AUDIT OF CASH

1. As one of the year-end audit procedures, the auditor instructed the

client’s personnel to prepare a standard bank confirmation request for a
bank account that had been closed during the year. After the client’s
treasurer had signed the request, it was mailed by the assistant
treasurer. What is the major flaw in this audit procedure?
a. The confirmation request was signed by the treasurer.
b. Sending the request was meaningless because the account was closed
before year-end.
c. The request was mailed by the assistant treasurer.
d. The CPA did not sign the confirmation request before it was mailed.

2. On receiving the bank cut off statement, the auditor should trace
a. Deposits in transit on the year-end bank reconciliation to deposits in
the cash receipts journal.
b. Checks dated prior to year-end to the outstanding checks listed on
the year-end bank reconciliation.
c. Deposits listed on the cut off bank statement to deposits in the cash
receipts journal.
d. Checks dated subsequent to year-end to the outstanding checks listed
on the year-end bank reconciliation.

3. An unrecorded check issued during the last week of the year would most
likely be discovered by the auditor when
a. Check register for the last month is reviewed.
b. Cut off bank statement is reconciled.
c. Bank confirmation is reviewed.
d. Search for unrecorded liabilities is performed.

4. To gather evidence regarding the balance per bank in a bank

reconciliation, an auditor would examine all the following except:
a. Cut off bank statement
b. Year-end bank statement
c. Bank confirmation
d. General Ledger

5. An auditor compares information on cancelled checks with information

contained in the cash disbursements journal. The objective of this test is
to determine that

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 a. Recorded cash disbursement transactions are properly authorized.
b. Proper cash purchase discounts have been recorded.
c. Cash disbursements are for goods and services actually received.
d. No discrepancies exist between the data on the checks and the data in
the journal.

6. When counting cash on hand, the auditor must exercise control over all
cash and other negotiable assets to prevent
a. Theft c. Substitution
b. Irregular endorsement d. Deposit in Transit

7. If the balance shown on an entity’s bank statement is less than the

correct cash balance and neither the entity nor the bank has made any
errors, there must be
a. Deposits credited by the bank but not yet recorded by the entity.
b. Outstanding Checks.
c. Deposits in Transit.
d. Bank charges not yet recorded by the entity.

8. If the cash balance shown on an entity’s accounting record is less than

the correct cash balance and neither the entity nor the bank has made
any errors, there must be
a. Deposits credited by the bank but not yet recorded by the entity.
b. Deposit in Transit.
c. Outstanding Checks.
d. Bank charges not yet recorded by the entity.

9. 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 party.
b. Sign and return the form without inspecting the accuracy of the
client’s bank reconciliation.
c. Not have access to the client’s cut off bank statement.
d. Be unaware of all the financial relationships that the bank has with
the client.

10. The best evidence regarding year-end bank balances is

documented in the
a. Cut off bank statement.

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 b. Bank reconciliations.
c. Interbank transfer schedule.
d. Bank deposit lead schedule.

PROBLEMS

Problem 1: The controller of the BSSB CO. is trying to determine the amount
of cash and cash equivalents to be reported on its December 31, 2018,
statement of financial position. The following information is provided:

a. Balances in the company’s accounts at the Monte Bank:

 Checking account – P540,000
 Savings account – P884,000
b. Undeposited customer checks of P208,000.
c. Currency and coins on hand of P23,200.
d. Savings account at the BTS Bank with a balance of P350,000. This
account is being used to accumulate cash for future plant expansion
in 2020.
e. P800,000 balance in a checking account at the BTS Bank.
f. Treasury bills; 30-day maturity bills totalling P600,000, and 180-day
bills totalling P800,000.

On December 31, 2018, what should be reported as cash and cash

equivalents?
a. P3,055,200 c. P2,955,200
b. P2,455,200 d. P2,355,200

Problem 2: Your audit of the December 31, 2018, financial statements of

KALOKA KA CORP. reveals the following:

Current account at Alpha Bank P(30,000)

Current account at Beta Bank 135,000
Treasury bills (acquired 3 months before maturity) 300,000
Treasury bills (maturity date is Dec. 31, 2019) 1,500,000
Payroll Account 390,000
Foreign bank account – restricted (translated
using the December 31, 2018, exchange rate) 2,000,000
Postage stamps 1,250
Employee post-dated check 4,500
IOU from the Vice President 8,000

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 Credit memo from a supplier for a purchase return 8,100
Traveler’s check 21,000
Money Order 12,900
Petty cash fund (P3,000 in currency and expense
Receipts for P12,000) 15,000

What amount would be reported as “cash and cash equivalents” in the

statement of financial position on December 31, 2018?
a. P840,050 c. P849,400
b. P873,900 d. P861,900

Problem 3: The auditor for ALESSANDRA, INC examined the petty cash fund
immediately after the close of business, July 31, 2018, the end of the
company’s natural business year. The petty cash custodian presented the
following during the count:

Currency P1,650
Petty cash vouchers:
Postage 420
Office supplies expense 900
Transportation expense 340
Computer repairs 800
Advances to office staff 1,500
A check drawn by ALESSANDRA, INC.,
payable to the petty cash custodian 7,200
Postage stamps 300
An employee check, returned by bank marked NSF 1,000
An envelope containing currency of P1,890 for a gift
For a retiring employee 1,890
P16,000

The general ledger shows an imprest petty cash fund balance of P16,000.

1. How much is the petty cash shortage or overage?

a. P2,190 overage c. P1,890 shortage
b. P2,190 shortage d. P1,890 overage
2. What is the adjusted balance of the petty cash fund at July 31, 2018?
a. P10,740 c. P7,200
b. P3,540 d. P8,850

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Problem 4: The bank statement for the checking account of CATRIONA
MAGNAYON GRAY, INC showed a December 31, 2019, balance of P1,463,212.
Information that might be useful in preparing a bank reconciliation is as
follows:

a.) Outstanding checks were P132, 025.

b.) The December 31, 2019, cash receipts of P57,500 were not deposited
in the bank until January 2,2020.
c.) Once check written in payment of rent for P24,600 was correctly
recorded by the bank but was recorded by CATRIONA MAGNAYON
GRAY as P26,400 disbursement.
d.) In accordance with prior authorization, the bank withdrew P45,000
directly from the checking account s payment on a mortgage note
payable. The interest portion of the payment was P35,000. CATRIONA
MAGNAYON GRAY has made no entry to record the automatic
payment.
e.) Bank service charges of P1,400 were listed on the bank statement.
f.) A deposit of P87,500 was recorded by the bank on December 13, but
it did not belong to CATRIONA MAGNAYON GRAY, INC. The deposit
should have been made to the checking account of PIA ALONZO
WURTZBACH, INC.
g.) The bank statement included a charge of P8,500 for an NSF check.
The check was returned with the bank statement and the company
will seek payment from the customer.
h.) CATRIONA MAGNAYON GRAY, INC maintains a P20,000 petty cash
fund that was appropriately reimbursed at the end of December.
i.) According to instruction for CATRIONA MAGNAYON GRAY on
December 30, the bank withdrew P1,000,000 from the account and
purchased Treasury Bills for CATRIONA MAGNAYON GRAY, INC.
CATRIONA MAGNAYON GRAY recorded the transaction in its books
on December 31 when it received notice from the bank. Half of the
treasury bills mature in two months and the other half in six months.

Questions:

1. What is the cash in bank balance per books on December 31, 2019?
a. P1,354,287
b. P1,357,887
c. P1,337,287
d. P1,264,287

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 2. What is the corrected cash in bank balance on December 31, 2019?
a. P1,304,787
b. P1,301,187
c. P1,284,187
d. P1,211,187
3. What amount of cash and cash equivalents should be reported in the
current asset section of the balance sheet on December 31, 2019?
a. P1,821,187
b. P2,321,187
c. P1,301,187
d. P1,874,287

Problem 6: The following information was obtained in connection with the

audit of NENENG B COMPANY’s cash account as of December 31,2019.

Outstanding checks, 11/30/19 P48,750

Outstanding checks, 12/31/19 37,500
Deposit in Transit, 11/30/19 37,500
Cash balance per general ledger 12/31/19 112,500
Actual company collections from its customers
during December 457,500
Company checks paid by bank in December 390,000
Bank service charges recorded on company books in December 7,500
Bank service charges per December bank statement 9,750
Deposits credited by bank during December 435,000
November bank service charges recorded on company
books in December 4,500

The cash receipts book of December is underfooted by P7,500.

The bank erroneously charged the company’s account for a P11,250

check of another depositor. This bank error was corrected in January
2020.

Questions:
1. How much is the deposit in transit on December 31,2019?
a. P15,000 b. P67,500 c. P52,500 d. P60,000
2. The total unrecorded bank service charges as of December 31, 2019,
is?
a. P6,750 b. P2,250 c. P5,250 d. P12,750

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3. What is the total book receipts in December?
a. P457,500 b. P465,000 c. P450,000 d. P442,500

4. What is the total amount of company checks issued in December?

a. P390,000 b. P378,750 c. P369,000 d. P401,250

5. What is the total book disbursements in December?

a. P386,250 b. P371,250 c. P385,500 d. P378,750

6. What is the book balance on November 30,2019?

a. P63,750 b. P48,750 c. P112,500 d. P105,000

7. What is the bank balance on November 30,2019?

a. P55,500 b. P69,000 c. P130,500 d. P48,750

8. What is the total bank receipts in December?

a. P360,000 b. P420,000 c. P435,000 d. P450,000

9. What is the total bank disbursements in December?

a. P411,000 b. P463,500 c. P397,500 d. P388,500

10. What is the bank balance on December 31, 2019?

a. P64,500 b. P93,000 c. P99,750 d. P79,500

11-13.Samantha Girl Inc. specializes in the production of medical

equipment that monitors heartbeats per second, useful in various
medical applications.
An examination of its bank statement – checking account showed that on
Dec. 31, 2018 Samantha Girl Inc. has a balance of P2,241,980. Relevant
information to conduct reconciliation is presented as follows:

Outstanding checks P370,000

Included in this amount is P100,000
Check drawn as payment to a supplier but remained on hand as of
balance sheet date
The disbursement was duly recorded on the company’s ledger.

Cash receipts on sales made on Dec. 31, 2018 P 55,000

Receipts were only deposited come January 4, 2019

Checks in transit for deposit as of Dec. 31, 2018 P105,000

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During December, a check was written in payment for consultancy
amounting P36,000 but was recorded on the ledger as P39,000.

Bank Charges for a new set of checks P1,500

Along with the bank statement is a check form a customer amounting to

P25,000 marked DAIF.

5. What is the adjusted balance per bank? ________________

6. What is the adjusted balance per book? ________________
7. Unadjusted balance per book? _________________________

8-10. An examination of the Petty Cash Fund of Mimiyuh Inc. on

January 5,2019 revealed the following composition of the fund:

Coins and Currencies P7,105

Checks:
12/29/2018 Alessandra Joy Castro, employee P2,100
12/30/2018 Veronica Quiambao, employee P1,700
12/30/2018 Hanuel Park, customer P5,500
01/03/2019 John Robert Tabara, employee P3,100
(cashed on Dec. 30, 2018)
01/05/2019 Pomp Inc., customer P6,200

Vouchers:

12/15/2018 Freight on Merhcandise bought P1,500

12/21/2018 Transportation P785
12/29/2018 Water Bill P610
1/02/2019 Maintenance for company vehicle P2,500

Unsigned pay envelope payable to Mike Trebec, employee on sick leave

P3,500 (the envelope has been opened and the money has been removed)

Checks from customers represent collections on account.

The Petty Cash Fund has an imprest balance of P13,500

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8. What is the correct Petty Cash Fund balance as of December 31,
2018?
9. What is the amount of cash shortage or overage, if any?
10. Total Credits on the Petty Cash Fund account on December 31,
2018?

3. Blackpink Inc. maintains an imprest balance of P20,000 on their petty

cash fund. Auditor conducted a count on its items on January 5,2019
and revealed that currently it has P5,200 in coins and currencies,
vouchers covering various expenses totaling P14,500. Further analysis
determined that P12,600 had been spent out of the petty cash in 2018.
What is the correct PCF balance at year-end 2018?
a. P7,100 c. P5,200
b. P7,400 d. P5,500

4. Same problem as number 3, how much is the expense for 2019 paid
for by the PCF?
a. P14,500 c. P2,200
b. P14,800 d. P1,900