ASSIGNMENT 2
AUDIT CASH BALANCE
APPLE BLOSSOM COLOGNE COMPANY
The Apple Blossom Cologne Company has two bank checking accounts. The general account (account
number 101) is with the Big City National Bank, Main at Michigan Avenue, Chicago, Illinois. It is used for
ordinary cash receipts and disbursements transactions. The payroll account (102) is with the Second
National Bank, 615 Lakeway Road, Chicago, Illinois. The payroll account is not an imprest account, and
transfers between it and the general account occur frequently. All transfers are journalized through the
cash receipts journal.
SUBSTANTIVE AUDIT PROCEDURES FOR CASH BALANCE
Lillian Stockton, the treasurer, prepares monthly bank reconciliations for both bank accounts. You
obtained from Don McKenna a copy of the reconciliations for each bank for the month of December,
2011. You also obtain from Don selected portions of the cash receipts and cash disbursements journals.
You have received from the banks the confirmations and cut-off bank statements that were requested
January 3, 2012. The cut-off bank statements cover the period from January 1 to January 14, 2012.
On December 31, 2011, you were on the client’s premises for the purpose of counting any undeposited
cash receipts and the petty cash fund at year-end. The cashier, Pam Lewis, has charge of the petty cash
fund. You obtain control of it, counted it, recorded your count, and returned it to Pam, obtaining a
receipt for its return. Pam also prepares the company bank deposits. However, on December 31, 2011,
she did not prepare a deposit, so you obtained from her the undeposited cash receipts, listed your
count, and returned them to her, obtaining a receipt for their return. Working papers for these counts
are included in the working paper schedule provided.
The cut-off bank statement, along with items clearing the cutoff period, which you requested from Big
City National Bank, are shown in Exhibit 1. The cutoff statement and the clearings for the Second
National Bank are shown in Exhibit 2. A selected portion of the cash receipts journal is shown in Exhibit
3, while a selected portion of the cash disbursements journal is shown in Exhibit 4.
The following is a listing, by working paper index, of the working papers (a) prepared for you by the
client, (b) obtained directly from the banks, and (c) prepared by you when counting petty cash and
undeposited receipts. They are included for your use in this assignment.
Bank reconciliation – Big City National Bank ..........................................
Standard bank confirmation – Big City National Bank .............................
Bank reconciliation – Second National Bank ..........................................
Standard bank confirmation – Second National Bank .............................
Undeposited cash receipts – Big City National Bank ...............................
Petty cash fund ........................................................................................
A-1
A-2
A-3
A-4
A-6
A-7
Instructions:
1. Write down the audit program to detect the following potential error or irregularities involving cash
receipts, disbursements, and balances:
Cash Receipts:
1. Cash receipts may have been deposited but not recorded in the cash receipts journal.
2. Cash receipts may have been recorded but not deposited in the bank.
3. Cash receipts may have been credited to the wrong account.
4. The amount of cash receipts may have been incorrectly recorded.
5. Cash receipts may have been recorded in the wrong accounting period.
6. Transfer of cash among bank accounts may have been incorrectly recorded.
Cash Disbursements:
1. Unauthorized disbursements may have occurred.
2. Disbursements may have been recorded but the check not mailed.
3. Disbursements may have been made but not recorded in the cash disbursements journal.
4. The disbursement may have been debited to the wrong account.
5. Disbursements may have been recorded in the wrong accounting period.
6. Disbursements related to interbank transfers may have been incorrectly recorded.
Cash Balances:
1. The bank reconciliation may have been purposefully misfooted to cover a defalcation.
2. The reconciliation may include fictitious deposits in transit.
3. Outstanding checks may have been omitted from the reconciliation to conceal a cash
shortage.
2. Begin with the list of assertions below and add others as you think appropriate, then write your
audit program to test those assertions.
1. The amount of cash is not materially more than the amount shown on the balance sheet.
2. All cash has been recorded.
3. Cash is correctly shown as a current asset.
4. No cash is restricted to a noncurrent use.
3. Study the prior year’s working papers, paying attention to the use of tick marks to indicate your
audit procedures and the system of cross-referencing among working papers. Gather evidence as
necessary from the exhibits, the direct bank mailings, the client-prepared schedules, and your own
observations to perform your audit work in the cash area. Prepare schedule A-5 in order to analyze
the propriety of interbank transfers.
See current year’s working paper, index A-1 – Bank Reconciliation – Big City National (General)
---------------------------------------------------------------------------------------------------------------------------------------STANDARD BANK CONFIRMATION INQUIRY
A-2
Date, January 3, 2012
Return to:
Report
From
Bank
:
Anderson, Olds, and Watershed
Certified Public Accountants
615 Big City Bank Building
Chicago, Illinois
Big City National Bank
Main at Michigan Avenue
Chicago, Illinois
Your completion of the following report will be
sincerely appreciated IF THE ANSWER TO ANY ITEM
IS “NONE” PLEASE SO STATE. Use the enclosed
envelope to return the original directly to our
accountant (see name to left)
Your Truly – Apple Blossom Cologne Co.
By Jillian Stockton
Authorized Signature
Bank customer should check here if confirmation of bank balances only (item 1) is desired.
1. At the close of business on December 31, 2011 our records showed the following balance (s) to the
credit of the above named customer. In the event that we could readily ascertain whether there
were any balances to the credit of the customer not designated in this request, the appropriate
information is given below:
Subject to withdrawal by check
Amount Account Name
Account No.
Remarks
Interest bearing give rate
243,620 Apple Blossom Cologne 146-2013
X
No
Company General
Account
2. The customer was directly liable to us in respect of loans, acceptances, etc., at the close of business
on that date in the total amount of $ none as follows:
Amount
-
Date
Loan/Discount Due
-
Interest
Rate
Paid to
-
-
-
Description of Liability,
Collateral, Security Interests,
Liens, Endorsers, etc.
-
3. The customer was contingently liable as endorser of notes discounted and/or as guarantor at the
close of business on that date in the total amount of $ none as follows:
Date
Amount
Name of Maker
Remarks
Note
Due
4. Other direct or contingent liabilities, open letters of credit, and relative collateral. Were:
None
5. Security agreements under the Uniform Commercial Code or any other agreements providing for
restrictions, not noted above, were as follows (if officially recorded, indicate date and office in which
filed):
None
Date January 7, 2012
Your truly (bank) Big City National Bank
By Buford Chunehill (Cashier)
Authorized Signature Bank
----------------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------------STANDARD BANK CONFIRMATION INQUIRY
A-4
Date, January 3, 2012
Return to:
Report
From
Bank
:
Anderson, Olds, and Watershed
Certified Public Accountants
615 Big City Bank Building
Chicago, Illinois
Second National Bank
615 Lakeway Road
Chicago, Illinois
Your completion of the following report will be
sincerely appreciated IF THE ANSWER TO ANY ITEM
IS “NONE” PLEASE SO STATE. Use the enclosed
envelope to return the original directly to our
accountant (see name to left)
Your Truly – Apple Blossom Cologne Co.
By Jillian Stockton
Authorized Signature
Bank customer should check here if confirmation of bank balances only (item 1) is desired.
1. At the close of business on December 31, 2011 our records showed the following balance (s) to the
credit of the above named customer. In the event that we could readily ascertain whether there
were any balances to the credit of the customer not designated in this request, the appropriate
information is given below:
Subject to withdrawal by check
Amount Account Name
Account No.
Remarks
Interest bearing give rate
5,791
Apple Blossom Cologne 36-118-402
X
No
Company General
Account
2. The customer was directly liable to us in respect of loans, acceptances, etc., at the close of business
on that date in the total amount of $ none as follows:
Amount
-
Date
Loan/Discount Due
-
Interest
Rate
Paid to
-
-
-
Description of Liability,
Collateral, Security Interests,
Liens, Endorsers, etc.
-
3. The customer was contingently liable as endorser of notes discounted and/or as guarantor at the
close of business on that date in the total amount of $ none as follows:
Date
Amount
Name of Maker
Remarks
Note
Due
4. Other direct or contingent liabilities, open letters of credit, and relative collateral. Were:
None
5. Security agreements under the Uniform Commercial Code or any other agreements providing for
restrictions, not noted above, were as follows (if officially recorded, indicate date and office in which
filed):
None
Date January 6, 2012
Your truly (bank) Second National Bank
By Wesley Hart (Cashier)
Authorized Signature Bank
-------------------------------------------------------------------------------------------------------Apple Blossom Cologne Company
A-6
Undeposited Cash Receipts – Big City National
12-31-2011
Payor
Capitol Odors
Janis Deparment Stores
Body Bar
Lone Star Supply
Williams' Fragrances
Anne Charlotte Cosmetics
Total
Date
12-23
12-27
12-27
12-27
12-30
12-30
Amount
3,020
2,500
2,837
1,871
3,719
723
14,670
The above checks were examined in my presence and returned to me intact on this date, 12-312011, 3.45 pm
Pam Lewis
Cashier
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------Apple Blossom Cologne Company
A-7
Petty Cash
12-31-2011
The above fund was examined I my presence and returned to me intact on this date, 12-31-2011,
4.30 pm
Pam Lewis
Cashier
-------------------------------------------------------------------------------------------------------EXHIBIT 1
BIG CITY NATIONAL BANK – CUTOFF BANK STATEMENT AND CLEARINGS
BIG CITY NATIONAL BANK – Main at Michigan Avenue, Chicago, Illinois
Statement of Account #146-2013
Apple Blossom Cologne Company
Date
Checks
Deposits
12-31-2011
Balance forward
1-3-2012
135, 176
53,250
1-4-2012
10,000
14,670, 111,200
Balance
243,582
296,521
412,391
1-6-2012
1-7-2012
1-10-2012
1-13-2012
1-14-2012
1,450, 36,000
146,880
25,355, 150
214, 140, 874, 9,600
468, 2,950, 565, 10,200, 420, 37,680
18,000
11,200
1,850
30,900
6,000
392,941
257,261
233,606
253,678
207,395
Deposit slips that agree with the above statement were received with the cutoff bank statement. The
following is a list of paid checks that were received with the cutoff bank statement.
Check Number
1446
1449
1451
1452
1445
1453
1454
1458
1467
1444
1450
1460
1462
1461
1466
1457
1456
1463
Date of Check
12-27
12-27
12-30
12-31
12-27
1-03
1-03
1-06
1-10
12-27
12-30
1-07
1-07
1-07
1-10
1-03
1-03
1-07
Cleared Bank
1-03
1-03
1-03
1-06
1-06
1-07
1-10
1-10
1-13
1-13
1-13
1-13
1-14
1-14
1-14
1-14
1-14
1-14
Payee
Longhorn Garbage Disposal
Bertram Hardware
Second National Bank
Second National Bank
Office Decorators
Fruit Juicy Perfume Co.
Hammel, Hammel, & Johnson
Midtown Office Supply
Dr. Edwar Abel
Lawn Clippers
Quick-Print Printers
Apple Valley Security
William F. Reimann
Alex McBane
Fulton Paper Co.
Edwards, Overstreet & Gilley
Norton Exterminators
Roberts and Underwood
Amount
135
176
10,000
36,000
1,450
146,880
25,355
150
214
140
874
9,600
468
2,950
565
10,200
420
37,680
EXHIBIT 2
SECOND NATIONAL BANK – CUTOFF BANK STATEMENT AND CLEARINGS
SECOND NATIONAL BANK – 615 Lakeway Road, Chicago, Illinois
Statement of Account #36-118-402
Apple Blossom Cologne Company
Date
12-31-11
1-3-2012
1-4-2012
1-6-2012
1-7-2012
1-10-2012
1-11-2012
1-12-2012
Checks
Balance forward
2,342,
3,134
15,442
14,386
2,742, 10,120
1,545
1,227
Deposits
10,000
36,000
Balance
5,791
13,449
46,315
30,873
16,487
3,625
2,080
853
Deposit slips that agree with the above statement were received with the cutoff bank statement. The
following is a list of paid checks that were received with the cutoff bank statement.
Check Number
6890,6895,6896,6897, 6901,6902
6889,6891,6892,6893,6894,6898,
6899,6900
6904,6906,6907,6910,6911,6913,
6914, 6916,6919,6925
6903,6905,6908,6909, 6912,
6915, 6917, 6926
6918,6920,6921,6922,6923,6924
6927,6929,6931,6932,6936,6939,
6940
6930, 6933, 6937, 6938
6928, 6934, 6935
Date of
Check
12-31
Cleare
d Bank
1-03
Payee
Amount
2,342
1-06
6 hourly employee (see cash
disbursement journal for names)
8 hourly employee (see cash
disbursement journal for names)
10 salaried employees
12-31
1-04
1-03
1-03
1-07
8 salaried employees
14,386
1-03
1-07
1-10
1-10
8 salaried employees
7 hourly employees
10,120
2,742
1-07
1-07
1-11
1-12
4 hourly employees
3 hourly employees
1,545
1,227
EXHIBIT 3
CASH RECEIPTS JOURNAL (Selected Portion)
CASH DEBIT
DATE
SOURCE
163,093
12-24-11
Total brought forward
25,800
12-24
Various A/R – Listed
53,250
12-27
Various A/R – Listed
10,000
12-30
Big City National Bank
36,000
12-31
Big City National Bank
14,670
12-31
Various A/R – Listed
256,813
46,000
12-31-11
December totals
0
0
1-01-12
Beginning balance
111,200
1-03
Various A/R – Listed
18,000
1-04
Young and Beautiful
11,200
1-07
Various A/R – Listed
140,400
0
1-07-12
Totals forward to next page
* Cash credit is to Miscellaneous Income, account #950
** Cash credit is to Big City National Bank, account #101
3,134
15,442
CREDIT
163,093
25,800
53,250
10,000*
36,000**
14,670
256,813
0
111,200
18,000
11,200
140,400
46,000
0
0
EXHIBIT 4
CASH DISBURSEMENTS JOURNAL (Selected Portion)
DATE
CHECK
NUMBER
12-24-11
12-27
12-27
PAYEE
DEBIT
ACCOUNT
NUMBER
CASH CREDIT
BIG CITY SECOND
NAT.
NAT.
212,000
8,735
301
301
140
1,450
Totals brought forward
1444
1445
Lawn Clippers
Office Decorators
12-27
12-27
12-27
12-27
12-30
12-30
12-31
12-31
12-31
12-31
12-31
12-31
12-31
12-31
12-31
12-31
12-31
12-31
12-31
12-31
12-31
12-31-11
1-03-12
1-03
1-03
1-03
1-03
1-03
1-06
1446
1447
1448
1449
1450
1451
6889
6890
6891
6892
6893
6894
6895
6896
6897
6898
6899
6900
6901
6902
1452
1453
1454
6903-26
1455
1456
1457
1458
Longhorn Garbage Disposal
Gulf States Oil Supply
United Fund
Bertram Hardware
Quick-Print Printers
Second National Bank
Bert Campo
Karl Marker
Earnest Jones
Patricia Sanders
Bruce Jones
Robert Smith
Milton Schaefer
Antonio Salvadore
Susan Billingsley
Robin Botner
Raymond Arthur
Bill Potet
David Johnson
Elizabeth Robertson
Second National Bank
December totals
Fruit Juicy Perfume Co.
Hammel, Hammel, & Johnson
Salaried employees, Dec. Payroll
Mid-town Office Supply
Norton Exterminators
Edwards, Overstreet, and Gilley
Mid-town Office Supply
301
135
830
80
832
25
301
176
301
874
See cash receipts journal
303
303
303
303
303
303
303
303
303
303
303
303
303
303
See cash receipts journal
214,880
301
146,880
301
25,355
303
112
3,800
301
420
301
10,200
112
150
1-07
1-07
1-07
1-07
1-07
1459
1460
1461
1462
1463
Fruit Scents, Inc.
Apple Valley Security
Alex McBane
William F. Reimann
Roberts and Underwood
301
301
301
301
115
7,757
9,600
2,950
468
37,680
1-07
1-07
1-10
1-10
1-10
1-10
1-10-12
1464
6927-40
1465
1466
1467
1468
Fruit Juicy Perfuem Co.
Hourly employees’ weekly payroll
Hoffmann Supply Co.
Fulton Paper Co.
Dr. Edward Abel
Flash Freight Co.
Totals carried forward
301
303
301
301
301
301
5,184
416
401
435
401
342
353
403
384
384
393
380
414
365
405
14,211
39,948
5,514
240
565
214
404
251,867
45,462
------------------------------------------------------------------------------------------------------------
PRIOR YEAR’S WORKING PAPERS
---------------------------------------------------------------------------------------------------------------------------------------STANDARD BANK CONFIRMATION INQUIRY
A-2
Date, December, 2011
Return to:
Report
From
Bank
:
Your completion of the following report will be
sincerely appreciated IF THE ANSWER TO ANY ITEM
IS “NONE” PLEASE SO STATE. Use the enclosed
envelope to return the original directly to our
accountant (see name to left)
Your Truly – Apple Blossom Cologne Co.
By Jillian Stockton
Anderson, Olds, and Watershed
Certified Public Accountants
615 Big City Bank Building
Chicago, Illinois
Big City National Bank
Main at Michigan Avenue
Chicago, Illinois
Authorized Signature
Bank customer should check here if confirmation of bank balances only (item 1) is desired.
1. At the close of business on December 31, 2010 our records showed the following balance (s) to the
credit of the above named customer. In the event that we could readily ascertain whether there
were any balances to the credit of the customer not designated in this request, the appropriate
information is given below:
Subject to withdrawal by check
Amount Account Name
Account No.
Remarks
Interest bearing give rate
483,440 Apple Blossom Cologne 146-2013
X
No
A-1
Company General
Account
2. The customer was directly liable to us in respect of loans, acceptances, etc., at the close of business
on that date in the total amount of $ 125,000 as follows:
Amount
125,000
I-1
Date
Loan/Discount Due
4-30-2010
4-30-2011
Rate
Interest
Paid to
12 ¾%
4-30-2010
Description of Liability,
Collateral, Security Interests,
Liens, Endorsers, etc.
Unsecured
3. The customer was contingently liable as endorser of notes discounted and/or as guarantor at the
close of business on that date in the total amount of $ none as follows:
Date
Amount
Name of Maker
Remarks
Note
Due
4. Other direct or contingent liabilities, open letters of credit, and relative collateral. Were:
None
5. Security agreements under the Uniform Commercial Code or any other agreements providing for
restrictions, not noted above, were as follows (if officially recorded, indicate date and office in which
filed):
None
Date January 7, 2011
Your truly (bank) Big City National Bank
By Buford Chunehill (Cashier)
Authorized Signature Bank
---------------------------------------------------------------------------------------------------------------------------------------STANDARD BANK CONFIRMATION INQUIRY
A-4
Date, December, 2011
Return to:
Report
From
Bank
:
Anderson, Olds, and Watershed
Certified Public Accountants
615 Big City Bank Building
Chicago, Illinois
Second National Bank
Main at Michigan Avenue
Chicago, Illinois
Your completion of the following report will be
sincerely appreciated IF THE ANSWER TO ANY ITEM
IS “NONE” PLEASE SO STATE. Use the enclosed
envelope to return the original directly to our
accountant (see name to left)
Your Truly – Apple Blossom Cologne Co.
By Jillian Stockton
Authorized Signature
Bank customer should check here if confirmation of bank balances only (item 1) is desired.
1. At the close of business on December 31, 2010 our records showed the following balance (s) to the
credit of the above named customer. In the event that we could readily ascertain whether there
were any balances to the credit of the customer not designated in this request, the appropriate
information is given below:
Amount Account Name
Account No.
6,421
A-3
Subject to withdrawal by check
Interest bearing give rate
X
No
Remarks
Apple Blossom Cologne 36-118-402
Company General
Account
2. The customer was directly liable to us in respect of loans, acceptances, etc., at the close of business
on that date in the total amount of $ none as follows:
Amount
-
Date
Loan/Discount Due
-
Interest
Paid to
Rate
-
-
-
Description of Liability,
Collateral, Security Interests,
Liens, Endorsers, etc.
-
3. The customer was contingently liable as endorser of notes discounted and/or as guarantor at the
close of business on that date in the total amount of $ none as follows:
Date
Amount
Name of Maker
Remarks
Note
Due
4. Other direct or contingent liabilities, open letters of credit, and relative collateral. Were:
None
5. Security agreements under the Uniform Commercial Code or any other agreements providing for
restrictions, not noted above, were as follows (if officially recorded, indicate date and office in which
filed):
None
Date January 7, 2011
Your truly (bank) Big City National Bank
By Wesley Hart (Cashier)
Authorized Signature Bank
Apple Blossom Cologne Company
Petty Cash
12-31-2010
A-6
1-21-2012
Pieter
The above fund was examined and counted I my presence and returned to me intact on this date,
12-31-2010 4.30 p.m.
Pam Lewis
Cashier
Note:
AJE #3 for unreimbursed voucher on 12-31-2010
Miscellaneous Expense
80
Petty Cash Fund
80
----------------------------------------------------------------------------------------------