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Cash and cash equivalents are presented in the statement of financial position as one line item “CASH”. The
auditor’s objective is to ascertain the correct cash balance in the statement and provide reasonable conclusion about
the account balance.
Cash Balance
Existence: All cash on the statement of financial position is held by the entity or by others (e.g., a bank) for the
entity.
Cash count (on hand, e.g. petty cash fund and cash in vault)
Confirmation of bank balances (all bank accounts)
Examination of interbank account transfers
Perform analytical procedures
Completeness: All cash owned by the entity at the statement of financial position date is included on the statement
of financial position.
Perform cash cut-off test
Prepare proof of cash
Examine the client's bank reconciliation as of year-end, including cash-in-transit accounts, (e.g., in sub
ledgers) to verify the proper reconciliation of bank statements and general ledger accounts. When appropriate
(e.g., to determine whether receipts or disbursements are recorded on a timely basis, or to verify the
appropriateness of reconciling items), obtain cutoff bank statements.
Rights and Obligation: The entity owns, or has a legal right to, all the cash on the statement of financial position at
the statement of financial position date. All cash is free of restrictions on use, liens, or other security interests or, if
not, such restrictions, liens, or other security interests are identified.
Examine standard bank confirmations and read the minutes of the board of directors meetings to determine
whether any restrictions have been placed on cash.
Cash Collections
Classification: Cash receipts transactions have been recorded in the proper accounts.
Review account coding for a sample of entries in the cash receipts journal.
Accuracy (Valuation): Examine remittance advice and verify that discounts taken were appropriate.
Cash Payments
Accuracy (Valuation): Debits to various accounts and credits to cash are valued t proper amounts.
Recalculate invoice paid.
The trial balance of Justine League Company includes the following: Cash on hand, P296,000; petty cash fund,
P56,150; Asian Development Bank – CA, P595,000; Land bank – CA No. 1, P780,000; Land Bank – CA No. 2,
(50,000); Metro Bank – SA, P380,000 and Metro Bank – Time deposit ( 2 – months), P300,000.
The petty cash fund consisted of the following items as of December 31, 2018:
Currency and coins, P1,090; Employee advances, P900; currency in an envelope marked “collection for charity” with
names attached, P800; Un-replenished petty cash vouchers, P500; personal check drawn by the pretty petty cash
custodian payable to “cash”, P3,100 and check drawn by the company payable to the pretty petty cash custodian,
P1,480.
Included in the checks drawn by the company against the Asian Development Bank account and recorded in
December 2018 are as follows:
Check number 133 written and dated December 27 but delivered to payee on January 3, 2019, P65,000. Check number
134 written on December 29, 2018 and dated January 15, 2018 but delivered to payee on December 30, 2018,
P151,000.
The credit balance in the Land Bank account represents check drawn in excess of the deposit balance. These checks
were still outstanding at December 31, 2018. There is an agreement between the bank and your client to offset any
overdraft in bank accounts.
The savings account deposit in Metro Bank has been set aside by the board of directors for the acquisition of new
equipment. This amount is expected to be disbursed in the next three years from the balance sheet date.
1. How much is the balance of petty cash fund as of December 31, 2018?
2. What is the correct cash balance of Justine League Company in the statement of financial position as of
December 31, 2018?
In connection with the audit of the financial statement of Star Bucks Company for the year ended December 31, 2018,
you performed a surprise count of the petty cash fund and un-deposited collections under the custody of Ms. Jewel at
exactly 10:15 in the morning of January 7, 2019. Your count disclosed the following:
Checks
Date Payee Drawer Amount
Dec 30 Cash Star Buck Company (Custodian) P10,000
Dec 30 Star Bucks Company Baldo 142,000
Dec 31 Star Bucks Company Alyssa, sales manager 4,600
Dec 31 Star Bucks Company Clariza 200,000
Dec 31 Star Bucks Company Ching 106,000
Dec 31 Biboy Corp Star Bucks Company 380,000
Expense Vouchers
Date Payee Description Amount
Dec 20 Fitness First Zumba fee P10,000
Dec 20 MikDonalds Foods Meals during meeting 4,000
Dec 22 Kailan Gen. Merchandise Bond paper and scissors 800
Dec 23 Alyssa, sales manager Cash advance for trip to Davao 40,000
Dec 27 Post office Postage stamps 2,500
Dec 29 Messengers Transportation 1,500
Dec 29 Mac express Machinery repair 3,500
Jan. 2, ‘19 Today Merchandise Air fresher 1,000
Jan. 4, ‘19 Trexy Taxi Transportation 1,900
Additional information:
1. The custodian is not authorized to encash checks.
2. The last official receipt included in the deposit on December 30 is No. 3051 and the last official receipt issued for
the current year is No. 3055. The following official receipts are all dated December 31, 2018.
3. The petty cash balance per general ledger is P60,000. The last replenishment of the fund was made on December
20, 2018.
Required:
1. Determine the amount of cash shortage or overage, if any.
4. Determine the amount of cash presented in the statement of financial position at year end.
You are conducting an audit of Kita – Kita Corporation for the year ended December 31, 2018. The internal control
procedures surrounding cash transactions were not adequate. The bookkeeper-cashier handles cash receipts, maintains
accounting records and prepares monthly bank reconciliations. The bookkeeper-cashier prepared the following
reconciliation at the end of the year.
4. Cash shortage:
In the course of the audit of Blue Whale Company’s cash in bank for the year ended December 31, 2018, you
ascertained the following information:
Nov. 30 Dec. 31
Cash per books P60,350 P?
Cash per bank statements 535,410 689,085
Undeposited collections 41,005 64,400
Outstanding checks 138,590 150,560
Bank service charges 3,600 3,000
Insufficient fund check – 41,250
Company's notes receivable collected by bank 359,075 404,500
The bank statement and the company’s cash records show the following totals:
Checks and debit memos per bank statement P1,091,865
Cash receipts per cash record ?
Cash disbursements per cash records ?
Deposits and credit memos per bank statement 1,245,540
Additional information:
a. The insufficient fund check was re-deposited in the same month. No entries were made to take up the return and
re-deposit.
b. A P50,000 bank charge error in November was corrected by the bank in December, while a P20,000 deposit of
Blue Sea Corp. was erroneously credited by the bank to the company’s account in December.
c. A P19,000 disbursement check was recorded in November as P91,000. The error was discovered and corrected
in December.
d. A P20,000 customer collection was recorded in the books in December as P200,000, the error was detected and
corrected in December.
Requirements:
1. What is the unadjusted book receipt in December?
Your client, Sapporo Incorporated, engaged in selling summer outfits was under your audit for the year ended
December 31, 2018. You obtained bank statements for November 30 and December 31, 2018 and reconciled the
balances. You obtained directly the statements as of January 12, 2019 and performed the necessary confirmation.
The following information was noted:
11/30/18 12/31/18
Balance, bank statement 688,840 550,040
Balance, company records 542,520 452,020
Deposit in transit 70,000 ?
Outstanding checks 176,480 ?
12/1-31/18 1/1-12/19
Receipts, per books 1,926,460 585,000
Credits, bank statement 1,882,020 642,980
Disbursements, per book 2,016,960 355,140
Charges, bank statement 2,020,820 460,360
Additional information:
a. Check # 900 for P1,500 cleared by bank in December as P3,500. This was found in proving the bank statement.
The bank made the correction on January 5, 2019.
b. A note of P40,000, was presented by a customer to the bank for collection on November 20, 2018 and was
credited in the company’s account on November 25, net of bank charge of P160. The note was recorded in the
cash receipts on December 18, 2018, at which date the bank charge was entered in the disbursement.
d. Two pay checks for employees vacations totaling P11,000 were drawn on January 5, 2019, and cleared by bank
on January 10, 2019. These checks were not entered in the client’s records because semi-monthly payroll
summaries are entered only on the 15th and last day of each month.
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