Audit for Cash and Cash Equivalents – Proof of Cash and Bank Reconciliation

Problem 1. Your audit senior instructed you to prepare a four-column proof of cash receipts and disbursements for the
month of December 2010.

The bank reconciliation prepared by Cubao Company at November 30 is reproduced below:

Unadjusted bank balance 96,800 Unadjusted book balance 58,640

Add: deposit in transit 18,000 Add: CM-note collected 40,320
TOTAL 114,800 TOTAL 98,960
Less: outstanding checks Less: DM bank charges 160
No. 276 2,400
No. 282 7,200
No. 284 4,800
No. 285 1,600 _________
Adjusted balance 98,800 Adjusted balance 98,800

The December bank statement, which has a beginning balance of P96,800 is reproduced below:

May Bank
Account Name: Cubao Company
Date – Month of December Debits Credits
01 18,000
02 7,200 40,000
04 24,000 40,000
06 48,000
08 400,000 – CM83
10 40,000 DM97
11 56,000
16 20,000
18 64,000
21 72,400
28 36,000 80,000
31 4,000 DM98 64,000 CM84
Totals 131,200 842,400
DM97-Customer’s DAIF check CM83- note collected by the bank
DM98-Service charges CM84-Account collected by the bank

The company’s cash receipts and cash disbursements journals for the month of December 2010 are provided below:

Cash Receipts Journal Cash Disbursements Journal

Date OR # Amount Date Check # Amount
Dec. 01 415 40,000 Dec. 01 286 16,000
05 416 48,000 03 287 24,000
10 417 56,000 10 288 32,000
17 418 64,000 14 289 20,000
20 419 72,000 20 290 28,000
27 420 80,000 23 291 36,000
31 421 88,800 26 292 40,000
28 293 44,000
_________ 31 294 48,000
Total 440,800 Total 304,000

The company’s Cash in Bank ledger appears below:

Cash in Bank
Balance 58,640 12/31/10 CDJ 304,000
12/01/10 GJ 40,320
12/10/10 GJ (CM83) 400,000
12/31/10 CRJ 440,800

Questions: Based on the application of the necessary audit procedures and appreciation of the above data, you are to
provide the answers to the following: (show comprehensive solution by providing proof of cash)
1. How much is the outstanding checks as of December 31, 2010?
2. How much is the adjusted book receipts for December 2010?
3. How much is the adjusted book disbursements for December 2010?
4. How much is the adjusted cash balance as of December 31, 2010?
5. How much is the cash shortage as of December 31, 2010?
Problem 2. You obtained the following information on the current account of Paraq Company during your examination of
its financial statements for the year ended December 31, 2010.

The bank statement on November 30, 2010 showed a balance of 306,000. Among the bank credits in November was
customer’s note for 100,000 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 1,200 and a 40,000 check which was
charged by the bank in error against Paraq company account. Also in November you ascertained that there were deposits
in transit amounting to 80,000 and outstanding checks totaling 170,000.

The bank statement for the month of December showed total credit of 416,000 and total charges of 204,000. The
company’s books for December showed total debits of 735,600, total credits of 407,200 and a balance of 485,600. Bank
debit memos for December were: No. 121 for service charges, 1,600 and no. 122 on a customer’s returned check marked
“refer to drawer” for 24,000.

On December 31, 2010, the company placed with the bank a customer’s promissory note with a face value of 120,000 for
collection. The company treated this note as part of its receipts although the bank was able to collect on the note only in
January 2011.

A check for 3,960 was recorded in the company cash payments books in December as 39,600.

Questions:
Based on the application of the necessary audit procedures and application of the above data, you are to provide the
answers to the following:
a. How much is the undeposited collections as of December 31, 2010?
b. How much is the outstanding checks as of December 31, 2010?
c. How much is the adjusted cash balance as of November 30, 2010?
d. How much is the adjusted bank receipts for December?
e. How much is the adjusted book disbursements for December?
f. How much is the adjusted cash balance as of December 31, 2010?

Problem 3. In the audit of Pasig Company’s cash account, you obtained the following information:

The company’s bookkeeper prepared the following bank reconciliation as of November 30, 2010:
Bank balance 90,800
Undeposited collections 5,000
Bank service charges 100
Bank collection of customer’s note (8,000)
Outstanding checks:
Number Amount
1159 3,000
1767 5,000
1915 2,000 (10,000)
Book balance – November 30,2010 77,900

Additional data are given as follows:

a. Company recordings for December:

Total collections from customers 165,000
Total checks drawn 98,000
b. Bank statement totals for December:
Charges 123,800
Credits 169,000
c. Check no. 1159 dated November 25, 2010 was entered as 3,000 in payment of a voucher for 30,000. Upon
examination of the checks returned by the bank, the actual amount of the check was 30,000.
d. Check no. 2113 dated December 20, 2010 was issued to replace a mutilated check (no. 1767), which was
returned by the payee. Both checks were recorded in the amount drawn, 5,000 but no entry was made to cancel
check no. 1767.
e. The December bank statement included a check drawn by Sipag Company for 1,500.
f. Undeposited collections on December 31, 2010 – 8,000.
g. The service charge for December was 150 which was charged by the bank to another client.
h. The bank collected a note receivable of 7,000 on December 28, 2010, but the collection was not received on time
to be recorded by Pasig.
i. The outstanding checks on December 31, 2010, were:
Check No. Amount Check no. Amount
1767 5,000 2910 2,300
2856 1,300 2925 4,100

Questions: Based on the above and the result of your audit, determine the following:
a. Unadjusted cash balance per books as of December 31, 2010
b. Adjusted cash balance as of November 30, 2010
c. Adjusted book receipts for December 2010
d. Adjusted bank disbursement for December 2010
e. Adjusted cash balance as of December 31, 2010.