AUDIT PROBLEM

AUDIT OF CASH
CASH SHORTAGES
Problem 1: A count of the undeposited receipts under the custody of T. Sanchez, cashier of Santol Company, on October 1,
2017, 9:00am, showed the following compositions

Currency and coins P 14,750

Checks:
Date Payee Drawer Amount
2/19/17 Cash T. Sanchez P1,000
9/29/17 Santol Company Cebu Corp 3,400
9/30/17 Santol Company L. Reyes 2,500
9/30/17 Meralco Santol Company 1,900
Postage and documentary stamps 120
Paid vouchers covering transportation expenses 1,200
Customer’s check returned by bank, NSF 900
Money in envelop with list of contribution to Sweeptakes pool 800
IOUs from employees 500

If the cashier’s accountability is P24,500, how much is the cash shortage.

SOLUTION: In computing this type of problem relating to Petty Cash. The first thing
you do is to compute the exact amount that should be included in the PCF. In this
case,it includes:

Currency and coins P 14,750

Checks payable to Santol Company:
9/29/17 Santol Company Cebu Corp 3,400
9/30/17 Santol Company M. Reyes 2,500
5.900
Postage and documentary stamps 120
Paid vouchers covering transportation expenses 1,200
IOUs from employees 500
Total per count P 22,470
Less: Cashier’s Accountability 24,500
Cash Shortage (P 2.030)
_________________________________________________________________________________________
Problem 2: In your year-end audit of J.P. Rizal Corporation, the cashier showed a cash accountability of P12,000 as at
December 31.2017. selected transactions of the corporation for 2017, in summary form, follows:

Accounts written off P 5,000

Depreciation of fixed assets 30,000
Disbursements for costs and expenses 750,000
Income tax accrued 10,000
Payment of bank loan 40,000
Subscription Receivable 300,000
Subscribed shared capital 900,000
Proceeds from short-term bank loan 100,000
Purchases of fixed assets 450,000
Sales (80% collected in 2017) 700,000

How much is the correct cashier’s cash accountability, and how much is the cash shortage?

Solution: in solving this type of problem, you have to get the total receipts and
total disbursement. Then get the difference of the two to get the correct cash
accountability of the cashier.

Total Cash Receipts:

Sales (P700,000 x 80%) P560,000
Subscribed share capital P 900,000
Less: Subscription Receivable 300,000 600,000
Proceeds from short-term bank loan 100,000
Total Receipts P1,260,000

Total Disbursements
Disbursements for costs and expenses P 750,000
Payment of bank loan 40,000
Purchases of fixed assets 450,000
Total Disbursements P1,240,000
Cash Accountability P 20,000
Cashier’s showed accountability ( 12,000)
Cash Shortage P 8,000
 AUDIT PROBLEM

Problem 3: In your cash audit of the Resim Company as of December 31, 2017, you gather the following:

Balance per books P 1,000.00

Balance per bank 1,000.00
Bank charges 2.50
Outstanding checks 237.50
Deposit in transit 312.50
Customer’s note collected by bank 375.50
Interest on customer’s note 15.00
Customer’s check returned, NSF 62.50
Depositor’s note charged to account 250.00

Solution: In solving this type of problem, Bank reconciliation is used, using the
BOBA Method. Get the difference of the two to get the cash shortage.

BO BA
Balance P 1,000.00 Balance P 1,000.00
Bank charges (2.50) OC: (237.50)
Note collected 375.50 DIT 312.50
Interest on note 15.00
NSF (62.50)
Charge of account (250.00)___________________________________________
Adj. Balance P 1,075.50 Adj. Balance P 1,075.00

The correct balance is the adjusted balance shown under the bank, which is P1,075.
It is because the bank has more stronger internal control compared to the entity.
The cash shortage is on;y 50 cents.
_________________________________________________________________________________________
Problem 4: The Cagayan Products, Inc., had poor internal control over its cash transactions. Data pertaining to its cash position
at October 31, 2017 were as follows:
The cash book showed a balance of P65,684.88, which included undeposited receipts. A credit of P800.00 on the bank
records for a deposit made did not appear on the books of the company.
The bank statement had a balance of P57,966.00. The outstanding checks were as follows:\
No. 0210667 P 472.80
0210671 520.00
0210693 1,013.00
0210734 762.84
0210737 1,627.20
0210749 661.16
The cashier misappropriated all undeposited receipts in excess of P10,770.08 and prepared the following reconciliation:
Balance per books, October 31,2017 P 65,684.88
Add: Outstanding checks
0210734 762.84
0210737 1,627.20
0210749 661.16 3,051.20
P 68,736.08
Less: Undeposited receipts 10,770.08
Balance per bank, October P 57,966.00
Unrecorded credit 800.00
Correct cash balance, October 31, 2017 P 57,166.00

Solution: In this type of problem, ignore the bank reconciliation prepared by the
cashier and make your own reconciliation.

BO BA
Balance P65,684.88 Balance P57,966.00
CM 800.00 OC (5,057.00)
Adj. Balance P66,484.88 Adj. Balance P52,909.00

Adjusted Book Balance P 66,484.88

Adjusted Bank Balance (52,509.00)
Undeposited cash receipts per audit P 13,757.88
Undeposited receipt per cashier’s report (10,770.08)
Cash misappropriated by cashier P 2,805.80
_________________________________________________________________________________________________________________________________________________
Problem 5: The Silver Company’s internal control over its cash transactions is very weak. Actually, the company’s cash position
at December 31,2017 were as follows:
The cash book showed a balance of P15,000, which included cash on hand. A credit of P150 on the bank’s records did not
appear on the company’s books. The bank statement showed a balance of P12,300; and the outstanding checks were; 0100-
P120; 0201 - P100; 0300 - P230; 1501 - P110; 1510 - P140 and 1515 - P150.
The cashier removed all of the cash on hand in excess of P3,000 and then prepared the following reconciliation:
 AUDIT PROBLEM

Balance per books, December 31, 2017 P 15,000

Add: Outstanding checks
No. 1501 P 110
1510 140
1515 150 300
P 15,300
Deduct - cash on hand 3,000
Balance per bank, December 31, 2017 P 12,300
Deduct - Unrecorded credit 150
True cash, December 31, 2017 P 12,150

Solution: In this type of problem, ignore the bank reconciliation prepared by the
cashier and make your own reconciliation.

BO BA
Balance P15,000 Balance P 12,300
CM 150 OC ( 850 )
Adj. Balance P15,150 Adj. Balance P 11,450

Adjusted Book Balance P 15,150

Adjusted Bank Balance ( 11,450)
Cash on Hand to be accounted for P 3,700
Actual cash on Hand ( 3,000 )
Cash shortage P 700__
_________________________________________________________________________________________
Problem 6: Mila Lim is the cashier of the Plaridel Glass Company. As representative of the Reyes, Tan and Associates, CPAs, you
were assigned to verify her cash on hand in the morning of January 4, 2017. you began to count at 9:00am in the presence of
Miss Lim. In the course of your counting you found currencies in paper bills and coins together with checks, vouchers and
other items, which are mentioned below:
Bills
2 fifties, 9 twenties, 13 tens
Coins
P 5.00 5 loose
1.00 74 loose
0.25 - 5 rolls and 32 loose (50 pieces to a roll)
0.10 - 10 rolls and 15 loose (50 pieces to a roll)
0.05 - 16 rolls and 9 loose (40 pieces to a roll)
Checks
Maker Date Payee Amount
Jose Cruz, Asst. Manager 12/23/16 Plaridel Glass Co. P 60.00
Mila Lim, cashier 12/26/16 Plaridel Class Co. 40.00
IOUs
A. David, janitor 12/20/16 P35.00
R. Tirao, clerk 12/22/16 25.00
Pedro Munar, bookkeeper 12/24/16 15.00
Petty Cash Vouchers for Replenishment
Payee Date Account Charged Amount
L. Bilbao, Messenger 12/16/16 Advances to employees P 10.00
Rosario and Co. 12/17/16 Supplies 14.50
Victory Liner 12/18/16 Freight-in 18.25
Bureau of Post (stamps) 12/18/16 Supplies 30.00
A. Vallo, carpenter 12/20/16 Repairs 45.00
B. Tello 12/21/16 Miscellaneous Exp. 15.40

Your investigation also disclosed the following:

1. The balance of petty cash fund per books is P900.
2. Cash sales of January 2. 2017 amounted to P865 per sales records, while Cash receipts Books and Deposit Slip
showed that only P765 was deposited in the bank on January 3,2107.
3. The following employees’ pay envelopes had been opened and the money removed. Each envelope was marked
“unclaimed”
M. Roy P 33.25
N. Gloria 24.75
 AUDIT PROBLEM

SOLUTION: Make a working paper showing your cash count

Bills Denominations Quantity Amount Total

P50 2 P100
20 9 180
10 13 130 P 410.00
Fractional Denominations and coins
5.00 5 P 25.00
1.00 74 74.00
0.25 282 70.50
0.10 515 51.50
0.05 649 32.45 253.45
Total Bills and Coins P 663.45
Cash Items:
Checks for deposits
Date Maker Payee Amount
12/23/16 J. Cruz Plaridel Glass Co. P 60.00
12/26/16 M.Lim Plaridel Glass Co. 40.00 100.00
Unreplinished Vouchers
Date Payee Particulars Amount
12/17/16 Rosario & Co. Supplies P 14.50
12/18/16 Victory Liner Freight-in 18.25
12/18/16 Bureau of Post Supplies 30.00
12/20/16 A. Vallo Repairs 45.00
12/21/16 B. Tello Miscellaneous Exp. 15.40 123.15
Advances or IOUs
` 12/20/16 A. David P35.00
12/22/16 R. Tirao 25.00
12/24/16 Pedro Munar 15.00
12/16/16 L.Bilbao 10.00 85.00
Total amount of fund per count P 971.60
Total amount of fund per books or receipts
PCF per ledger 900.00
Unclaimed Wager per Opened envelopes 58.00
Undeposited Collections
Cash Sales 1/2/17 P 865.00
Less: Amount deposited 765.00 100.00
Total amount of fund per book P
1,058.00
Cash Shortage P (86 .
40)
_________________________________________________________________________________________________________________________________________________
Problem 7: A surprise count of the Pampanga Company’s imprest petty cash fund, carried on its records at P5,000 was made
on November 10,2017.
The Company acts as agent for an express company in the issuance and sale of money orders. Blank money orders are
held by the cashier for issuance upon payment of the designated amounts by employees. Settlement with the express
company is made weekly with its representative who calls at the Pampanga Co., office. At that time, he collects for orders
issued, accounts for unissued orders, and leaves additional blank money orders, serially numbered.
The count of the items presented by the cashier as composing the fund was as follows:
Currency (bills & coins) P 22,000
Cashed checks 5.000
Vouchers (made out in pencil & signed by recipients) 7.400
NSF checks (dated June 10 and 15, 2017) 2.600
Copy of petty cash receipt vouchers:
Return of expense advance P 2,000
Sale of money orders (No. A11-20) 1,000 3000
Blank money orders claimed to have been purchased for
P100 each from the express company (No.A21-29) 6,000
At the time of the count, there were also on hand following:
Unissued money orders, No. A30-40
Unclaimed wage envelopes (seal;ed and amounts not shown)

The following day, the custodian of the fund produced vouchers aggregating P4,000 and explained that these vouchers
had been temporarily misplaced the previous day. They were for wage and advances to employees.

Solution: Exclude the funds that relates to Money orders because it is not part of our
funds.
Currency (bills & coins) P 22,000
Cashed checks 5.000
Vouchers (made out in pencil & signed by recipients) 7.400
NSF checks (dated June 10 and 15, 2017) 2.600
Copy of petty cash receipt vouchers:
Return of expense advance P 2,000
 AUDIT PROBLEM
Sale of money orders (No. A11-20) 1,000 ( 3000)
Balance of Fund per Count P 34,000
Balance of Fund per record (50.000)
Shortage (P16,000)

Side Notes:
 The cashier attempted to conceal the shortage by;
1. Adding instead of deducting the cash received thereby overstating the
accounting of the fund by P6,000.
2. Submitting blank money orders claimed to have been purchased P 6,000
3. Submitting additional vouchers claimed to have been misplaced P4,000
 Audit Procedures:
a) Cashed Checks
i. Examine checks as to payee, date, endorsements and subsequent
deposit.
ii. Determine if checks were cashed with prior approval of responsible
official.
b) Vouchers not yet replenish
i. Vouch supporting documents, invoices, etc
ii. Examine vouchers as to approval by authorized officials, signature
of payee, etc.
c) NSF Checks
i. Determine reason why NSF checks are still on hand
ii. Confirm directly with drawers
d) Return of excess travel advance
i. Examine liquidation of travel advance as reported & determine
accuracy of the amount returned
ii. Vouch supporting invoices
e) Sale of money order
i. Examine latest report of the Pampanga Company to establish proper
accountability
ii. Confirm directly with Pampanga Company all unreported money orders
sold as well as unissued as of November 10.
f) Vouchers subsequently presented
i. Examine vouchers as to date, approval, amount and nature of
expenditures.
ii. Confirm directly with employees those items representing wage
advance
g) Book balance of the PCF
i. Trace to the general ledger the balance of the fund.
_________________________________________________________________________________________
Problem 8: The following data are to be used in reconciling the May 31. 2017 bank balance of Asia Envelope Company;

2017
April May
Cash in bank balance - at end of month P 3,561.00 P 4,629.72
Bank statement balance - end of t month 7,403.50 3,862.20
Bank service charges for the month 6.00 6.80
Checks marked NSF 815.00 118.00
Deposits in transit - end of month 950.00 925.40
Drafts collected by the bank (unrecorded by the company until the month following
collections. 1,500.00 202.00
Outstanding checks at end of the month 4,463.00 149.68
Checks of Asia Engine Corp. Charged to the company’s account in error 349.50 60.00
Check number 6129 erroneously recorded in the check registered as P78, the
correct amount is 87.00
This check is outstanding on 5/31/17
2017
APRIL MAY
Receipts during the month 42,700.17
Total credits to cash in bank 41,631.45
Total charges on bank statement 45,317.57

Solution:
BOOK
APRIL RECEIPTS DISBURSEMENTS MAY
Unadjusted Bal. 3,561.00 42,700.17 41,631.45 4,629.72
Bank service chrg. ( 6.00) ( 6.00)
6.80
( 6.80)
Checks NSF ( 815.00) (815.00)
118.00 ( 118.00)
CM 1,500.00 (1,500.00)
 AUDIT PROBLEM
202.00 202.00
Book Error 9.00 (9.00)
Adjusted Balance P 4,240.00 P41,4012.17 P40,944.25 P4,697.92

BANK
APRIL RECEIPTS DISBURSEMENTS MAY
Unadjusted Bal. 7,403.50 41,776.27 45,317.57 3,862.20
DIT 950.00 (950.00)
925.40
925.40
OC (4,463.00) (4,463.00)
149.68 (149.68)
Bank debit error 349.50 (349.50)
__________________________________ ( 60.00) 60.00
Adjusted Balance P 4.250.00 P41,402.17 P40,944.25 P4,697.92
_________________________________________________________________________________________
Problem 9: on your examination of the financial statements of Heroes Group Company for the year ended December 31, 2017
you obtained the following information on the checking account of the company.
The bank statement on November 30,2017 showed a balance of P15,300. Among the bank credits in November was
customer’s note for P5,000 collected for the account of the company which the company recognized in December among its
receipts. Included in the bank debits were cost of checkbooks amounting to P60 and a P2,000 check which was charged by the
bank in error against Heroes Group Co., account. Also in November you ascertained that there were deposits in transit
amounting to P4,000 and outstanding checks totaling P8,500.
The bank statement for the month of December showed total credits of P20,800 and total charges of P10,200. Company
books for December showed total receipts of P36,780 and disbursements of P20,360. Bank debit memos for December were:
No. 418 for service charges, P80 and NO. 504 on a customer’s returned check marked “Refer to drawer” for P1,200.
The bank error of P2,000 in November was corrected by the bank in December.
On December 29,2017 the company placed with the bank a customer’s promissory note with a face value of P6,000 for
collection. The company treated this note as part of its receipts although the bank was able to collect the note only in January
2018.
A check of P198 was recorded in the company cash payments book in December as P1,980.

Solution:
BANK
November RECEIPTS DISBURSEMENTS December
Bank Balance 15,300 20.800 10,200 25,900
DIT 4.000 (4,000)
10,980 10,980
OC (8,500) (8.500)
18,098 (18,098)
Bank error 2,000 (2,000)
CM (5,000) 5,000
DM 60 60
(80) 80
(1,200) 1,200
Uncollected note 6,000 6,000
Book Error 1,782 (1,782)
Book Balance 7.860 36,780 20,360 24,280

Computation of DIT:
Total Receipts per Book P 36,780
Less: Notes collected by bank in November P5,000
Notes with bank treated as receipt 6,000 11,000
Receipts for December per books P 25,780
Less: Receipts for December per bank P20,800
DIT (4,000)
Bank Error in November (2,000) 14,800
DIT P 10,980

Computation of OC:
Total Disbursement per book P 20,360
Less: DM P 60
Book Error 1.782 1,842
Disbursement in December per book P18,518
Less: Disbursement for December per bank P10,200
OC (8,500)
DM (1,200)
( 80) 420
OC P 18,098
 AUDIT PROBLEM

Side notes:
In computing the DIT for December:
Receipts Per book P xx
Less: CM in November P xx
Book Error xx xx
Receipts in December per book P xx
Less: Receipts per Bank P xx
DIT in November ( xx)
Bank Error ( xx) xx
DIT in December P xx

In computing the OC in December:

Disbursement per book P xx
Less: DM in November P xx
Book error xx xx
Disbursement in December per book P xx
Less: Disbursement per bank P xx
OC in November (xx)
DM in December (xx)
Bank Error (xx) xx
OC in December P xx

________________________________________________________________________________________
Problem 10: Following information pertain to the Cash in Bank account of Mango Company for the month of April, 2017:
1. Balances per bank statement March 31, P21,560, and April 30, P23,040.
2. Balances of Cash in Bank account in Company’s books: March 31, P16,545, and April 30, P22,680.
3. Total receipts per books were P222,190 of which P1,210 was paid in cash to a creditor on April 16.
4. Total charges in the bank statement during April were P218,970
5. Undeposited receipts were: March 31, P9,060 and April 30, P10,120.
6. Outstanding checks were: March 31, P2,675 and April 30, P1,930, of which a check for P500 was certified by the
bank on April 22.
7. NSF checks returned, recorded as reductions of cash receipts were:
a) Returned by Bank in April, recorded also in April, P1,040
b) Returned by Bank in April but recorded in May, P860
8. Collections by Bank not recorded by company were P12,150 in March, and P11,640 in April.
9. Bank service charges not entered in company’s books were: March 31, P750, and April 30 P420.
10. A check for P950 of Marang Company was charged to Mango Company in error.
11. A check drawn for P840 was erroneously entered in the books as P480.

SOLUTION:
BOOK
March RECEIPTS DISBURSEMENTS April
Book Balance 16,545 222,190 216,055 22,680
Payment to creditor (1,210) (1,210)
NSF 1,040 1,040
860 (860)
CM 12,150 (12,150)
11,640 11,640
DM ( 750) (750)
420 (420)
Book Error 360 (360)
Adjusted Balance 27,945 221,510 216,775 32,680

BANK
March RECEIPTS DISBURSEMENTS April
Bank Balance 21,560 220,450 218,970 23,040
DIT 9,060 ( 9,060)
10,120 10,120
OC (2,675) (2,675)
1,430 (1,430)
Bank error (950) 950
Adjusted Balance 27,945 221,510 216,775 32,680
_______________________________________________________________________________________
Problem 11: from the following information, prepare a four column reconciliation of receipts, disbursements and balances for
Panay Company, using the form where the bank and book balances are brought to a corrected cash balance.
 AUDIT PROBLEM
Aug. 31 Sept.30
1) Balance per bank P 14,010 P 19,630
2) Balance per books 11,190 18,945
3) Deposit in transit 2,740 3,110
4) Outstanding checks 4,260 3,870
5) Bank collections not in books 1,200 1,600
6) Bank charges not in books 950 640
7) Of the checks outstanding on September 30, one check for P700 was certified at the request of the payee.
8) Deposits for September, per bank statement, P281,070
9) September disbursements, per cash journal, P273,885.
10) NSF check from customer was charged by the bank on September 28, and has not been redeposited, P800
11) NSF check returned in August and recorded in September, P1,050
12) NSF check returned and recorded in September, P900
13) Check of Pasay Company charged by bank in error, P2,010
14) Receipt on September 5 paid out in cash for travel expense, P750.
15) Error in recording customer’s check, September 20; P165 instead of P465.
16) Error in Disbursement Journal for September: P3,250 instead of P325

Solution:
BOOK
August RECEIPTS DISBURSEMENTS September
Book Balance 11,190 281,640 273,885 18,945
CM 1,200 ( 1,200)
1,600 1,600
DM ( 950) ( 950)
640 ( 640)
NSF 800 ( 800)
(1,050) (1,050)
Payment ( 750) ( 750)
Book Error 300 300
(2,925) 2,925
Adjusted Balance 10,390 281,590 270,400 21,580

BANK
August RECEIPTS DISBURSEMENTS
September
Bank Balance 14,010 281,070 275,450 19,630
DIT 2,740 (2,740)
3.110 3,110
OC (4,260) ( 4,260)
3,170 ( 3,170)
Bank error ( 2,010) 2,010
Adjusted Balance 12,490 281,440 272,350 21,580

Differences 2,100 150 1,950

SIDE NOTES: The overage of P2,100 as of AUGUST 31 could have been brought about by:
a) Disbursements of the Company of P1,950 in August but recorded in
September
b) Deposit of P150 made in August but recorded in September.
_________________________________________________________________________________________________________________________________________________
Problem 12:
AUDIT PROBLEM