400
10,400
600
600
6,000
150
50
6,000
5,000
5,000
15,000
15,000
50,000
Cases
6-37. (Estimate time – 35 minutes)
a.
See bank reconciliation working paper on following page.
50,000
Prepared by LK
Reviewed by RZ
Date 1/7/X2
Date 1/10/X2
Bold Inc.
City Bank- -General
12/31/X1
A-1
Acct. No. 102
Balance per Bank
Add: Deposit in Transit
62,765.18
1,452.20
$64,217.38
2,529.14
Less: Outstanding Checks
Adjusted Balance per Bank



$61,688.24
F
Balance per Books
Add: Note Collected by Bank (AJE 12)
$61,267.69
515.00
Less: Bank Service Charge (AJE 13)
Book Error – Check #2640 (AJE 14)

$61,782.69
$ 4.45
90.00 
94.45
$61,688.24
F



F
Z


Traced and agreed to bank confirmation
Traced to January bank statement
Traced to outstanding check list
Footed
Agreed to December 31 ledger balance
Traced to bank credit memo and December bank statement
Examined debit memo
 Compared check ($980) with entry $890
b.
AJE 12
City Bank--General
Notes Receivable
Collection of note by bank
AJE 13
Miscellaneous Expense
City Bank--General
Record December bank charges
515.00
515.00
4.45
4.45
Z

AJE 14
Accounts Payable
City Bank--General
Correct error in recording
Check #2640
c.
90.00
90.00
Bold Inc.
Cash Lead Schedule
12/31/XX
A
Acct.
Account
No.
Title
101
Petty Cash
102
City Bank-General
W.P.
Ref.
A-2
A-1
Ledger
12/31/XX
5,000.00
61,267.69
103
A-3
20,000.00
City Bank-Payroll
Adjustments
Dr.
Cr.
(12) 515.00
(13) 4.45
(14) 90.00
Final Bal.
12/31/XX
5,000.00
61,688.24
20,000.00
86,267.69
515.00
94.45
86,688.24
To AA-1
d.
Bold Inc.
Partial Working Trial Balance
AA-1
W.P.
Ref.
Account
Title
Ledger
12/31/XX
A
Cash
86,267.69
Adjustments
Dr.
Cr.
(12) 515.00
(13) 4.45
(14) 90.00
Final
12/31/XX
86,688.24
6-38. Problems 6-38 was included in the text in error. Insufficient information was printed in the text
to allow students to complete the problem.
Research Question
For the reasons specified in the introduction to this manual, solutions are not provided for this category
of questions.