Chapter 1 Audit of Cash and Cash Equivalents

Chapter 1
Audit of
Cash & Cash
Equivalents
AUDIT PROGRAM FOR CASH
Audit Objectives:
To determine that:
1. Cash balances at the end of the reporting period represent

cash and cash items on hand, in transit to, or in
depository banks.
2. Cash transactions have been properly recorded
3. Cash balances are properly described and classified, and
adequate disclosure with respect to amounts restricted as
to withdrawal are made in the financial statements.
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Audit Procedures:
 Conduct a cash count of undeposited collections, petty cash

and other funds.
 Obtain custodian’s signature to acknowledge return of
items counted.
 Reconcile items counted with general ledger balances.
 Trace undeposited collections counted to bank
reconciliation.
 Follow up dispositions of items in cash counted:
 Undeposited collections should be traced to bank
deposits
 Checks accommodated in petty cash should be
deposited after the count to establish their
validity.
 IOUs in the petty cash should be confirmed and
traced to collections in the next payroll period.
 Expense vouchers should be traced to the
succeeding replenishment voucher.
 Coordinate cash count with count of marketable

securities and other negotiable assets of the client.
 Obtain confirmation of year-end fund balances of cash
not counted in branches or other offices.
 Confirm bank balance by direct correspondence with all

banks in which the client has had deposits and loans during
the year.
 Obtain or prepare bank reconciliation.
 Check arithmetical accuracy of reconciliation.

 Trace balance per book to the general ledger balance
of cash account.
 Trace balance per bank to bank statement and compare
with amount confirmed by bank.
 Establish authenticity of reconciling items by
reference to their respective sources, like:
 Bank debit or credit advices.
 Duly approved journal vouchers.
 Investigate checks outstanding for a long period of
time.
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 Consider adjustment, especially if the check is
already stale.
 Consider the possibility of an erroneous
preparation of the check.
 Investigate any unusual reconciling items.
 Where internal control over cash is weak, consider
preparing a proof of cash reconciliation.
4. Obtain cutoff bank statement showing the client’s
transactions within the bank at least one week after the
reporting date, and:
 Trace year-end reconciling items, like:
 Deposit of the year-end undeposited collections.
 Completeness of year-end outstanding checks.
 Correction of bank errors.
 Examine supporting documents of year-end outstanding
checks that did not clear in the cutoff statement.
5. Obtain a list of interbank transfers of funds a few days
before and after the reporting date.
 Vouch supporting documents.
 Ascertain that the related receipts and disbursements
were booked by the client within the same day or at
least within the same month.
6. Test reasonableness of cutoff by:
 Comparing dates of checks returned with the cutoff
bank statement to dates of recording in the cash
disbursements register.
 Tracing receipts recorded to a few days before
reporting date to bank deposits.
7. Inspect savings account passbook and certificates of
deposit
 Reconcile with book balances.
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 Update interest earned posting on passbooks, if
necessary.
 Compare balances with bank confirmation reply.
8. Determine any restrictions on availability of cash.
9. Determine propriety of financial statement presentation and
adequacy of disclosures.
Problem 1-1
Cash and Cash Equivalents
In connection with your audit of the financial statements of

ONOR COMPANY for the year ended December 31, 2010, you gathered
the following information.
1. The company maintains its current account with the Tsunami

Bank. The bank statement on December 31, 2010 showed a
balance of P638,340.
Your audit of the company’s account with Tsunami Bank
disclosed the following:
 A check for P22,500 received from a customer whose
account is current had been deposited and then
returned by the bank on December 28, 2010. No entry
was made for the return of this check. The customer
replaced the check on January 15, 2011.
 A check for P5,720 was cleared by the bank as P7,520.
The bank made the correction on January 2, 2011.
 A check for P3,500 representing payment of an employee
advance was received and deposited on December 27,
2010, but was not recorded until January 3, 2011.
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5
 Post dated checks totaling P67,300 were included in

the deposits in transit.
These represent collections of current accounts
receivable from customers.
The checks were actually deposited on January 5, 2011.
 Various debit memos for drafts purchased for payment
of importation of equipment totaling P230,000 were not
yet recorded. These purchases were previously set up
as accounts payable. Said equipment arrived in
December 2010.
 Interest earned on the bank balances for the 4th
quarter of 2010, amounting to P1,950 was not recorded.
 Bank service charges totaling P1,260 were not
recorded.
 Deposit in transit and outstanding checks at December
31, 2010 totaled P136,250 and P276,380, respectively.
2. Various expenses from the company’s imprest petty cash fund
dated December 2010 totaled P16,250, while those dated
January 2011 amounted to P5,903. Another disbursement from
the fund dated December 2010 was a cash advance to an
employee amounting to P3,500. A replenishment of the petty
cash fund was made on January 8, 2011.
3. The company’s trial balance on December 31, 2010 includes
the following accounts:
Cash in bank – Tsunami Bank P 748,320
Cash in bank – Earthquake Bank (restricted account for

plant expansion, expected to be disbursed in 2011) 700,000
Petty cash fund 30,000
Time deposit, placed December 20, 2010 and due March 20,
2011 1,000,000
Money market placement – Prudential Bank 4,000,000
1. What is the adjusted Petty cash fund balance on December

31, 2010?
A. P4,347 C.P30,000
B. P10,250 D.P24,097
2. The petty cash shortage on December 31, 2010 is

A. P 0 C. P3,500
B. P5903 D. P4,347
3. What is the adjusted Cash in bank – Tsunami Bank balance

on December 31, 2010?
A. P 500,010 C. P432,710
B. P748,320 D. P429,110
4. The entry to adjust the Cash in bank – Tsunami Bank
account should include a debit to
A. Accounts receivable for P89,800.
B. Accounts receivable for P86,300.
C. Accounts payable for P228,200.
D. Interest expense for P1,950.
5. The December 31, 2010 statement of financial position

should show “Cash and cash equivalents “ at
A. P6,142,970 C. P4,442,960
B. P5,439,360 D. P5,442,960
Solution 1-1
1. Petty cash fund per trial balance P30,000

Various expenses dated December 2010 (16,250)
Employee cash advance (3,500)
Adjusted petty cash fund balance P10,250
Answer: B
2. The petty cash shortage cannot be determined because of

insufficient information.
Answer: A
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3. Book Bank
Unadjusted balances P748,320 P638,340
NSF check (22,500)
Bank error (P7,520 – P5,720) 1,800
Unrecorded Cash receipt 3,500
Post dated checks (67,300)
Deposits in transit (P136,250 – P67,300) 68,950
Bank debit memos (230,000)
Interest earned 1,950
Bank service charges (1,260)
Outstanding checks (276,380)
Adjusted balances P432,710 P432,710
Answer: C
4. Accounts receivable (P22,500 + P67,300) 89,800
Accounts payable 230,000
Bank service charges 1,260
Cash in bank – Tsunami Bank 315,610
Advances to employees 3,500
Interest income 1,950
Answer: A
Cash in bank – Tsunami Bank P432,710

Time deposit 1,000,000
Money market placement 4,000,000
Cash and cash equivalents P5,442,960
Answer: D
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Problem 1-2
Computation of Correct Cash Balance
The following are the cash balances of LEONOR, INC. at

December 31, 2010:
Undeposited collections (in currency and coins)P40,200

Current account – unrestricted 620,000
Disbursement checks written and recorded in
December 2010 but are to be released to the
Payees in January 2011 130,000
Restricted time deposits (expected use in
June 2011) 2,000,000
Leonor, Inc. has agreed to maintain a P200,000 compensating

balance in its unrestricted current account in accordance
with the loan covenant.
How much should Leonor, Inc. report as ash on its December 31,
2010, statement of financial position?
A. P590,200 C. P790,200
B. P2,790,200 D. P750,000
Solution 1-2
Undeposited collections P40,200
Current account – unrestricted 620,000
Unreleased/Undelivered checks 130,000
Total P790,200
Answer: C
1. The P200,000 compensating balance should be reported as

part of cash because it is not legally restricted as to
withdrawal.
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2. The time deposits should be reported separately as short-

term financial assets or temporary investments in the
company’s statement of financial position because the term
is more than three months but within one year.
Problem 1-3
Cash and Cash Equivalents
The accountant of SANTIAGO COMPANY is in the process of

preparing the company’s financial statements for the year ended
December 31, 2010. He is trying to determine the correct balance
of cash and cash equivalents to be reported as a current asset
on the statement of financial position. The following items are
being considered:
 Balances in the company’s accounts at the Metropolitan

Bank:
 Current account P81,000
 Savings account P132,600
 Undeposited customer checks of P22,200 (including a
customer check dated January 2, 2011 or P3,000).
 Currency and coins on hand of P3,480
 Savings account at the Northern Philippines Bank with a
balance of P2,400,000. This account is being used to
accumulate cash for future plant expansion (in 2011).
 Petty cash of P4,000 (currency of P1,200 and unreplenished
vouches for P2,800).
 P120,000 in a current account at the Northern Philippines
Bank. This represents a 20% compensating balance for
P600,000 loan with the bank. Santiago company is legally
restricted to withdraw the funds until the loan is due in
2013.
 Treasury bills:
Two-month maturity bills P90,000
Seven-month bills 120,000
 Time Deposit P100,000
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What is the correct balance of cash and cash equivalents to

be reported in the current assets section of the statement of
financial position?
A. P547,480 C. P430,280
B. P427,480 D. P327,480
Solution 1-3
Savings and current accounts – Metropolitan Bank (P132,600 +

81,000) P213,600
Undeposited customer checks (P22,000 – P3000) 19,200
Currency and coins on hand 3,480
Petty Cash 1,200
Two-month treasury bills 90,000
Time deposit 100,000*

Total cash and cash equivalents P427,480
*It is assumed that the term is three months or less and

therefore qualifies as a cash equivalent.
Answer: B
The following items are not included in the computation above:
1. P3,000 postdated customer check.

2. P2,400,000 cash balance at Northern Philippines Bank which
represents a compensating balance that is restricted as to
withdrawal.
3. P120,000 in a checking account at Northern Philippines Bank
which represents a compensating balance that is restricted
as to withdrawal.
4. 7-month treasury bills totaling P120,000.
 Under PAS I: Presentation of Financial Statements,
current assets include cash or cash equivalents
unless they are restricted from being exchanged or
used to settle a liability for at least 12 months
after the reporting date.
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 As stated in PAS 7, cash equivalents are short-term,

highly liquid investments that are readily
convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value.
These normally include short-term investments with
maturities of three months or less from the date of
acquisition.
Problem 1-4
Identifying Cash Items
Which of the following items should be included in the cash

balance at December 31, 2010?
I. – A check payable to the company, dated January 3, 2011
in payment of a sale made in December 2010.
II. – A check payable to a vendor, dated and recorded in the
company’s books on December 31, 2010, but not released
until January 4, 2011.
A. I only C. Both I and II
B. II only D. Neither I nor II
1-4
 The check payable to the company (I) is a postdated
check, i.e., dated after the end of the reporting
period. The amount should be shown as a receivable on
the December 31, 2010 statement of financial
position.
 The disbursement check (II) was not released until
after the end of the reporting period. The amount
should be included in the cash balance at December
31, 2010.
Answer: B
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Problem 1-5
Cash and Cash equivalents on the Statement of Financial Position
Your audit of the December 31, 2010, financial statements of

DIONISIO CORP. reveals the following:
Current account at Prime Bank P (30,000)
Current account at Prudent Bank 135,000
Treasury bills (acquired 3 months before maturity) 300,000
Treasury bills (maturity date is Dec. 31, 2011) 1,500,000
Payroll account 390,000

Foreign bank account – restricted (translated using the
December 31, 2010, exchange rate) 2,000,000
Postage stamps 1,250
Employee’s postdated check 4,500
IOU from the vice-president 8,000
Credit memo from a supplier for a purchase return 8,100
Traveler’s check 21,000
Money order 12,900
Petty cash fund (3,000 in currency and expense receipts for

P12,000) 15,000
What amount would be reported as “cash and cash equivalents” on

the statement of financial position on December 31, 2010?
A. P840,050 C.P849,400
B. P873,900 D.P861,900
Solution 1-5
Current account at Prudent Bank P135,000
Treasury bills (acquired 3months before maturity) 300,000
Payroll account 390,000
Traveler’s check 21,000
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Money order 12,900
Total cash and cash equivalents P861,900
Answer: D
Problem 1-6
Compensating Balance
VICTORIA, INC. needs P2,000,000 to finance its expansion

program. Victoria, Inc. is negotiating a loan with Metropolis
Bank which requires company to maintain a compensating balance
of 10% of the loan principal on deposit in a current account at
the bank. Victoria, Inc. currently maintains a balance of
P20,000 in its current account. The current account earns
interest of 2% per annum; the interest rate on the loan is 12%
per annum.
1. What is the principal amount of the loan?

A. P2,200,000 C. P1,980,000
B. P2,000,000 D. P2,220,000
2. What is the effective interest rate on the loan?

A. 13.2% C. 13%
B. 11.8% D. 12%
Solution 1-6
1. (X= Principal amount of the loan)

10%X = P20,000 + (X – P2,000,000)
10%X = P20,000 +X – P2,000,000
10%X-X = -P1,980,000
90%X = P1,980,000
X = P1,980,000÷90%
X = P2,200,000
Answer: A
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2. Annual interest payment (P2,200,000 x 12%) P264,000

Interest income on the loan proceeds in the compensating
balance (P200,000 x %) 4,000
Effective interest P 260,000
Divide by loan proceeds ÷ P 2,000,000
Effective interest rate 13%
Answer: C
Problem 1-7
Compilation of Correct Cash Balance
The Cash account of the BEA CORPORATION as of December 31, 2010

was composed of the following:
On deposit in current account with the Bank of PI P900,000
Cash collection not yet deposited to the bank 350,000
A customer’s check returned by the bank for
Insufficient fund 150,000
A check drawn by the Vice-President of the
Company dated January 15, 2011 70,000
A check drawn by a supplier dated December 28, 2010
for goods returned y the company 60,000
A check dated May 31, 2010 drawn by the company the
Bank of Manila in payment of custom duties. Since
the importation did not materialize, the check was
returned by the customs broker. This check was an
outstanding check in the reconciliation of the Bank

of Manila. 410,000
Petty cash fund of which P10,000 is in currency,
P7,200 in form of employee’s IOUS; and P2,800 is
supported by approved petty cash vouchers for
expenses all dated prior to closing of the books on
December 31, 2010 20,000
Total P1,960,000
Less: Overdraft with the Bank of Manila secured by
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a chattel mortgage on the inventories 300,000
Cash balance per ledger P1,660,000
What is the amount of cash to b e reported on the December 31,

2010 statement of financial position of Bea Company?
Solution 1-7
Current account – Bank of PI P900,000
Undeposited collection 350,000
Supplier’s check for goods returned by the company 60,000
Bank of Manila (P410,000 – P300,000) 110,000
Correct cash balance P1,430,000

Problem 1-8
Petty Cash Fund
On January 1, 2010, JERVS COMPANY established a petty cash fund

of P10,000. On December 31, 2010, the petty cash fund was
examined and found to have receipts and the documents for
miscellaneous general expenses amounting to P8,120. In addition,
there was cash amounting to P1,500.
1. What is the amount of petty cash shortage or overage?

A. P380 overage C. P1,880 shortage
B. P380 shortage D. P1,880 overage
2. What entry would be required to adjust the petty cash fund

on December 31, 2010?
A. Miscellaneous general expenses 8,120
Cash short or over 380
B. Miscellaneous general expenses 8,120
C. Miscellaneous general expenses 8,120
D. Miscellaneous general expenses 8,500
Solution 1-8
1. Cash P1,500
Miscellaneous general expenses 8,120
Petty cash accounted 9,620
Petty cash per ledger 10,000
Petty cash P 380
Answer: B
2. Miscellaneous general expenses 8,120

Ansawer: A
Problem 1-9
Petty Cash Fund
The auditor for SAMANTHA, INC. examined the petty cash fund
immediately after the close of business, July 31, 2010, 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:
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Postage 420
Office supplies expense 900
Transportation expense 340
Computer repairs 800
Advances to office staff 1,500
A check drawn by Samantha, Inc., payable to the
petty cash custodian 7,200
Postage stamps 300
An employee’s check, returned by bank, marked NSF 1,000
An envelope containing the 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, 2010?
A. P10,740 C. P7,200
B. P3,540 D. P8,850
Solution 1-9
1. Currency P1,650
Petty cash vouchers (P420 + P900 + P340 + P800
+ P1,500) 3,960
Replenishment check 7,200
Employee’s NSF heck 1,000
Petty cash fund per ledger (custodian’s
accountability) 16,000
Petty cash shortage P 2,190
Answer: B
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2. Currency P1,650
Replenishment check 7,200
Adjusted petty cash balance P8,850
Answer: D
Problem 1-10
Petty Cash Fund
On January 1, TANYA CO. establishes a petty cash account and

designates Orly Reyes as petty cash custodian. The original
amount included in the petty cash fund is P10,000. The follow
disbursements are made from the fund:
Office supplies P3,460
Postage P2,240
Entertainment 840
The balance in the petty cash box is P3,200.
1. The person responsible, at all times, for the amount of the

petty cash fund is the
A. Chairman of the Board of Directors
B. President of the company
C. Petty cash custodian
D. General cashier
2. The following are appropriate procedures for controlling

the petty cash fund, except
A. To monitor variations in different types of expenditures,
the petty cash custodian files petty cash vouchers by
category of expenditure after replenishing the fund.
B. To replenish the fund, the general cashier issues a
company check to the petty cash custodian, rather than
cash.
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C. To determine that the fund is being accounted for

satisfactorily, surprise counts of the fund are made from
time to time by the internal auditor or other responsible
official.
D. Each individual to whom petty cash is paid is required to
present signed receipts to the petty cash custodian.
3. The entry to replenish the fund is
A. Office supplies expense 3,460

Postage expense 2,240
Entertainment expense 840
Cash 6,540
B. Office supplies expense 3,460

Cash over and short 260
Petty cash 6,800
C. Office supplies expense 3,460
Cash 6,800
D. Office supplies expense 3,460
Petty Cash 6,540
4. The objective of establishing a petty cash fund is to

A. Cash checks for employees
B. Account for all cash receipts and disbarments
C. Account for cash sales
D. Facilitate payment of small, miscellaneous Items
5. What is the effect of not replenishing the petty cash at

year-end and not making the appropriate adjusting entry?
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A. Detailed audit is essential

B. The petty cash custodian should turn over the petty cash
to the general cashier.
C. Cash will be overstated and expenses understated
D. Expenses will be overstated and cash will be understated
Solution 1-10
1. One individual, the petty cash custodian, should be

responsible for the petty cash fund.
Answer: C
2. The petty cashier should not have custody of paid petty

cash vouchers to prevent their reuse.
Answer: A
3. Office supplies expense 3,460

Cash 6,800
Computation of cash shortage:

Currency and coins P3,200
Petty cash vouchers (P3,460 + P2,240 + 840) 6,540
Petty cash per ledger 10,000
Shortage P 260
Answer: C
4. Facilitate payment of small, miscellaneous items.

Answer: D
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5. Cash will be overstated and expenses understated.
Answer: C
Problem 1-11
Count of Petty Cash Fund and Undeposited Collections
In connection with your audit of the financial statements of

BENJAMIN CORP. for the year ended December 31, 2010, you
conducted a surprise count of the company’s petty cash fund and
undeposited collections at 8:20 a.m. on January 3, 2011. Your
count disclosed the following:
Bills and coins

Bills Coins
P100.00 5 pieces 5.00 18 pieces
50.00 40 pieces 1.00 206 pieces
20.00 48 pieces 0.25 32 pieces
Postage stamps (unused) – P365
Checks
Date Payee Maker Amount
Dec. 30 Cash Custodian P 1,200
Dec. 30 Benjamin Corp. SLV, Inc. 14,000
Dec. 31 Benjamin Corp. Mario Lansang,
Sales manager 1,680
Dec. 31 Benjamin Corp. MSU Corp. 17,800
Dec. 31 Benjamin corp. Ateneo, Inc. 8,300
Dec. 31 Taiwan Corp.
(not endorsed) Benjamin Corp. 27,700
Unreiumbursed vouchers
Date Payee Description Amount
Dec. 23 Mario Lansang Advance trip for P20,000
Sales manager Tagaytay City

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28 Central Post Office Postage stamps 1,620
29 Messengers Transportation 150
29 Byte, Inc. Computer repair 800
Other items found inside the cash box:
1. Unclaimed pay envelope of Juan MacDonut. Indicated on the

pay slip is his net salary of P7,500.Your inquiry revealtd
that Juan’S salary is mingled with the petty cash fund.
2. The sales manger’s liquidation report for his Tagaytay City

trip.
Cash advance received on Dec. 23 P20,000
Less: Hotel accommodation, meals, etc. P16,000
Bus fare for two 1,200
Cash given to Pablo, salesman 1,000 18,200
Balance P 1,800
Accounted for as follows:
Cash returned by Pablo to the sales manager P 120
Personal check of the sales manager 1,680
Total P1,800
Additional information:
1. The custodian is not authorized to cash checks.
2. The last official receipt included in the deposit on

December 30 is No. 4351 and the last official receipt issued
for the current year is No. 4355. The following official
receipts are all dated December 31, 2010.
OR No. Amount Form of Payment
4352 P13,600 Cash
4353 17,800 Check
4354 3,600 Cash
4355 8,300 Check
3. The petty cash balance per general ledger is P25,000. The

last replenishment of the fund was made on December 22, 2010.
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1. What is the amount of shortage due from the sales manager?

A. P240 C. P120
B. P1,800 D. P 0
2. What is the amount of undeposited collections on December 31,

2010?
A. P44,300 C. P57,300
B. P84,300 D. P41,000
3. The adjusting entries on December 31. 2010 should include a

net debit of Travel expenses of
A. P17,320 C.P22,570
B. P18,320 D.P18,080
4. What is the total unreimbursed vouchers on January 3, 2011

(count date)?
A. P22,450 C. P22,570
B. P22,085 D. P22,205
5. What is the total cash shortage?

A. P22,166 C. P22,406
B. P8,166 D. P20,486
Solution 1-11
1. Cash advance P20,000

Less: Actual cash disbursed
Hotel, meals, etc. P16,000
Bus fare 1,200
Pablo(P1,000-P120) 880 18,080
Cash that should be returned 1,920
Cash actually returned 1,680
Shortage due from the sales manager P 240
Answer: A
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2. Collections per OR nos. 4352 – 4355 P43,300

Unreceipted collections 14,000
Total undeposited collections P57,300
Answer: C
3. Travel expenses (16,000 + P1,200 + P880) P18,080
Answer: D
4. Unreimbursed vouchers
(P20,000 + P1,620 + P150 + P800) P22,570
Answer: C
5. Travel cash shortage P22,166
Answer: A
Benjamin Corp.
CASH COUNT SHEET
January 3, 2011 – 8:20 a.m.
Bills and coins:
Denomination Quantity Amount Total
P100.00 5 P 500
50.00 40 2,000
20.00 48 960
5.00 18 90
1.00 206 206
0.25 32 8 P 3,764
Checks:
Date Maker Amount
Dec. 30 Custodian P 1,200
Dec. 30 SLV, Inc. 14,000
Dec. 31 Mario Lansang 1,680
Dec. 31 MSU Corp. 17,800
Dec. 31 Ateneo, Inc. 8,300 42,980
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Unreimbursed vouchers:
Date Account Amount
Dec. 23 Advances P20,000
Dec. 28 Postage 1,620
Dec. 29 Transportation 150

Dec. 29 Repairs 800 22,570
Total cash accounted P69,314
Less: Accountabilities
Petty cash P25,000
Collections (per official receipts) 43,300
Unclaimed salary 7,500
Excess travel advance 1,680
Unreceipted collection from SLV, Inc. 14,000 91,480
CASH SHORTAGE (P 22,166)
Benjamin Corp.
ADJUSTING JOURNAL ENTRIES
December 31,2010
1. Cash 14,000
Accounts receivable 14,000
2. Advances to officers and employees 20,000

Transportation expense 150
Repairs expense 800
3. Unused postage 365

Postage expense 365
4. Cash 7,500
Salaries payable 7,500
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5. Receivable from custodian 22,166

Cash 22,166
6. Travel expenses
(P16,000 + P1,200 + P880) 18,080
Advances to officers and employees 19,760
Problem 1-12
Bank Reconciliation; Computation of Undeposited Collections
On July 7, 2010, ANING CORP. received its bank statement for the
month ending June 30. The statement showed a P209,500 balance
while the cash account balance on June 30 was P35,000. In
reconciling the balances, the auditor discovered the following:
1. The June 30 collections amounting to P176,000 were recorded

on the books but were not deposited until July.
2. The bank charged the company for a DAUD (Drawn Against

Uncollected Deposit) check of a customer.
3. A paid check for P24,300 was entered incorrectly in the

cash disbursements journal as P42,300.
4. Outstanding checks as of June 30 totaled P354,400.
1. What is the amount of the customer’s DAUD check?

A. P14,100 C. P21,900
B. P3,900 D. P334,900
2. The adjusted cash balance is

A. P31,100 C. P38,900
B. P387,900 D. P4,900
Page 27
3. The cash balance per ledger should be increased (decreased)
by
A. P3,900 C. P(3,900)
B. P178,400 D. P(178,400)
4. To gather evidence regarding the balance per bank in a bank

reconciliation, an auditor would examine all of the following
except
A. Year-end bank statement
B. Cutoff bank statement
C. Bank confirmation
D. General ledger
Solution 1-12
1. Customer’s DAUD check (see no.2) P21,900
Answer: C
2. Book Bank
Bank charge for a DAUD check (21,900)
Overstatement of book disbursement
(P42,300 – P24,300)) 18,000
Undeposited collections(SQUEEZE) 176,000
Answer: A
3. ADJUSTING JOURNAL ENTRIES

June 30, 2010
a. Accounts receivable 21,900

Cash 21,900
b. Cash 18,000
Page 28
Net decrease in cash balance
(P21,900[a] – P18,000[b]) P3,900
Or
Balance of cash in bank per ledger P35,000

Adjusted cash balance (31,100)
Net decrease in cash balance P 3,900
Answer: C
4. General ledger
Answer: D
Problem 1-13
Bank Reconciliation: Unadjusted to Adjusted Balances Format
The following data were taken from GARAY’s check register for
the month of April. Garay’s bank reconciliation for March showed
one outstanding check, check No. 178 for P2,150 (written on
March 20), and one deposit in transit for P4,350 (made on March
31).
Date Item Checks Deposits Balance
2010
April 1 Beginning Balance 6,150
1 Deposit 26,167 32,317
1 Check No. 179 250 32,567
4 Check No. 180 10,673 21,898
27 Deposit 11,774 33,672
29 Check No. 181 13,217 20,490

The following is from Garay’s bank statement of April:
Date Item Checks Deposits Balance
2010
April 1 Beginning Balance 3,950
3 Check No. 179 250 3,700
3 Deposit 4,350 8,050
5 Check No. 180 10,673 (2,623)
5 Automatic loan 8,150 5,527
5 Deposit 26,417 31,944
20 NSF check 1,000 30,944
20 Service charge 600 30,344
30 Interest 82 30,426
Assume that any errors or discrepancies you find are Garay’s,

not the bank’s.
What is the adjusted cash balance as of April 30?
A. P26,833 C. P30,426
B. P26,838 D. P26,872
Solution 1-13
Book Bank
Outstanding checks
Check no.178 P2,150
Check no.181 13,217 (15,367)
Deposit in transit 11,774
Error in recording deposit

(P26,417 – P26,167) 250
Automatic loan 8,150
Interest 82
NSF check (1,000)
Bank service charge (600)
Arithmetic error for:
Check no. 179 (P32,567 – P32,067) (500)
Check no. 180 (P21,898 – P21,894) (4)
Check no. 181 (P20,490 – P20,455) (35)
Answer: A
Page 30
Problem 1-14
Bank Reconciliation: Bank to Book Format
The information below relates to CHARMAINE COMPANY’s cash in

bank:
Balance per bank statement, December 31, 2010 P27,910
Collections recorded but not yet deposited in bank 1,950
NSF check – not recorded on books nor redeposited 2,000
Bank charges not recorded 40
Note collected by bank and not recorded on books 2,800
Outstanding checks 3,000
The cash balance in the books of Charmaine Company on December

31, 2010, is:
A. P26,020 C. P22,200
B. P32,100 D. P26,100
Solution 1-14
Balance per bank P27,910
Collections not yet deposited 1,950
NSF check 2,000
Bank charges 40
Note collected by bank (2,800)
Balance per books P26,100
Answer: D
Page 31
Problem 1-15
Computation of Outstanding Checks
The bank reconciliation for December for DONNIE CO. included the
following information:
Checks and debit memos recorded by bank in December,

including a December service charge of P1,000 P24,320
November bank service charge recorded on the books in
December 2,000
Cash disbarments per books during December 34,658
Customer’s NSF check returned by bank in December
(no entry on company books) 16,000
Customer’s NSF check returned by bank in December(no
entry on company book in either November or December) 7,600
Deposit in transit, December 31 5,421
Outstanding checks, December 31 37,450
The outstanding checks at November 30 totaled
A. P12,112 C. P27,112
B. P13,112 D. P10,112
Solution 1-15
Outstanding checks, November 30 (SQUEZE) P12,112

Add: Checks issued during December
Book disbursements during December P34,658
Less: November bank service charge 2,000 32,658
Total 44,770
Less: Checks paid by bank during December

Bank disbursements during December P24,320
Less: NSF check returned in Dec. P16,000
Dec. bank service charge 1,000 17,000 7,320
Outstanding checks, December 31 P37,450
Answer: A
Problem 1-16
ELAINE INC.’s newly hired accountant prepared the following cash

reconciliation as of June 30, 2010:
Bank Book

Deposits in transit (15,000)
Bank service charges 1,000
Check written and recorded on
June 30 but was released on July 4 (12,000)
NSF check 17,000
Loan proceeds (company not informed) 200,000
Erroneous bank debit 15,000
Customer’s checks received on June 29
(all dated July 6), included in
deposits in transit 9,000
Certified check 11,000
Unlocated difference 345,000
P477,367 P477,367
The adjusted cash balance of Elaine Inc. on June 30, 2010,
should be
A. P265,367 C. P273,367
B. P253,367 D. P264,367
Solution 1-16
Book Bank
Deposits in transit, net of post-dated
checks (P15,000 – P9,000) 6,000
Bank service charges (1,000)
Unreleased check 12,000
Page 33
Outstanding checks, net of certified check

(P36,000 – P11,000) (25,000)
NSF check (17,000)
Loan proceeds 200,000
Post-dated checks (9,000)
Answer: D
Problem 1-17
The following information pertains to FLINT CORP.:

Flint Corp.
BANK RECONCILIATION
November 30, 2010
Balance per bank statement P435,000

Less: Outstanding checks
No. 4321 P6,000
4329 15,000
4340 1,700
4341 4,675 27,735
P407,625
Add: Deposit in transit 16,200
CHECK REGISTER
December 2010
Vouchers
Date Payee No. Payable Discount Cash
Dec. 1 San Beda Inc. 4342 P 10,000 P500 P9,500

3 Miriam Corp. 4343 4,200 - 4,200
7 UE Enterprises 4344 3,755 - 3,755
12 PSBA Corp. 4345 12,000 120 11,880
15 Payroll 4346 96,000 - 96,000
16 BU, Inc. 4347 6,300 - 6,300
18 New Era Co. 4348 14,200 142 14,058
21 UST, Inc. 4349 7,000 - 7,000
22 Petty cash
fund 4350 10,000 - 10,000
28 Payroll 4351 98,000 - 98,000
P261,455 P762 P260,693
BANK STATEMENT
BANKABLE BANK Page 1 of 1

PERIOD: NOVEMBER 30, 2010 – DECEMBER 31, 2010
No.: 001-43-44
Check
Date Decription Number Debit Credit Balance
Balance last statement P435,000
Dec. 1 Cash Deposit P16,200 451,200
1 Check issued 4329 P15,000 436,200
4 Check issued 4342 9,500 426,700
4 Check issued 4341 4,675 422,025
5 Check deposit 49,000 471,025
6 Check deposit 4343 4,200 466,825
8 Check deposit 14,000 480,825
10 Check issued 4344 3,755 477,070
15 Encashment 4346 96,000 381,070
22 Encashment 4350 10,000 371,070
28 Encashment 4351 98,000 273,070
29 Debit memo -
service charge 1,000 272,070
29 Credit memo -
interest 1,550 273,620
Deposit in transit at December 31 totaled P49,000.
1. What is the total book receipts for December?

A. P113,550 C. P63,000
B. P80,750 D. P112,000
Page 35
2. What is the cash balance per books on December 31, 2010

A. P275,132 C. P291,332
B. P226,132 D. P274,370
3. What is the total outstanding checks on December 31, 2010?

A. P68,313 C. P46,938
B. P39,238 D. P40,938
4. What is the adjusted cash balance on November 30, 2010?

A. P446,375 C. P226,682
B. P275,682 D. P274,920
5. What is the adjusted cash balance on December 31, 2010?

A. P281,682 C. P226,682
B. P275,682 D. P274,920
Solution 1-17
1. Dec. 5 deposit P49,000

Dec. 8 deposit 14,000
Dec. 31 deposit in transit 49,000
Total collections/book receipts P112,000
Answer: D
2. Cash balance, November 30 P423,825

Add: December receipts(see no. 1) 112,000
Total 535,825
Less: Disbursements per check register 260,693
Cash balance, December 31 P275,132
Answer: A
3. Outstanding checks, December 31:

Check no. 4321 P6,000
4340 1,700
Page 36
4345 11,880
4347 6,300
4348 14,058
4349 7,000
Total P46,938
Answer: C
4. Adjusted cash balance, Nov. 30, 2010 P423,825
The balance per books as determined and shown on the November 30

reconciliation is also the adjusted cash balance on that date.
Notice that there are no book reconciling items in November.
Answer: C
5. Book Bank
Deposits in transit 49,000
Service charge (1,000)
Interest 1,550
Answer: B
Problem 1-18
EDGARDO CO. was organized on January 2, 2010. The following

items are from the company’s trial balance on December 31,2010.
Ordinary share capital P1,500,000

Share premium 150,000
Page 37
Merchandise inventory 69,000

Land 1,000,000
Building 1,400,000
Furniture and fixtures 367,000
Accounts Receivable 165,000
Accounts Payable 389,650
Notes-payable Bank 500,000
Sales 6,235,200
Operating expenses (including depreciation
Of P400,000) 1,005,150
Additional information is as follows:
1. Deposit in transit, December 31 P364,000

2. Service charge for December 2,000
3. Outstanding checks, December 31 475,000
4. Bank Balance, December 31 892,000
5. Edgardo Co.’s mark up on sales is 30%
1. What is the total collection from sales?

A. P6,114,967 C. P6,235,200
B. P4,119,240 D. P6,069,800
2. What is the total payments for merchandise purchases?

A. P3,905,990 C. P4,043,990
B. P4,649,140 D. P5,914,550
3. What is the total cash receipts per books?

A. P7,819,800 C. P8,219,800
B. P8,169,800 D. P8,069,800
4. What is the total cash disbursement per books?

A. P7,816,140 C. P8,021,290
B. P7,416,140 D. P7,278,140
5. What is the cash balance per books on December 31?

A. P653,600 C. P1,203,660
B. P803,660 D. P707,060
CPA EXAMINATION REVIEWER: AUDITING PROBLEMS Page 38
6. What is the adjusted cash balance on December 31?

A. P801,660 C. P1,201,660
B. P651,660 D. P803,660
☺Solution 1-18
1. Sales P6,235,200
Less: Accounts Receivables 165,400
Collections from customers P6,069,800
Answer: D
2. Cost of Sales (P6,235,200 x 70%) P4,364,640
Add: Merchandise Inventory, December 31 69,000
Goods Available for sale/Purchases (there is
no beginning inventory) 4,443,640
Less: Accounts Payable, December 31 389,650
Payments for purchases P4,043,990
Answer: C
3. Issue price of ordinary shares

(P1,500,000 + P150,000) P1,650,000
Notes Payable – Bank 500,000

Collections 6,069,800
Total Cash Receipts per books P8,219,800
Answer: C
4. Land P1,000,000
Building 1,400,000
Furniture and fixtures 367,000
Operating Expenses paid(P1,005,150-P400,000) 605,150
Payment for purchases 4,043,990
Total cash disbursements per books P7,416,140
Answer: B
CHAPTER 1 AUDIT OF CASH EQUIVALENTS Page 39
5. Cash receipts per books(see no. 3) P8,219,800

Cash disbursements per books (see no. 4) (7,416,140)
Cash balance per books, December 31 P 803,660
Answer: B
6. Book Bank
Adjusted Balances P801,660 P801,660
Answer: A
Problem 1-19
Computation of Cash Receipts and Disbursements
In connection with your audit of the cash account of ANNIE

CORP., you gathered the following information.
a. Balance per bank, December 1, 2010 P145,000
b. Total bank receipts (credits) in December 346,000
c. Balance per bank, December 31, 2010 114,500
d. Outstanding checks, Nov. 30, 2010(including
P12,000 paid by bank in December) 67,000
e. Outstanding checks, December 31, 2010(including
checks issued in November) 94,162
f. Deposit in transit, November 30, 2010 39,458
g. A customer’s check received on December 4, 2010,
was returned by bank on December 7 marked
“NSF.” It was redeposited on December 8, 2010.
The only entry made was to take up the
Collection on December 4, 2010 11,143
CPA EXAMINATION REVIEWER: AUDITING PROBLEMS 40
1. What is the total book receipt in December?

A. P295,399 C. P334,857
B. P306,542 D. P346,000
2. What is the total bank disbursement in December?
A. P315,550 C. P231,500
B. P376,500 D. P201,000
3. What is the book disbursements in December?
A. P447,519 C. P403,662
B. P331,519 D. P392,519
Solution 1-19
1. Bank receipts (credits) in December P346,000

Less: Deposit in transit, November 30 P39,458
NSF check redeposited in December 11,143 50,601
Book receipts (debits) in December P295,399
Answer: A
2. Bank balance, December 1, 2010 P145,000

Add: Bank receipts in December 346,000
Total 491,000
Less: Bank balance, December 31, 2010 114,500
Bank disbursements in December P376,500
Answer: B
3. Bank disbursements in December P376,500

Add: Book disbursements in December
But not in December bank disbursements:
Checks issued in December, outstanding
At December 31:
Outstanding checks, Dec. 31 P94,162
Less: Checks issued in Nov.,
Page 41
Still outstanding at Dec. 31

(P67,000 – P12,000) 55,000 39,162
Total 415,662
Less: Bank disbursements in December
but not in book disbursements
in December:
November outstanding checks
paid by bank in December P12,000
NSF check 11,143 23,143
Book disbursements (credits) in December P392,519
Alternative computation:
Bank disbursements in December P376,500

Add: Outstanding checks, December 31 94,162
Total 470,662
Less: Outstanding checks, Nov. 30 67,000
NSF check 11,143 78,143
Book disbursements in December P392,519
Answer: D
Problem 1-20
Petty Cash Fund; Bank Reconciliation
Your audit of the cash account of JUNIE CORP. disclosed the

following information:
1. Cash in bank balance per books, Dec. 31, 2010 P35,000

2. Bank statement balance, December 31, 2010 60,000
3. Note collected by bank in December (principal plus
interest of P800, less collection fee of P200) 27,000
4. Debit memo for a check book
Page 42
5. Deposits in transit, Dec. 31 2010 15,200
6. Transposition error made by bank in
Recording deposit of December 28:
Correct amount P45,000
Recorded as 54,000 9,000
7. Erroneous bank debit 26,700
8. Included in the Cash in bank account is petty cash
Fund of P10,000. Your count on December 31,
2010, revealed the following fund items:
Currency and coins P 3,000
Supplies 2,400
Transportation 100
IOUs 4,000 9,500
9. Erroneous bank credit 11,000
10. Outstanding checks (including a certified
Check of P10,000) 39,400
1. What is the principal amount of the note collected by bank

in December?
A. P27,600 C. P28,200
B. P26,800 D. P27,000
2. What is the adjusted cash in bank balance at December 31,
2010?
A. P52,500 C. P53,000
B. P52,700 D. P51,900
3. The cost of checkbook is

A. P600 C. P0
B. P300 D. P100
4. What is the amount of petty cash shortage at December 31,

2010?
A. P400 C. P100
B. P500 D. 0
5. What is the adjusted petty cash balance?

A. P9,500 C. P3,000
B. P3,500 D. P10,000
Page 43
Solution 1-20
1. Principal(SQUEEZE) P27,000
Interest
Collection free
Proceeds credited by bank
Answer: A
2. Book Bank
Note collected by bank 27,600
Debit memo for a checkbook (100)
Transposition error in recording deposit
(P54,000 – P45,000) (9,000)
Erroneous bank credit (11,000)
Outstanding checks, net of certified check
(P39,400 – P10,000) (P29,400)
Answer: A
3. Cost of checkbook (see no. 2) P100
4. Petty cash fund per ledger P10,000

Petty cash shortage P 500
Answer: B
Adjusted petty cash balance – currency & coins P3,000
Answer: C
Page 44
Problem 1-21
Computation of Book Disbursements
Presented below is the November 30, 2010, reconciliation of the

cash account of RAM, INC.:
Balance pre bank statement, November 30, 2010 P78, 750

Add: Deposits in transit 36, 415
Total 115, 165
Less: Outstanding checks P49, 500
Erroneous Bank Credit 18, 436 67, 936
Balance per books, November 30, 2010 P47, 229
Additional Information:
• Balance per bank statement, December 31, 2010 P59, 214
• Bank receipts (credit) in December 139, 461
• Bank disbursements (debits) in December
(Including all outstanding checks on
November 30, 2010, and the erroneous
Bank credit in November) 124, 554
• Outstanding checks, December 31, 2010 74, 110
What is the total book disbursements in December?
A. P149, 164 C. P118, 380
B. P130, 728 D. P124, 554
Solution 1-21
Bank disbursements in December P 124, 554

Add: Book disbursement in December
Not yet taken up by bank:
Outstanding checks, December 31 74, 110
Page 45
Total 198, 664
Less: Bank disbursements in December
But not on books:
Outstanding checks, Nov. 30 P 49, 500
Correction of November erroneous
Bank credit 18, 436 67, 936
Book disbursements in December P 130, 728
Answer: B
Problem 1-22
Bank Reconciliation
The cash receipts and the cash payments of LIEZEL COMPANY for
April 2010 follow:
Cash Receipts (CR) Cash Payment (CP)
Date Cash Debit Check No. Cash Credit
April 2 P 208, 700 4113 P 44, 550
8 20, 350 4114 7, 350
10 27, 950 4115 96, 500
16 109, 350 4116 33, 200
22 92, 700 4117 73, 600
29 53, 000 4118 50, 000
30 16, 850 4119 31, 600
Total P 528, 900 4120 83, 750
4121 5, 000
4122 120, 650
Total P 546, 200
The cash account of Liezel Company shows the following
information at April 30, 2010:
Page 46
Cash
Date Item Ref. Debit Credit Balance

April 1 Balance 95, 550
30 CR 6 528, 900 624, 450
30 CP 11 546, 200 78, 250
Liezel Company received the following bank statement on April

30, 2010:
Bank Statement for April 2010
Beginning balance P 95, 550

Deposits and other credits:
April 1 P 16, 300 EFT
4 208, 700
9 20, 350
12 27, 950
17 109, 350
22 68, 400 BC
23 92, 700 543, 750
Check and other Debits:
April 7 P 44, 550
13 69, 500
14 45, 150 US
15 7, 350
18 33, 200
21 10, 950 EFT
26 73, 600
30 50, 000
30 1, 000 SC (335, 300)
Ending Balance P 304, 000
Explanation: EFT -- electronic funds transfer
US -- unauthorized signature
BC -- bank collection
SC -- service charge
Page 47
Additional data for the bank reconciliation include the
following:
a. The EFT deposit was a receipt of the rent. The EFT debit
was a monthly insurance payment.
b. The unauthorized signature check was received from Lester

Soon.
c. The P 68,400 bank collection of a note receivable on April

22 included P 9,250 interest revenue.
d. The correct amount of check number 4115, a payment on n

account, is P 69,500. (Liezel's accountant mistakenly recorded
the check for P 96, 500).
1. What is the amount of deposits in transit on April 30?

A. P 53,000 C. P 45,150
B. P 69,850 D. P 115,000
2. What is the amount of outstanding checks on April 30?

A. P 241,000 C. P 286,150
B. P 337,500 D. P 310,500
3. What is the amount of bank receipts in April?

A. P 543,750 C. P 459,050
B. P 527,450 D. P 528,900
4. What is the amount of bank disbursements in April?

A. P 290,150 C. P 289,150
B. P 335,300 D. P 316,150
5. What is the correct cash balance as of April 30?

A. P 132,850 C. P 122,150
B. P 87,700 D. P 223,150
Page 48
Solution 1-22
1. Deposits in transit, April 30:

April 29 collection per CR P 53,000
April 30 collection per CR 16,850
Total P 69,850
Answer: B
2. Outstanding checks, April 30:

Check no. 4119 P 31,600
Check no. 4120 83,750
Check no. 4121 5,000
Check no. 4122 120,650
Total P 241,000
Answer: A
3. Bank receipts in April

(Total Deposits and other credits) P 543,750
Answer: A
4. Bank disbursements in April

(Total checks and other debits) P 335,300
Answer: B
5. Book Bank
Unadjusted balances, April 30 P 78,250 P 304,000
Error in check no. 4115
(P 96,500-P 69,500) 27,000
EFT-rent 16,300
Bank collection 68,400
Unauthorized signature check 45,150
Page 49
EFT-insurance (10,950)
Adjusted balances, April 30 P 132,850 P 132,850
Answer: A
Problem 1-23
FERMIN COMPANY's check register shows the following entries for

the month of December:
Date Checks Deposits Balance
2010
Dec. 1 Beginning Balance P 89,300
5 Deposit P 65,000 154,300
7 Check #14344 P 32,500 120,800
11 Check #14345 14,000 106,800
26 Deposit 49,000 155,800
29 Check #14346 8,600 147,200
Fermin's bank reconciliation for November revealed one

outstanding check (No. 14343) for P 12,000 (written on November
28), and one deposit in transit for P 5,550 (made on November
29).
The following is from Fermin's bank statement for December 2010:
Date Checks Deposits Balance

2010
Dec. 1 Beginning Balance P 95,750
1 Deposit P 5,550 101,300
4 Check No. 14344 P 32,500 68,800
5 Deposit 56,000 124,800
14 Check No. 14345 14,000 110,800
15 Loan proceeds 500,000 610,800
20 NSF check 7,600 603,200
29 Service charge 1,000 602,200
31 Interest 3,600 605,800
Page 50
Assume that all errors were committed by Fermin Company, not the
bank.
1. Adjusted cash balance on November 30

A. P 89,300 C. P 102,200
B. P 95,750 D. P 101,300
2. Outstanding checks on December 31

A. P 46,500 C. P 8,600
B. P 45,500 D. P20,600
3. Deposit in transit on December 31

A. P 52,600 C. P 5,550
B. P 49,000 D. P 43,450
4. Total Bank receipts in December

A. P 114,000 C. P 565,150
B. P 119,550 D. P 61,550
5. Adjusted cash balance on December 31

A. P 663,800 C. P 748,200
B. P 634,200 D. P 597,200
Solution 1-23
1. Balance per bank, Nov. 30 P 95,750

Outstanding check (no. 14343) (12,000)
Adjusted bank balance, Nov. 30 P 89,300
Answer: A
Page 51
Note that because there are no book reconciling items in
November. The adjusted bank balance agrees with the cash in bank
balance per ledger on November 30.
2. Outstanding checks on December 31:

Check no. 14343 P 12,000
Check no. 14346 8,600
Total P 20,600
Answer: D
3. Deposit in transit on December 31:

Dec. 26 collection P 49,000
Answer: B
4. Total Bank receipts in December P 565,150

Answer: C
The total bank receipt is the total amount credited by the bank
during the period.
5. Book Bank
Unadjusted balances P 147,200 P 605,800
Outstanding checks (see no. 2) (20,600)
Error in recording deposit
(P 65,000-P 56,000) (9,000)
Error in arithmetic for Check No. 14344 1,000
Loan proceeds 500,000
NSF check (7,600)
Interest 3,600
Adjusted balances P 634,200 P634,200
Answer: B
Page 52
Problem 1-24
The accountant of NARCISA CO. provided the following data in

reconciling the April 30 cash in bank balance:
Balance per bank, April 30 P 130,350
Balance per books, April 30 85,000
Bank Service charge 2,000
Note collected by bank including P 11,200
Interest (NARCISA CO. not yet informed) 136,000
Check drawn by XYZ Co. erroneously
Charged by bank to Narcisa's account 54,600
A transposition error was made in recording a sale and deposit

in the sales journal and cash receipts journal in April.
Correct amount P 13,658
Recorded as P 16,358
1. What is the adjusted cash balance on April 30?
A. P 219,000 C. P 216,300
B. P 221,700 D. P 161,700
2. Prepare journal entries to correct the cash account.
Solution 1-24
1. Book Bank
Bank service charge (2,000)
Page 53
Collection of note 136,000
Erroneous Bank debit 54,600
Transposition error
(P 16,358-P 13,658) (2,700)
Adjusted Balances P 216,300 P 216,300
Answer: C
2. Adjusting Journal Entries

April 30
a. Bank service charges 2000

Cash in bank 2000
b. Cash in bank 136,000
Notes receivable 124,800
c. Sales 2,700
Cash in bank 2,700
Problem 1-25
The following information is included in EMIL CORPORATION's bank

statement for the month of March:
A customer's check has been marked "NSF"

by the bank and returned P 13,000
Bank service charge for March 1,200
In comparing the bank statement to the company's cash records,
you found:
Page54
Outstanding checks on March 31 P 184,000
Deposits made but are not yet shown in the
April bank statement 14,000
The deposits in transit and outstanding checks have been
correctly taken up in the company's books. You also found a
customer's check for P 17,400 that had not yet been deposited
and had not been recorded in Emil's book. Your client's books
show a cash balance of P 36,420.
What is Emil Corporation's correct cash balance at March 31?

A. P 52,620 C. P 22,220
B. P 53,620 D. P 39,620
Solution 1-25
Balance per books P 36,420

Unrecorded and undeposited customer's check 17,400
NSF check 13,000)
Adjusted cash balance P 39,620
Answer: D
Problem 1-26
Bank Reconciliation: Bank to Book Format
The following information pertains to a checking account of a

company at June 30, 2010.
Balance per bank statement P 200,000

Interest earned for the second quarter 500
Customer's checks returned for insufficient funds 5,000
Page 55
At June 30, 2010, the cash balance per books is
A. P 214,500 C. P 185,500
B. P 210,000 D. P 200,000
Solution 1-26

Interest earned (500)
NSF checks 5,000
Balance per books at June 30, 2010 P 214,500
` Answer: A
Problem 1-27
Computation of Cash Balance per Bank Statement
A company is reconciling its bank statement with internal

records. The cash balance per the company's books is P 45,000.
There are P 5,000 of bank charges not yet recorded, P 7,500 of
outstanding checks, P 12,500 of deposits in transit, and P
15,000 of bank credits and collections not yet taken up in the
company's books.
What is the cash balance per bank?

A. P 20,000 C. P 40,000
B. P 30,000 D. P 50,000
Solution 1-27

Bank charges (5,000)
Page 56
Deposits in transit (12,500)
Bank credits and collections 15,000
Balance per bank P 50,000
Answer: D
Problem 1-28
Computation of Adjusted Cash Balance
A company shows a cash balance of P 175,000 on its bank

statement dated June 30. As of June 30, there are P 55,000 of
outstanding checks and P 37,500 of deposits in transit.
What is the correct cash balance on the company books as of June
30?
A. P 212,500 C. P 120,000
B. P 267,500 D. P 157,500
Solution 1-28

Answer: D
Problem 1-29
Computation of Adjusted Cash Balance
The cash account shows a balance of P 225,000 before

reconciliation. The bank statement does not include a deposit of
P 11,500 made on the last day of the month. The bank statement
shows a collection by the bank of P 4,700 and a customer's check
for P 1,600 was returned because it was NSF. A customer's check
for P 2,250 was recorded on the books as P 2,700, and a check
written for P 395 was recorded as P 485.
Page 57
What should be the correct cash balance?
A. P 227,740 C. P 228,640
B. P 239,240 D. P 227,560
Solution 1-29

Bank collection 4,700
Customer's NSF check (1,600)
Overstatement of cash receipt (P 2,700-P 2,250) (450)
Overstatement of cash disbursement (P 485-P 395) 90
Answer: A
Problem 1-30
Computation of Outstanding Checks

On July 5, 2010, EMILIA CORP. received its bank statement for
the month ending June 30. The statement showed a P 209,500
balance while the cash account balance on June 30 was P 35,000.
In reconciling the balances, the auditor discovered that:
1. The June 30 collections of P 176,000 were recorded on the
books but were not deposited until July.
2. The bank service charges for the month of June totaled P

3,000.
3. A paid check for P 24,300 was entered incorrectly in the cash

payments journal as P 34,200.
Page 58
What is the total outstanding checks at June 30, 2010?
A. P 75,400 C. P 363,400
B. P 343,600 D. P 353,500
Solution 1-30
Balance per books, June 30, 2010 P 35,000

Bank Service charges (3,000)
Overstatement of disbursement (P 34,200-P 24,300) 9,900
Balance per bank, June 30, 2010 P 209,500

Add: Undeposited Collections 176,000
Total P 385,500
Less: Adjusted cash balance (see above computation) 41,900
Outstanding checks, June 30, 2010 P 343,600
Answer: B
Problem 1-31

In connection with an audit, you are given the following bank
reconciliation.
BANK RECONCILIATION
December 31, 2010
Balance per ledger, December 31, 2010 P 34,350

Add: Collections received on the last day of
December and charged to "Cash in Bank"
on books but not deposited 5,325
Debit memo for customer's check
unpaid (check is on hand but not entry has
been made on the books) 4,000
Debit memo for bank service charge for December 1,000
P 46,675
Page 59
Deduct:
Outstanding Checks
(see detailed list below) P 18,625
Credit memo for proceeds of a
note receivable which had been
left at the bank for collection but
which has not been recorded as
collected 8,000
Check for an account payable
entered on books as P 12,625
but drawn and paid by bank
as P 16,225 3,600 32,225
Computed balance P 14,450
Unlocated difference 36,600
Balance per bank (checked to confirmation) P 51,050
LIST OF OUTSTANDING CHECKS

December 31, 2010
Check No. Amount

14344 P 5,820
14358 1,295
14367 3,543
14399 2,001
14401 4,892
14407 5,074
P 18,625
1. What is the correct amount of outstanding checks December 31?

A. P 18,625 C. P 17,625
B. P 22,625 D. P 21,625
Page 60
2. The journal entry to correct the outstanding checks should
include a
A. Debit to cash in bank of P 4,000
B. Credit to cash in bank of P 4,000
C. Debit to accounts payable of P 4,000
D. No journal entry is necessary
3. The correct amount of "unlocated difference" is

A. P 32,600 C. P 36,600
B. P 35,600 D. P 0
4. The cash in bank to be shown on the company's December 31,

201
A. P 34,750 C. P 33,750
B. P 37,350 D. P 37,750
5. The journal entry to adjust the cash in bank account as of

December 31 should be
A. Debit to cash in bank of P 8,000
B. Credit to cash in bank of P 8,600
C. Net credit to cash in bank of P 600
D. Net debit to cash in bank of P 600
Solution 1-31
1. Outstanding checks, Dec. 31 (P 22,625)

Answer: B
2. No journal entry is necessary. There is no information in the

problem that will indicate that those included in the list of
outstanding checks were not taken up properly on books.
Answer: D
3. A correct reconciliation (see no.4) shows that there is

actually no "unlocated difference".
Answer: D
Page 61
4. Book Bank
Customer's check returned (4,000)
Credit memo for note collected 8,000
Understatement of book
Disbursement (3,600)
Adjusted balances P 33,750 P 33,750
Answer: C
5. ADJUSTING JOURNAL ENTRIES

December 31, 2010
a. Accounts receivable 4,000

Cash in bank 4,000
b. Bank service charges 1,000
Cash in bank 1,000
c. Cash in bank 8,000
Notes receivable 8,000
d. Accounts payable 3,600
Cash in bank 3,600
Debit to cash in bank P 8,000
Credit to cash in bank (P 4,000+P 1,000+ P 3,600) (8,600)
Net credit to cash in bank (P 600)
Answer: C
Page 62
Problem 1-32
Computation of Book Disbursement
In connection with your audit of the MARCELO COMPANY at December

31, 2010, the following bank reconciliation was submitted to you
by an employee of your client:
Balance per bank P 30,534

P 68,390
As part of your verification, you obtained the bank statement

and canceled checks from the bank on January 15, 2011. According
to the records of the company, checks issued from January 1 to
January 15, 2011, amounted to P 22,482. Checks returned by the
bank on January 15, 2011, totaled P 58,438. Of the checks
outstanding on December 31, 2010, P9,600 were not returned
by the bank with the January 15, 2011, bank statement ; and of
those issued, according to the records of the company, in
January 2011, P 7,200 were not returned by the bank.
Based on the above data, calculate the disbursements per company

records.
1. The difference between the disbursements per books as

computed and as reported is
A. P 61,912 C. P 10,000
B. P 2,800 D. P 29,874
2. Suggest three possible explanations for the difference

between the disbursements per company as computed and as
reported.
Page 63
Solution 1-32
1. Outstanding checks, January 15:

From December or before P 9,600
From January 7,200 P 16,800
Add: Disbursements per bank statement 58,438
Total P 75,238
Less: Outstanding checks, December 31 42,756
Disbursements per books as computed P 32,482
Disbursements per books as reported 22,482
Difference in disbursements P 10,000
Answer: C
2. Three possible explanations for the above difference:
a. The bank disbursements (P 58,438) may be overstated by P

10,000. Another company check for P 10,000 may have been
erroneously by the bank against the client's account.
b. The December 31 outstanding checks may be understated by P

10,000. Since the bank reconciliation given in the problem was
prepared by a company employee. There is no assurance that it is
correct.
c. The client's employee may have failed to record check/s
issued in January thus understanding the book disbursements (P
22,482).
Page 64
Problem 1-33
Bank Reconciliation: Unadjusted to Adjusted Balance Format
In auditing the HECTOR COMPANY, you obtained the bank statement,

canceled checks, and other memoranda which relate to the
company's bank account for December 2010. In reconciling the
bank balance with that shown on the company's books, you
observed the facts set forth below:
(1) Balance per bank statement, 12/31/10 P 47,174
(2) Balance per books, 12/31/10 19,289
(3) Outstanding checks, 12/31/10 63,000
(4) Receipts of 12/31/10, deposited 1/2/11 6,260
(5) Service charge for November, per bank

Memo of 12/15/10 1,000
(6) Proceeds of bank loan, 12/15/10,

Discounted for 3 months at 18% per
Annum, omitted from company books 47,750
(7) Deposits of 12/22/10, omitted from

Bank statement 9,170
(8) Check of Milano Company, returned on

12/21/10, for absence of counter-signature
And deposited with complete signature on
1/3/11, no entry on the books having been
Made for the return or redeposit 77,320
(9) Error on bank statement in entering deposit

Of 12/18/10:
Correct amount P 1,600
Entered in statement 160 1,440
(10) Check No. 021261 of Yek Company,

Charged by bank in error to
Company's account 13,600
Page 65
(11) Proceeds of note of Harthur Co.,
Collected by bank, 12/10/10, not
Entered in cash book (principal amount of
P 25,000 plus interest of P 1,125, less collection
Fee) 25,625
(12) Erroneous debit memo of 12/28/10, to charge

Company's account with settlement of bank
Loan which was paid by check no. 112170 on
Same date 5,000
(13) Error on bank statement in entering

Deposit of 12/4/10:
Entered as P 14,200.62
Correct amount 12,400.62 1,800
(14) Deposit of Bunso Co. of 12/02/10,

Credited in error to this company 3,500
1. What is the principal amount of the loan obtained from bank

in December?
A. P 50,000 C. P 48,125
B. P 47,750 D. P 49,625
2. What amount of prepaid interest should be shown on Hector's

December 31, 2010 statement of financial position?
A. P 2,250 C. P 375
B. P 0 D. P 1,875
3. The amount of collection of fee is

A. P 625 C. P 500
B. P 1,625 D. P 0
4. What is the adjusted cash in bank balance as of December 31,

2010?
A. P 14,344 C. P 17,944
B. P 11,464 D. P 9,344
Page 66
5. The cash in bank per ledger as of December 31, 2010, should
be increased (decreased) by
A. P 4,945 C. P (4,945)
B. P 5,945 D. P (5,945)
Solution 1-33
1. Proceeds = Principal-Interest
47,750 = P-(Px18%x3/12)
47,750 = P-0.045P
47,750 = 0.955 P
P = 47,750 /0.955
P = P 50,000
Answer: A
2. Prepaid interest, Dec. 31 (P 2,250x2.5/3) P 1,875

Answer: D
3. Principal P 25,000
Maturity value 26,125
Collection fee (SQUEEZE) (500)
Proceeds P 25,625
Answer: C
4. Book Bank
Receipts of 12/31/10, deposited 1/01/11 6,260
Service charge for November (1,000)
Proceeds of bank loan 47,750
Deposit of 12/22/10, omitted from bank
Statement 9,170
Check of Milano Company charged back (77,320)
Error in entering deposit of 12/18/10 1,440
Check of Yek Company charged in
Error to Hector Company 13,600
Proceeds of note of Harthur Co. 25,625
Erroneous debit memo of 12/28/10,
Charged by bank in settlement
Of loan paid by check no. 112170 5,000
Page 67
Error in entering deposit of 12/04/10 (1,800)
Deposit of Bunso Co., credited in error
To Hector Company (3,500)
Adjusted Balances P 14,344 P 14,344
Answer: A
5. Adjusted Cash in bank balance (see no. 4) P 14,344

Cash in bank balance per ledger 19,289
Net adjustment - decrease P 4,945
Answer: C
Problem 1-34
Bank Reconciliation
You are auditing general cash for the DION COMPANY for the
fiscal year ended July 31, 2010. The client has not prepared the
July 31 bank reconciliation. After a brief discussion with the
owner you agree to prepare the reconciliation, with assistance
from one of Dion Company's clerks. You obtain the following
information:
General Ledger Bank Statement
Beginning Balance P 46,110 P 57,530
Deposits 250,560
Cash receipts journal 254,560
Checks cleared (236,150)
Page 68
Cash disbursements journal (218,110)

July bank service charge (870)
Note paid directly (61,000)
NSF check (3,110)
Ending balance P82,560 P 6,960
June 30 Bank Reconciliation
Information in General Ledger and Bank Statement

Balance per bank P57,530
Balance per books 46,110
Additional information obtained is:
1. Checks clearing that were outstanding on June 30 totaled

P16,920.
2. Checks clearing that were recorded in the July

disbursements journal totaled P204,670.
3. A check for P10,600 cleared the bank, but had not been
recorded in the cash disbursements journal. It was for an
acquisition of inventory. Dion uses the periodic inventory
method.
4. A check for P3,960 was charged to Dion Company but had been
written on a different company’s bank account.
5. Deposits included P6,000 from June and P244,560 for July.
6. The bank charged Dion Company’s account for a nonsufficient

check totaling P3,110. The credit manager concluded that
the customer intentionally closed its account and the owner
left the city. The check was turned over to a collection
agency.
Page 69
7. A note for P58,000, plus interest, was paid directly to the
bank under an agreement signed four months ago. The note
payable was recoreded at P58,000 on Dion Company’s books.
Based on facts given, answer the following:
1. The checks outstanding on June 30 amount to

A. P9,980 C. P13,940
B. P10,830 D. P3,340
2. The deposits in transit on June 30 amount to

A. P6,890 C. P6,000
B. P10,000 D. P9,110
3. The adjusted cash balance on July 31 is
A. P6,980 C. P3,870
B. P10,940 D. P3,020
4. Which of the following audit procedures would be used to

verify the payment of note in July?
A. Examine checks returned with July bank statement.
B. Check for absence of note on July 31 bank
confirmation.
C. Trace payment to duplicate deposit slip.
D. Obtain cutoff bank statement.
5. The auditor would perform the following procedures to

verify the unrecorded check of P10,600, except
A. Obtain cutoff bank statement.
B. Examine checks returned with July bank statement.
C. Trace check number to absence in July cash
disbursements journal and recording in August.
D. Examine supporting documentation.
Solution 1-34
1. Outstanding checks, June 30 P17,420

Add: Checks issued in July(P218,110 per
Page 70
Cash disbursements journal + P10,600

Unrecorded check) P228,710
Total 246,130
Less: Checks paid by bank in July
(P236,150 – P3,960 erroneous check
Charged by bank) 232,190
Outstanding checks, July 31 P13,940
Answer: C
Alternative computation:
Checks outstanding on June 30 that did not
clear in July (P17,420 – P16,920) P500
Checks issued in July that did not clear in July
(P218,110 – P204,670) 13,440
Outstanding checks, July 31 P13,940
2. Deposits in transit, June 30 P 6,000

Add: July deposits per cash receipts journal 254,560
Total 260,560
Less: Deposits credited by bank in July 250,560
Deposits in transit, July 31 P10,000
Answer: B
3. Book Bank
Unadjusted balances P82,560 P 6,960
Outstanding checks(see no. 1) (13,940)
Deposits in transit(see no. 2) 10,000
Unrecorded check (10,600)
Check erroneously charged to Dion 3,960
NSF check (3,110)
Note payment (P58,000 principal +
P3,000 interest) (61,000)
Adjusted balances P 6,980 P 6,980
Answer: A
Page 71
4. The following audit procedures would be performed to verify
the note payment:
1. Examine cancelled check.
2. Recompute interest.
3. Check for absence of note on July 31 bank
confirmation.
5. The following audit procedures would be performed to verify

the unrecorded check:
1. Examine check returned with July bank statement.
2. Trace number to absence in July cash disbursements
journal and recording in August.
3. Examine supporting documentation.
4. Investigate why it was unrecorded.
The cutoff bank statement will no longer show the unrecorded

check because it was already paid by bank in July.
Answer: A
Problem 1-35
Cash Transfers
In the audit of the DENISSE SUPPLY COMPANY, a large branch that

maintains its own bank account, cash is periodically transferred
to the central account in Makati City. On the branch account’s
records, bank transfers are recorded as a debit to the home
office clearing account and a credit to the branch account.
Similarly, the home office account is recorded as a debit to the
central bank account and a credit to the branch office clearing
account. Ram V. is the head bookkeeper for both the home office
and the branch bank accounts. Since he also reconciles the bank
account, the senior auditor, Hershey de Jesus, is concerned
about the internal control weakness. As part of the Page 73
year-end audit of bank transfers, Hershey asks you to schedule
the transfers for the last few days in 2010 and the first few
days of 2011. You prepare the following list:
Date recorded Date Recorded
In the Home in the Branch Date Deposited Date
Amount Office Cash Office Cash in the Home cleared
Of Receipts Disbursements Office Bank the Branch
Transfer Journal Journal Account Bank Account
P120,000 12-27-10 12-29-10 12-26-10 12-27-10

P260,000 12-28-10 01-02-11 12-28-10 12-29-10
P140,000 01-02-11 12-30-10 12-28-10 12-29-10
P110,000 12-26-10 12-26-10 12-28-10 01-03-11
P150,000 01-02-11 01-02-11 12-28-10 12-31-10
P280,000 01-07-11 01-05-11 12-28-10 01-03-10
P370,000 01-04-11 01-06-11 01-03-01 01-05-11
1. In verifying the bank transfers, which of the following

audit procedures should be performed?
A. List bank transfers made a few days before and after the
end of the reporting period.
B. Trace bank transfers included in the schedule of bank
transfers to the appropriate accounting records, bank
reconciliations, and bank records to determine propriety
of recording.
C. Both A and B.
D. A only.
2. Which of the following transfers would be included as

deposits in transit in the December 31, 2010 bank
reconciliation for the Home Office account?
A. 3, 5, and 6
B. 1, 2, and 4
C. C. 3 and 5
D. D. No deposits in transit on December 31
3. Which of the following transfers would be included as

outstanding checks in the December 31, 2010, bank
reconciliation for the Branch Office account?
A. 1, 2, and 3
B. 7
Page 73
C. 4 and 6
D. No outstanding checks on December 31
4. The cash in bank account on Home Office books should be

increased by
A. P290,000 C. P860,000
B. P570,000 D. P430,000
5. The cash in bank account on Branch Office books should be
decreased by
A. P430,000 C. P740,000
B. P280,000 D. P690,000
Solution 1-35
1. The following procedures should be performed to verify the

bank transfers:
a. List bank transfers made a few days before and after the end
of the reporting period.
b. Trace these bank transfers to the appropriate accounting
records, bank reconciliations, and bank records to verify the
propriety of recording.
Answer: C
2. There are no deposits in transit on December 31. The lsit of

transfers does not disclose transfers recorded in December 2010
on Home Office cash receipts journal but deposited in January
2011.
Answer: D
3. Transfer no. 4 P110,000

Transfer no. 6 280,000
Total P390,000
These checks were issued (i.e., deposited in the Home Page 74

Office bank account) in December 2010 but cleared the
Branch Office bank account in January 2011.
Answer : C

Total P570,000
These transfers were deposited in the Home Office bank account

in December 2010 but recorded in January 2011.
Answer: B
Total P690,000
These checks were issued (i.e., deposited in the Home Office

bank account) in December 2010 but recorded in the Branch Office
cash disbursements journal in January 2011.
Answer: D
Problem 1-36
Proof of Cash: Unadjusted to Adjusted Balances Format
The cash account of VELASCO COMPANY shows the following

activities:
Date Debit Credit Balance
Nov.30 Balance P115,000

Dec. 2 November bank charges P50 114,950
4 November bank credit for Page 75
notes receivable
collected P10,000 124,950
15 NSF check 1,300 123,650
20 Loan proceeds 48,500 172,150
21 December bank charges 60 172,090
31 Cash receipt book 703,300 879,390
31 Cash disbursements book 408,000 471,390
CASH BOOKS
RECEIPTS PAYMENTS
Date OR NO. Amount Check No. Amount
Dec. 1 110-120 P11,000 801 P2,000

2 121-136 21,300 802 3,000
3 137-150 20,000 803 1,000
4 151-165 56,000 804 3,000
5 166-190 39,000 805 12,000
8 191-210 66,000 806 19,000
9 211-232 88,000 807 26,000
10 233-250 77,000 808 30,000
11 251-275 21,000 809 61,000
12 276-300 30,000 810 7,000
15 301-309 55,000 811 8,000
16 310-350 8,000 812 16,000
17 351-390 9,000 813 20,000
18 391-420 19,000 814 22,000
19 110-480 17,000 816 36,000
22 110-500 21,000 817 11,000
23 110-525 32,000 818 50,000
23 - - 819 7,000
23 - - 820 4,000
26 526-525 74,000 821 3,000
28 556-611 5,000 822 12,000
28 - - 823 13,000
29 612-630 38,000 824 29,000
29 - - 825 2,000
29 - - 826 11,000
Totals P703,300 P408,000
Page 76
BANK STATEMENT
Date Check No. Charges Credits
Dec. 1 792 P2,500 P8,500

2 802 3,000 11,500
3 - - 21,300
4 804 3,000 20,000
5 EC 81,000 81,000
8 805 12,000 95,000
9 CM 16 - 12,000
10 799 7,050 154,000
11 DM 57 1,300 77,000
12 808 30,000 21,000
15 803 1,000 -
16 809 61,000 85,000
17 DM 61 60 8,000
18 813 20,000 19,000
19 CM 20 - 48,500
22 815 6,000 -
23 816 36,000 47,000
23 811 8,000 -
23 801 2,000 -
26 814 22,000 32,000
28 818 50,000 74,000
28 DM 112 120 -
29 821 3,000 5,000
29 CM 36 - 12,000
29 820 4,000 -
Totals P353,030 P831,300
1. DMs 61 and 112 are for service charges.

2. EC is error corrected
3. DM 57 is for an NSF check.
4. CM 20 is for loan proceeds, net of P150 interest charges for
90 days.
5. CM 16 is for the correction of an erroneous November bank
charge.
Page 77
6. CM 36 is for customer’s notes collected by bank in December.
7. Bank balance on December 31 is P592,270.
1. The total outstanding checks at November 30 should be

A. P9,550 C. P13,050
B. P7,050 D. P15,550
2. The total outstanding checks at December 31 should be

A. P147,000 C. P153,000
B. P162,550 D. P159,000
3. The deposit in transit at November 30 should be

A. P8,500 C. P48,500
B. P19,500 D. P 0
4. The deposit in transit at December 31 should be

A. P44,000 C. P46,500
B. P 0 D. P38,000
5. The adjusted book balance at November 30 should be

A. P125,000 C. P115,000
B. P124,950 D. P136,950
6. The adjusted bank receipts for the month of December should

be
A. P763,800 C. P115,000
B. P773,800 D. P136,950
7. The adjusted book disbursements for the month of December

should be
A. P403,480 C. P415,480
B. P415,540 D. P409,480
8. The adjusted bank balance at December 31 should be

A. P592,270 C. P558,270
B. P477,270 D. P483,270
Page 78
Solution 1-36
1. OUTSTANDING CHECKS, NOVEMBER 30:

Check no.792 P2,500
799 7,050
Total P9,550
Answer: A
2. OUTSTANDING CHECKS, DECEMBER 31:

Check no. 806 P19,000
807 26,000
810 7,000
812 16,000
817 11,000
819 7,000
822 12,000
823 13,000
824 29,000
825 2,000
826 11,000
Total P153,000
Answer: C
3. Deposits in transit, November 30 P8,500
Answer: A
4. Deposit in transit, November 30(see no. 3) P8,500

Add: Collections per cash receipts book 707,300
Total 715,800
Less: Deposits credited by bank:
Bank receipts P831,300
Correction of erroneous bank
charge in December (81,000)
Correction of erroneous bank
charge in November (12,000) Page 79
Loan proceeds (48,500)
Note collected (12,000) 677,800
Deposits in transit, December 31 P38,000
Answer: D
PROOF OF CASH
December 1-31
Balance Balance
Nov.30 Receipts Disbursements Dec.31
Balances per bank P114,000 P831,300 P353,030 P592,270
Bank error corrected

the same date (81,000) (81,000)
Erroneous bank charge

in November 12,000 (12,000)
Deposits in transit:
November 30 8,500 (8,500)
December 31 38,000 38,000
Outstanding checks
November 30 (9,550) (9,550)
December 31 153,000 (153,000)
Adj. bank balances P124,950 P767,800 P415,480 P477,270

Balance Balance
Nov.30 Receipts Disbursements Dec.31
Balances per books P115,000 P765,800 P409,410 P471,390
Bank service charges
November 30 (50) (50)
December 31 120 (120)
Notes collected by bank:
November 30 10,000 (10,000)
December 31 12,000 12,000
Unrecoreded disbursement –
Check no. 815 6,000 (6,000)
Page 80
5. Adjusted book balance, November 30 P124,950
Answer: B
6. Adjusted bank receipts in December P767,800
Answer: D
7. Adjusted book disbursements in December P415,480
Answer: C
8. Adjusted bank balance, December 31 P477,270
Answer: B
Problem 1-37
Proof of Cash: Bank to Book Balances Format
Shown below is the may 31, 2010, bank reconciliation prepared by

your client’s staff.
RECONCILIATION
May 31, 2010
Bank balance P652,000
Total P662,000

No. 640 P10,000
652 8,000
653 2,000 20,000
Adjusted bank balance P642,000
Book balance P570,800
Add: Proceeds of note receivable

collected in May P70,000
Deposit on may 31 not

recorded on books until June 2,000 72,000
Page 81
Total P642,800
Less: Bank service charge 800
Adjusted book balance P642,000
The June 2010 bank statement is shown below:
Pasig bank
Period covered: May 31, 2010 – Jun 30, 2010
Account no.: 0021261

Date Checks Deposit
June 1 8,000 10,000
June 8 2,000
June 11 14,000 20,000
June 13 1,000 DM 1,000
June 16 4,000
June 21 12,000 56,000
June 27 18,000
June 29 1,000 EC 1,000 EC
June 30 200 SV
June 30 3,000 DM
SV - Service Charges DM – Debit Memo
EC – Error Corrected CM – Credit Memo
The paid checks accompanying this bank statement (all clearing

in June) are the following:
No. 652 P8,000 No. 654 P14,000 No. 657 P12,000

No. 653 P2,000 No. 655 P 4,000 No. 658 P18,000
The check register reveals that the last check issued in June is
No. 659 for P5,000 and that check no. 656 is for P2,600.
Cash received for the period of June 22 through June 30 of

P70,000 was deposited in the bank on July 1.
The debit memos on June 13 and June 30 represent customer’s NSF

checks returned by the bank. Page 82
The June 13 NSF check was immediately redeposited without entry.
The June 30 NSF check was redeposited on July 1 without entry.
1. What is the total bank receipts in June?

A. P87,000 C. P77,000
B. P88,000 D. P78,000
2. What is the total bank disbursements in June?
A. P59,200 C. P58,200
B. P58,000 D. P63,200
3. What is the balance per bank statement on June 30, 2007?

A. P676,800 C. P732,400
B. P627,200 D. P729,200
4. What is the total book receipts in June?

A. P88,000 C. P146,000
B. P220,000 D. P218,000
5. What is the total book disbursements in June?

A. P53,000 C. P56,400
B. P57,500 D. P63,200
6. What is the book balance on June 30, 2007?
A. P732,200 C. P732,400
B. P729,200 D. P676,800
Solution 1-37
1. Bank receipts in June (arrived at by footing the

Deposits column of the bank statement) P88,000
Answer: B
2. Bank disbursements in June (arrived at by footing the

Checks column of the bank statement) P63,200
Answer: D
Page 83
3. Bank balance, May 31 P652,000
Add: Bank receipts in June 88,000
Total 740,000
Less: Bank disbursements in June 63,200
Bank balance, June 30 P676,800
Answer: A
PROOF OF CASH
June 1-30, 2010
Balance J u n e Balance
May 31 Receipts Disbursements June 30
Bank balances P652,000 P88,000 P63,200 P676,800
May 31 10,000 (10,000)
June 30 70,000 70,000
Outstanding checks:
May 31 (20,000) (20,000)
June 30 17,600 (17,600)
May 31 800 800
June 30 (200) 200
Bank collection
in May (70,000) 70,000
May deposited recorded

by the company
in June (2,000) 2,000
NSF checks:
Already redeposited (1,000) (1,000)
Not yet redeposited (3,000) 3,000
Bank error corrected

on the same date (1,000) (1,000)
Book balances P570,800 P218,000 P56,400 P732,400

4. Total book receipts in June P218,000
Answer: D
Page 84
5. Total book disbursements in June P56,400
Answer: C
6. Book balance on June 30, 2010 P732,400
Answer: C
Problem 1-38
Proof of Cash: Bank to Book Balances Format
The following information was obtained in an audit of the cash

account of CHELSEE COMPANY as of December 31, 2010. Assume that
the CPA has satisfied himself as to the propriety of the cash
book, the bank statements, and the returned checks, except as
noted:
1. The bookkeeper’s bank reconciliation at November 30, 2010.
Total P205,000

No. 1434 P1,400
1562 7,500
1571 5,800
1584 8,000
1591 300 23,000

2. A summary of the bank statement for December 2010.
Balance brought forward P 194,000
Deposits 1,487,000
Total P1,681,000
Charges (1,325,000)
Balance, December 31, 2010 P 356,000
Page 85
3. Included with cancelled checks returned with the December

statement were the checks listed below.
4. The Chelsee Company discounted its own 60-day note for

P90,000 with the bank on December 1, 2010. The discount rate
was 6 percent. The accountant recorded the proceeds as a cash
receipt at the face value of the note.
5. The accountant records customer’s dishonored checks as a

reduction of cash receipts. When the dishonored checks are
redeposited they are recorded as a regular cash receipt. Two
NSF checks for P1,800 and P2,200 were returned by the bank
during December. Both checks were redeposited and were
recorded by the accountant.
6. Cancellations of Chelsee Company checks are recorded by a

reduction of cash disbursements.
7. December bank charges were P200. In addition, a P100 service

charge was made in December for the collection of a note
receivable in November. These charges were not recorded on
the books
8. Check no. 1434 listed in the November outstanding checks was

drawn in 2008. Since the payee cannot be located, the
president of Chelsee Company agreed to the CPA’s suggestion
that the check be written back into the accounts by a journal
entry.
9. Oustanding checks at December 31, 2010, totaled P49,400,
including checks 1434 and 1584.
10. The cutoff bank statement disclosed that the bank had
recorded a deposit of P24,000 on January 2, 2011. The
accountant had recorded this deposit on the books on December
31, 2010, and then mailed the deposit to the bank.
Page 86
Cancelled Checks Returned with the December Bank Statement
Number Date of Check Amount of Check C o m m e n t s
1562 11/28/10 P750 This check was in payment

of an invoice for P7,500
and was recorded in the
cash book as P7,500
1571 11/28/10 5,800 This check was in payment

of an invoice for P5,800
and was recorded in the
cash book as P5,800.
1583 12/04/10 1,500 Examination of this check

revealed that it was
unsigned. A discussion
with the client disclosed
that it had been mailed
inadvertently before it
was signed. The check
was endorsed and deposited
by the payee and processed
by the bank even though it
was a legal nullity. The
check was recorded in the
cash disbursements journal.
1588 12/12/10 8,000 This check replaced 1584,

which was returned by the
payee because it was
mutilated. Check 1584
was not cancelled on
the books.
---- 12/19/10 2,000 This was a counter check

drawn at the bank by the
president of the company
as a cash advance for
travel expense. The
president overlooked
informing the bookkeeper
about the check.
---- 12/20/10 3,000 The drawer of this check

was the Chelsea Company.
Page 87
1595 12/20/10 3,500 This check had been

labeled NSF and returned
bank had erroneously
believed that the check
was drawn by the Chelseen
Company. Subsequently,
the payee was advised to
redeposit the check.
1599 01/05/11 100,000 This check was given to

the payee on December 30
, 2010, as a postdated
check with the under-
standing that it would
not be deposited until
January 5. The check was
not recorded on the books
in December.
1. What is the correct amount of outstanding checks on December

31?
A. P41,400 C. P48,000
B. P33,250 D. P40,000
2. What is the amount of cash receipts per book in December?

A. P1,496,900 C. P1,495,100
B. P1,504,900 D. P1,487,000
3. What is the amount of cash disbursements per book in

December?
A. P1,254,850 C. P1,256,850
B. P1,252,850 D. P1,248,850
4. What is the cash in bank balance per book as of December 31?

A. P426,050 C. P430,050
B. P428,250 D. P343,050
5. What is the adjusted cash balance as of December 31?

A. P343,000 C. P347,000
B. P340,200 D. P344,200
Page 88
1. Outstanding checks, December 31

(P49,400 – P1,400 – P8,000) P40,000
Answer: D
Balance December Balance

Nov. 30 Receipts Disbursements Dec. 31
Per bank statement P194,000 P1,487,000 P1,325,000 P356,000
Outstanding checks:
Nov. 30 (23,000) (23,000)
Dec. 31 40,000 (40,000)
Deposit in transit:
Nov. 30 11,000 (11,000)
Dec. 31 24,000 24,000
Interest on note discounted

(P90,000 x 6% 60/360) 900 900
NSF checks (4,000) (4,000)
Bank service charge (300) 300
Cancellation of check no. 1434 1,400 (1,400)
Error in recording check no. 1562

(P7,500 – P750) 6,750 (6,750)
Cancellation of check no. 1584 8,000 (8,000)
Counter check drawn by president (2,000) 2,000
Check of Chelsea charge in error (3,000) 3,000
Post dated check presented

for payment 100,000 100,000
Per book balances P182,000 P1,496,900 P1,248,850 P430,050
2. Book receipts in December P1,496,900
Answer: A
3. Book disbursements in December P1,248,850
Answer: D
4. Book balance on December 31 P430,050
Answer: C
5. Book Bank
Interest on note discounted (900)

Cancellation of check no. 1434 1,400
Error in recording check no. 1562 6,750
Cancellation of check no. 1584 8,000
Counter check (2,000)
Check of Chelsea charged in error 3,000
Postdated check presented for payment(100,000)
Adjusted balance P343,000 P343,000
Answer: A
Problem 1-39
Proof of Cash: Book to Bank Balances Format
The following information was obtained in connection with the

audit of PINKY COMPANY’s cash account as of December 31, 2010.
Outstanding checks, 11/30/10 P16,250
Outstanding checks, 12/31/10 12,500
Deposit in transit, 11/30/10 12,500
Cash balance per general ledger 12/31/10 37,500
Actual company collections from its customers

during December 152,500
Company checks paid by bank in December 130,000
Bank service charges recorded on company

books in December 2,500
Bank service charges per December bank statement 3,250
Deposits credited by bank during December 145,000

Page 90
November bank service charges recorded on

company books in December 1,500
The cash receipts book of December is underfooted by P2,500.

The bank erroneously charged the company’s account for a P3,750
check of another depositor. This bank error was corrected in
January 2011.
1. How much is the deposit in transit on December 31, 2010?

A. P5,000 C. P22,500
B. P20,000 D. P17,500
2. The total unrecorded bank service charges as of December 31,

2010 is
A. P750 C. P1,750
B. P2,250 D. P4,250
3. What is the total book receipts in December?

A. P150,000 C. P155,000
B. P152,500 D. P147,500
4. What is the total amount of company checks issued in

December?
A. P130,000 C. P133,750
B. P123,000 D. P126,250
5. What is the total book disbursements in December?

A. P123,750 C. P133,750
B. P128,500 D. P126,750
6. What is the book balance on November 30, 2010?

A. P16,250 C. P37,500
B. P21,250 D. P35,000
7. What is the bank balance on November 30, 2010?

A. P23,000 C. P43,500
B. P18,500 D. P16,250
Page 91
8. What is the total bank receipts in December?

A. P120,000 C. P145,000
B. P140,000 D. P150,000
9. What is the total bank disbursements in December?
A. P154,500 C. P129,500
B. P132,500 D. P137,000
10. What is the bank balance on December 31, 2010?

A. P21,500 C. P31,000
B. P26,500 D. P33,250
Solution 1-39
1. Deposit in transit, November 30 P12,500
Add: Company collections in December 152,500
Total 165,000
Less: Deposits credited by bank in December 145,000
Deposits in transit, December 31 P 20,000
Answer: B
2. Bank service charges per December bank statement P3,250
Less: December bank service charges recorded

on company books in December (P2,500 – P1,500) 1,000
Unrecorded December bank service charges P2,250
Answer: B
3. Actual company collections in December P152,500
Less: Underfooting of December cash

receipts book 2,500
Book receipts in December P150,000
Answer: A Page 92
4. Outstanding checks, December 31 P12,500
Add: Checks paid by bank in December 130,000
Total 142,500
Less: Outstanding checks, November 30 16,250
Checks issued in December P126,250
Answer: D
5. Checks issued in December (see no. 4) P126,250
Add: Bank service charges recorded in December 2,500
Book disbursements in December P128,750
Answer: D
6. Book balance, December 31 P 37,500
Add: Book disbursements in December (see no. 5) 128,750
Total 166,250
Less: Book receipts in December (see no. 3) 150,000
Book balance, November 30 P 16,250
Answer: A
Pinky Co.
PROOF OF CASH
For the Month of December 2010

Book balances P16,250 P150,000 P128,750 P37,500
Outstanding checks:
Nov. 30 16,250 16,250
Dec. 31 (12,500) 12,500
Nov. 30 (12,500) 12,500
Dec. 31 (20,000) (20,000)

Bank service charges:
Nov. 30 (1,500) (1,500)
Page 93
Dec. 31 2,250 (2,250)
Underfooting of December
book receipts 2,500 2,500

in December 3,750 (3,750
7. Bank balance, November 30, 2010 P18,500
Answer: B
8. Total bank receipts in December P145,000
Answer: C
9. Total bank disbursements in December P137,000
Answer: D
10. Bank balance, December 31 P26,500
Answer: B
Problem 1-40
In your audit of HARRY INC.’s cash account as of December 31,

2010, you ascertain the following information:
The bookkeeper’s bank reconciliation on November 30, 2010, is as

follows:
Balance per bank statement, November 30 P24,298
Add: Deposits in transit 3,648

Total P27,946
No. 3408 P440
No. 3413 300
Page 94
No. 3414 6,820
No. 3416 3,924
No. 3417 800 P12,284
Balance P15,662
Add: Bank service charge for November 36*
Balance per general ledger, November 30 P15,698
*Entered in Check Register in December
The Cash Receipts Journal shows total receipts for December of

P371,766. The Check Register reflects total checks issued in
December of P377,632. A collection of P5,912 was recorded on
company books on December 31 but was not deposited until January
2, 2011.
Your examination reveals the following additional information:
1.) Check no. 3413 dated November 24, 2010, was entered in the
Check Register as P300. Your examination of the paid checks
returned with the December bank statement reveals that the
amount of this check is P30.
2.) Check no. 3417 was mutilated and returned by the payee. A
replacement check (no. 3453) was issued. Both checks were
entered in the Check Register but no entry was made to
cancel check no. 3417.
3.) The December bank statement includes an erroneous charge of

P480.
4.) On January 3, 2011, the bank informed your client that a
December bank service charge of P42 was omitted from the
statement.
5.) Your examination of the bank credit memo accompanying the

December bank statement discloses that it represents
proceeds from the note receivable collection in December for
P4,000.
Page 95
6.) The outstanding checks at December 31, 2010, are as follows:
No. 3408 P440 No. 3418 P2,814
No. 3417 800 No. 3419 5,788
1. What is the total book disbursements for the month of

December?
A. P377,668 C. P377,632
B. P377,710 D. P377,596
2. What is the book balance at December 31?

A. P9,832 C. P9,754
B. P9,868 D. P9,796
3. The outstanding checks at December 31 totaled

A. P8,602 C. P9,042
B. P9,072 D. P9,842
4. What is the adjusted bank balance on November 30?

A. P16,690 C. P16,804
B. P16,732 D. P16,774
5. The adjusted book receipts for the month of December should

be
A. P375,724 C. P371,238
B. P371,766 D. P375,766
6. The adjusted book disbursements for the month of December

should
A. P377,590 C. P377,674
B. P377,662 D. P377,632
7. What is the adjusted book balance on December 31?
A. P14,824 C. P14,908
B. P14,866 D. P14,782
8. A proof of cash used by an auditor

A. Provides that the client’s year-end balance of cash is
fairly stated.
B. Confirms that the client has properly separated the
custody function from the recording unction with respect
to cash. Page 96
C. Validates that the client’s bank did not make an error
during the period being examined.
D. Determines whether any unauthorized disbursements or
unrecorded deposits were made for the given time period.
Solution 1-10
1. Company checks issued in December P377,632

Add: November bank service charge 36
Total book disbursements in December P377,668
Answer: A
2. Book balance, November 30 P 15,698

Add: December book receipts 371,766
Total 387,464
Less: December book disbursements 377,668
Book balance, December 31 P 9,796
Answer: D
3. Outstanding checks, December 31:

Check no. 3408 P 440
3418 2,814
3419 5,788
Total P9,042
Answer: C
Book balances P15,698 P371,766 P377,668 P 9,796
November 30 (36) (36)
December 31 42 (42)
Overstatement of Nov.
disbursement
(check #3413) 270 270
Page 97
Mutilated check (#3417) 800 800
Note collected by
bank 4,000 4,000
Adj book balances P16,732 P375,766 P377,674 P14,824

November 30 3,648 (3,648)
December 31 5,912 5,912
Erroneous bank charge (480) 480
Bank service charge 42 (42)
Outstanding checks:
November 30 (11,214) (11,214)
December 31 9,042 (9,042)

4. Adjusted bank balance, November 30 P16,732
Answer: B
5. Adjusted book receipts in December P375,766
Answer: D
6. Adjusted book disbursements in December P377,674
Answer: C
7. Adjusted book balance, December 31 P14,824
Answer: A
8. A proof of cash usually consists of four columns, with

reconciliation of beginning and end-of-period cash balances
and reconciliations of cash receipts and disbursements during
the period. The amounts appearing in the ledger and on bank
statement should reconcile both horizontally and vertically.
This reconciliation therefore detects unauthorized Page 98
disbursements and unrecorded deposits for the period. This is
useful when internal control over cash transactions is weak
or inadequate.
Answer: D
Problem 1-41
The following data are assembled by the accountant of the HAROLD

COMPANY:
Nov. 30, 2010 Dec. 31, 2010
Cash account balance P 41,175.00 P100,712.50
Bank statement balance 267,705.00 344,542.50
Deposits in transit 20,502.50 32,200.00
Outstanding checks 69,295.00 75,280.00
Bank service charges 1,800.00 1,500.00
NSF check * 20,625.00

Company’s notes receivable
collected by bank 179,537.50 202,250.00
*Redeposited in the same month. No entries made to take up the

return and redeposit.
The bank statement and the company’s cash records show the
following totals:
Canceled checks and debit memos

per bank statement P545,932.50
Cash receipts per cash book 411,592.50
Checks written per cash book 529,792.50
Deposits and credit memos per bank statement 622,770.00

A. P613,842.50 C. P411,592.50
B. P591,130.00 D. P580,330.00
Page 99
A. P531,592.50 C. P533,092.50
B. P529,792.50 D. P531,292.50
3. What is the adjusted book balance on November 30?

A. P220,712.50 C. P218,912.50
B. P222,512.50 D. P217,412.50
4. The adjusted bank receipts in December should be

A. P634,168.50 C. P632,667.50
B. P622,770.00 D. P634,467.50
5. The adjusted book balance on December 31 shoueld be

A. P545,932.50 C. P548,917.50
B. P552,517.50 D. P551,917.50
6. What is the adjusted book balance on December 31?

A. P301,462.50 C. P322,087.50
B. P302,662.50 D. P280,537.50
Solution 1-41
1. Cash receipts per cash book P411,592.50

Add: Notes collected by bank in November 179,537.50
Total book receipts in December P591,130.00
Answer: B
2. Checks written per cash book P529,792.50
Add: Bank service charge in November 1,800.00
Total book disbursements in December P531,592.50
Answer: A
Page 100
Balance per
Bank
statement P267,705.00 P622,770.00 P545,932.50 P344,542.50
Deposits in transit
Nov. 30 20,502.50 (20,502.50)
Dec. 31 32,200.00
Outstanding checks
Nov. 30 (69,295.00) (69,295.00)
Dec. 31 _________ ________ _75,280.00 _(75,280.00)
Correct bank
balance P218,912.50 P634,467.50 P551,917.50 P301,462.50

Balance per
Books P41,175.00 P591,130.00 P531,592.50 P100,712.50
November (1,800.00) (1,800.00)
December 1,500.00 (1,500.00)
NSF check 20,625.00 20,625.00
Collections of notes
receivable:
November 179,537.50 (179,537.50)
December _________ 202,250.00 __________ 202,250.00
Correct book
balance P218,912.50 P634,467.50 P551,917.50 P301,462.50
Adjust book balance, November 30 P218,912.50

Answer: C
4. Adjust bank receipts in December P634,467.50
Answer: D
5. Adjusted book disbursements in December P551,917.50
Answer: D
6. Adjusted book balance, December 31 P301,462.50
Answer: A
Page 101
Problem 1-42
Proof of Cash: Book to Bank Balances Format
The auditor of TSIKOY COMPANY gathered the following

information:
1. The November 30 bank statement balance included bank service

charges of P2,000
2. The November 30 cash balance in the general ledger was
P244,500.
3. Outstanding checks on November 30 were P63,000 while
undeposited receipts were P36,000.
4. The bank service charges as shown on the bank statement
totalled P3,000.
5. The December 31 cash balance in the general ledger was
P319,750, which recognized P482,750 for December receipts and
P405,500 for checks written during December. In transit to the
bank were receipts of P28,750. Checks of P15,000 written prior
to December and checks of P60,500 written in December had not
yet cleared the bank.
1. What is the total book disbursements for December?

A. P403,500 C. P407,500
B. P404,500 D. P405,500
2. What is the November 30 bank balance?
A. P271,500 C. P268,500
B. P269,500 D. P266,500
A. P490,000 C. P497,250
B. P482,750 D. P488,000
Page 102
4. What is the total bank disbursements in December?
A. P419,000 C. P408,500
B. P405,500 D. P396,000
5. What is the bank balance on December 31?
A. P316,750 C. P322,750
B. P363,500 D. P366,500
Solution 1-42
1. Checks written during December P405,500

Add: November bank service charges recorded
On company books in December ___2,000
Total book disbursements in December P407,500
Answer: C

Balance per
books P244,500 P482,750 P407,500 P319,750
Undeposited receipts:
Nov. 30 (36,000) 36,000
Dec. 31 (28,750) (28,750)
Outstanding checks:
Nov. 30 63,000 63,000
Dec. 31 (75,500) 75,500
Nov. 30 (2,000) (2,000)
Dec. 31 ________ ________ ___3,000 __(3,000)
Balance per
Bank P269,500 P490,000 P396,000 P363,500_
2. Bank balance, November 30 P269,500

Answer: B
3. Total bank receipt in December P490,000
Answer: A
Page 103
4. Total bank disbursements in December P396,000
Answer: D
5. Bank balance, December 31 P363,500
Answer: B
Problem 1-43
RODELIO CO. Has a current account in Pinoy Bank. Your audit of the
company’s cash account reveals the following:
1. Balances taken from the company’s general ledger:

Cash balance, Nov. 30, 2010 P637,860
Cash balance, Dec. 31, 2010 576,420
Receipts, Dec. 1-31, 2010 306,220
2. Balances taken from the December bank statement:

Cash balance, Nov. 30, 2010 P685,150
Cash balance, Dec. 31, 2010 637,220
Disbursements (debits) 356,080
3. Outstanding checks, Nov. 30, 2010 (P26,140 was

Paid by bank in December) 64,140
4. Checks written and recorded in December; not

included in the checks returned with the
December bank statement 36,080
5. Deposit in transit, Nov. 30, 2010 15,260
6. Deposit in transit, Dec. 31, 2010 16,140
7. A bank credit memo was issued in December to

Correct an erroneous charge made in November 1,500
Page 104
8. Note collected by bank in December (company was
not informed of the collection) 2,060
9. A check for P2,020 (payable to a supplier) was

recorded in the check register in December
as P3,000 980
10. A check for P2,240 was charged by the bank

As P2,420 in December 180
11. Rodelio Co. issued a stop payment order to the

bank in December. This pertains to a check
written in December which was not received
by the payee. A new check was written and recorded
in the Check Register in December. The old check
was written off by a journal entry also in December 780
12. Bank service charge, Nov. 30, 2010 60

A. P367,660 C. P369,720
B. P244,780 D. P368,540

A. P260,160 C. P306,060
B. P308,120 D. P309,020
3. What is the total outstanding checks in December 31?

A. P100,220 C. P62,220
B. P38,000 D. P72,080
4. What is the adjusted bank balance on November 30?

A. P636,300 C. P637,800
B. P685,180 D. P634,800
Page 105
5. What is the adjusted book receipts in December?
A. P307,500 C. P303,380
B. P306,220 D. P305,440
6. What is the adjusted bank disbursements in December?

A. P353,980 C. P345,960
B. P365,840 D. P366,020
7. What is the adjusted book balance in December 31?

A. P577,500 C. P576,420
B. P577,400 D. P579,460
Solution 1-43
1. Book balance, November 30 P637,860

Add: Book receipts in December 306,220
Total 944,080
Less: Book disbursements in December
(SQUEEZE) 367,660
Book balance, December 31 P576,420
Answer: A
2. Bank balance, November 30 P685,180

Add: Bank receipts in December (SQUEEZE) 308,120
Total 993,300
Less: Bank disbursements in December 356,080
Bank balance, December 31 P637,220
Answer: B
3. Checks issued prior to December P38,000

(P64,140-P26,140)
Checks issued in December 36,080
Total outstanding checks, December 31 P74,080
Answer: D
Page 106
Balance per
Books P637,860 P306,220 P367,660 P576,420
Note collected
By bank in
December 2,060 2,060
Overstatement of
December book
disbursement
(P3,000-P2,020) (980) 980
Check stopped for
Payment (780) (780)
Bank service
charge in
November ____(60) ________ ____(60) ________
Adj. book
balances P637,800 P307,500 P365,840 P579,460


Outstanding
checks:
November 30 (64,140) (64,140)
December 31 74,080 (74,080)
November 30 15,260 (15,260)
December 31 16,140 16,140
in November 1,500 (1,500)
Overstatment of
bank disbursement
in December _______ ________ _________(180) ____180
Adj. bank
Balances P637,800 P307,500 P365,840 P579,460
4. Adjusted bank balance, November 30 P637,800

Answer: C

Answer: A
Page 107
6. Adjusted bank disbursements in December P365,840
Answer: B
7. Adjusted book balance, December 31 P579,460

Answer: D
Problem 1-44
Data for the ANNABELLE, INC. are shown below:

Nov. 30 Dec. 31
Cash account balance P20,340 P48,540
Bank statement balance 107,060 137,820
Deposit in transit 8,200 12,880
Outstanding checks 27,700 30,100
Bank service charges for the month,
not shown on company books 720 600
NSF checks returned by bank, not
shown on company books 4,300 8,240
Bank collections from company
customers, not shown on company books 72,240 80,900
1. Deposits and credit memos per bank statement P249,100

2. Canceled checks and debit memos per bank statement 218,430
3. Cash receipts per cash book 172,880
4. Checks written per cash book 211,900

A. P172,880 C. P253,780
B. P245,120 D. P181,540
Page 108
A. P211,900 C. P211,180
B. P216,200 D. P216,920
3. What is the adjusted cash balance on Novemer 30?

A. P89,000 C. P71,160
B. P87,560 D. P96,160
4. What is the adjusted cash balance on December 31?

A. P120,600 C. P137,080
B. P94,840 D. P155,040
5. What is the adjusted book receipts in December?

A. P253,780 C. P244,420
B. P236,460 D. P270,180
6. What is the adjusted bank disbursements in December?

A. P215,940 C. P248,440
B. P220,740 D. P204,260
Solution 1-44
1. Cash receipts per cash book P172,880

Add: November bank collections 72,240
Total book eceipts(debits)in December P245,120
Answer: B
2. Checks written per cash book P211,900

Add: Bank service charges in November P 720
NSF checks returned in November 4,300 5,020
Total book disbursements(credits) in December P216,920
Answer: D
Page 109
Unadj. bank
balances P20,340 P245,120 P216,920 P48,540
Bank service
charges:
November 30 (720) (720)
December 31 600 600
NSF checks:
November 30 (4,300) (4,300)
December 31 8,240 (8,240)
Bank collections:
November 30 72,240 (72,240)
December 31 _______ __80,900 _____________ __80,900
Adj. bank
Balances P87,560 P253,780 P220,740 P120,600

Unadj. bank
balances P102,060 P249,100 P218,340 P137,820
Deposits in
Transit:
November 30 8,200 (8,200)
December 31 12,880 12,880
Outstanding checks:
November 30 (27,700) (27,700)
December 31 _______ ________ _______30,100 (30,100)
Adj. bank
Balances P87,560 P253,780 P220,740 P120,600
3. Adjusted cash balance, November 30 P87,560

Answer: B
4. Adjusted cash balance, December 31 P120,600

Answer: A

Answer: A
6. Adjusted bank disbursements in December P220,740

Answer: B
Page 110
Problem 1-45
Cash Shortage Computation
The bookkeeper-cashier of the TANYING COMPANY absconded on the

evening of April 16,2011, apparently with a large portion of the
company’s cash. He had taken with him certain accounting records,
including the cash journals and the general ledger. You are called
upon to ascertain, if possible, the shortage with thick the
missing employee may be charged.
You obtained the following information from the available

subsidiary journals, ledgers, and other data.
Balances at close of business, April 6, 2011:
Accounts receivable P442,550

Cash in bank, less checks outstanding 98,830
Transactions, January 1-April 16,2011:
Sales, per receivable clerk P5,876,170

Cash sales none
Sales allowable in customers’ accounts 18,330
Cash purchase of furniture, per dealer’s invoice 3,000
Total merchandise purchases 3,615,260
Expenses paid, supported by paid
invoices and payrolls 1,865,830
Cash dividend declared, P50,000 (of which,
P10,000 remains unpaid) 40,000
Page 111
A check for P100,000 had been cashed by the bookkeeper shortly
before his departure. Although the signature on the check had been
obviously forged, it was paid by the bank and returned with other
cancelled checks.
A statement of financial position prepared from the books and

other files follows:
Tanying Company
Statement of Financial Position
December 31, 2010
ASSETS
Cash P 32,670
Inventory (at cost) 440,350
Furniture P74,560
Less: Accumulated depreciation 31,800 42,760
Total Assets P742,010
LIABILITIES AND SHAREHOLDER’S EQUITY
Accounts payable P114,720

Capital stock 500,000
Retained earnings 127,290
Total Liabilities and shareholder’s equity P742,010
1. What is the total amount paid for merchandise purchases?

A. P3,615,260 C. P3,522,680
B. P3,293,240 D. P3,707,840
2. What is the total amount of collections from sales?

A. P5,641,520 C. P6,074,160
B. P5,659,850 D. P6,092,490
3. What is the total amount of cash disbursements from January 1-
April 1, 2011?
A. P5,524,090 C. P5,431,510
B. P5,202,070 D. P6,092,490
Page 112
4. What is the cashier’s accountability (correct cash balance
before shortage) on April 15, 2011?
A. P242,680 C. P143,850
B. P98,830 D. P43,850
5. What is the amount of cash shortage chargeable against the

cashier?
A. P100,000 C. P143,850
B. P43,850 D. P242,680
Solution 1-45
1. Accounts payable, Dec. 31, 2010 P114,720

Purchases 3,615,260
Total 3,729,980
Accounts payable, April 16, 2011 (207,300)
Payments for merchandise purchases P3,522,680
Answer: C
2. Accounts receivable, Dec. 31, 2010 P 226,230

Net sales(P5,876,170-P18,330) 5,857,840
Total 6,084,070
Accounts receivable, April 16,2011 442,550
Collections from sales P5,641,520
Answer: A
3. Payments for purchases P3,522,680

Furniture 3,000
Expenses 1,865,830
Dividends 40,000
Total cash disbursements P5,431,510
4. Cash balance, Dec. 31, 2010 P 32,670

Collections 5,641,520
Page 113
Disbursements (5,431,510)
Cash balance, April 16,2011(accountability) P 242,680
Answer: A
5. Cash accountability P 242,680

Cash accounted (98,830)
Total shortage 143,850
Shortage chargeable against bank (100,000)
Shortage chargeable against the cashier P 43,850
Answer: B
Problem 1-46
Computation of Cash Shortage
The JUNNEL COMPANY had weak internal controls over its cash
transactions. Facts about its cash position at November 30,2010
Were as follows:
The cash books showed a balnce of P94,508 which included

undeposited receipts. A credit of P500 on the bank’s records did
not appear on the books of the company. The balance per bank
statement was P77,750. Outstanding checks were no. 8420 for P581,
no. 8422 for P750, no. 8430 for P1,266, no. 8621 for P954, no.
8623 for P1,034 and no. 8632 for P726.
The cashier stole all undeposited receipts in excess for P18,972

and prepared the following reconciliation:
Balance per books, Nov.30,2010 P94,508

Add: Outstanding checks
8621 P 954
8623 1,034
8632 726 2,214
Page 114
96,722
Less: Undeposited receipts 18,972
Balance per bank, Nov. 30 77,750
Less: Unrecorded credit 500
True cash, Nov. 30,2010 P77,250
1. What is the correct amount of cash that should be hand for

deposit on November 30,2010?
A. P23,069 C. P22,569
B. P18,972 D. P22,069
2. How much was stoln by the cashier?

A. P3,597 C. P4,097
B. P3,097 D. P0
3. The cashier attempted to conceal his theft by

I. Not listing all outstanding checks
II. Underfooting outstanding checks shown on the
reconciliation.
III. Adding an item to the bank balance that should be
deducted from the book balance
A. I and II only C. I and III only
B. II and III only D. I, II and III
4. Taking only the information given, which of the following

internal control deficiencies allowed the cashier to steal cash
and conceal his theft?
A. The cashier is also responsible for preparing the
reconciliation
B. No one othe rhtan the cashier is responsible for preparing
the reconciliation to the deposits in the bank.
C. Both A and B.
D. Neither A and B
5. What is the adjusted cash balance as og November 30,2010?

A. P95,008 C. P94,008
B. P91,411 D. P87,814
Page 115
Solution 1-46
1. Cash balance per books, Nov. 30 P94,508

Add: Bank Credit 500
Adjusted cash balance (on hand and in bank) 95,008
Less: Adjusted bank balance:
Bank balance, Nov. 30 P77,750
No.8420 P 581
8422 750
8430 1,266
8621 954
8623 1,034
8632 726 5,311 72,439
Cash that should be on hand for deposit P22,569
Answer: C
2. Cash that should be on hand for deposit

(see no. 1) P22,569
Cash reported 18,972
Amount of theft P3,597
Answer: A
3. The cashier attempted to conceal his theft by:

1. Not listing all outstanding checks.
2. Underfooting outstanding checks shown on the
reconciliation.
3. Subtracting an item from the bank balance that should be
added to book balance.
Answer: A
4. The following internal control deficiencies are noticeable:

1. The cashier is also responsible for preparing the cash
reconciliation.
Page 116
2. No one other than the cashier is responsible for tracing
cash receipts to the deposits in the bank.
Answer: C
5. Book Bank
Unrecorded credit 500
Undeposited receipts _______ 18,972
Corrected balances 95,008 91,411
Cash shortage(amount of theft) (3,597) ______
Adjusted cash balances P91,411_ P91,411
Answer: B
Problem 1-47
Presented below is the cash receipts book of APPL, INC.:
CASH RECEIPTS BOOK

June 1-20,2010
Accounts Cash Sales Net

Date Receivable Sales Discount Cash
June 1 Cash Sales P 800 P 800
10 BA P 3,200 P 64 P3,136
15 BO 6,000 120 5,880
20 BE 4,800 96 4,664
20 Cash Sales P2,400 2,400
25 BU 10,800 216 10,504
26 BO 4,000 4,000
26 BE 12,000 240 11,680
30 BO 3,600 3,600
30 BA 800 _____ _______ 800
P45,200 P3,200 P936 P47,464
Page 117
The following are the company’s accounts receivable subsidiary
ledgers. All the debits represent sales. The credit terms are 2%-
10days, net 30 days.
BA BO
June 3 3,200 June 10 3,200 June 2 6,000 June 15 6,000
4 4,800 30 800 9 4,000 26 4,000
15 3,600 30 3,600
BU BE
June 2 6,000 June 25 10,800 June 15 4,800 June 20 4,800
10 4,800 16 12,000 26 12,000
1. What is the correct amount of cash receipts in June?

A. P47,800 C. P48,000
B. P47,600 D. P47,664
2. What is the cash shortage on June 30?

A. P336 C. P200
B. P 0 D. P536
Solution 1-47
1. Cash receipts per book P47,464

Understatemet of cash receipts by:
Recording sales discounts for collections
made beyond the discount period:
June 15 P120
June 25 216 336
Overfooting the sales discounts column
(P936-P736) 200
Cash receipts as corrected P48,000
Page 118
*To balance, the following extensions to the “Cash” column are
understated:
Correct Amount
Amount Extended Understatement
June 20(P4,800-P96) P4,704 P4,664 P 40
June 25(P10,800-P216) 10,584 10,504 80
June 26(P12,000-P240) 11,760 11,680 80
Total P200
Answer: C
2. Cash receipts as corrected P48,000

Cash receipts per book 47,464
Cash shortage,June 30 P 536
Answer: D
Problem 1-48
You star5ted the audit of the financial statements of ARCHIE, INC.

on January 15,2011 for the year ended December 31,2010. The
general ledger shows cash account balance of P247,200 as at
December 31,2010.
The following items are included in the December 31,2010,

reconciliation prepared by the cashier:
Cash per records, December 31,2010 P247,200

Cash per bank statement, Dec. 31,2010 264,095
Check of Tsikoy Co., charged bank in
error on Dec. 28,2010; corrected by
bank on January 2,2011 750
Page 119
From January 2,2011, to January 15,2011, the date of your cash
count, total cash receipts appearing in the cash records amounted
to P53,500. During the same period, the bank had credited total
deposits of P47,965. The following cash and cash items were on
hand at the close of business on January 15,2011:
Currency P1,425
Customer’s check 1,950
Expense vouchers 375
Your further investigation revealed the following:
a. Cash received on account from customers:

DATE AMOUNT ENTRY MADE
07/05/10 P4,000 Allowance for bad debts 4,000
12/10/10 P3,000 Inventory 3,000
12/15/10 P3,500 Not recorded
b. Unrecorded but deposited checks received from customer from

January 2,2011 to January 15,2011 totaled P2,000
c. The cashier presented receipts for collections from customers

on January 10,2011 totalling P4,500; these were unrecorded and
undeposited.
1. What adjusting entries would you provide for items (a) through
(c)?
2. What is the total cash shortage as of December 31, 2010?

A. P21,180 C. P14,680
B. P16,180 D. P4,180
3. What is the total cash shortage as of January 15, 2011?

A. P26,465 C. P27,965
B. P18,430 D. P24,930
Page 120
Solution 1-48
1. ADJUSTING JOURNAL ENTRIES:
a. 1. Cash 4,000
Allowance for bad debts 4,000
2. Cash 3,000
Inventory 3,000
3. Cash 3,500
b. 4. Cash 2,000
c. 5. Cash 4,500
2. Book Bank
Bank error 750
AJE 1 4,000
2 3,000
3 3,500 _____
Corrected balances P257,700 P243,020
SHORTAGE as of Dec. 31, 2010 (14,680) _____
Adjusted balances P243,020_ P243,020
3. Deposit in transit, Dec. 30, 2010 P 3,500

Add: Company collections, Jan.2-15,2011
Page 121
Per records P53,500
AJE 4 P2,000
5 4,500 6,500 60,000
Total 63,500
Less: Deposits credited by bank,
Jan.2-15,2011 47,965
Deposit in transit, Jan.15,2011 15,535
Cash and cash items per count on
Jan.15,2011 (3,750)
Cash shortage, Jan.2-15,2011 P11,785
Add: Cash shortage as of Dec. 31,2010 14,680
Total shortage as of January 15,2011 P26,465
Answer: A
Problem 1-49
The LEINOR COMPANY does not have adequate controls over its
cash transactions. During an adult, you found the following date
connecting its cash position at December 31,2010.
1. On the company’s records the cash balance is P173,500

2. A credit of P2,500 for a note collected by the bank does
not appear on the company’s records.
3. The bank statement balance is P135,000
4. Outstanding checks are as follows:
Number Amount
1428 P5,200
1431 3,600
1445 4,080
1446 3,460
The cashier made the following reconciliation:

Deduct: Outstanding checks:
Page 122
No. 1431 P3,600
1445 4,080
1446 3,460 10,140
P124,500
Add: Undeposited collections
(per count) P46,140
Collected note 2,500 48,640
Cash per books, December 31,2010 P173,500
1. What is the total shortage?

A. P11,200 C. P5,000
B. P8,700 D. P6,000
2. How did the cashier attempt to conceal the shortage?
Solution 1-49
1. Book Bank
Note collected by the bank 2,500
Undeposited collections ________ 46,140
SHORTAGE (11,200) ________
Adjusted Balances P164,800 P164,800
Answer: A
2. Concealment of shortage:
Omission of outstanding check no. 1428 P5,200

Underfooting of outstanding checks in
Reconciliation(P11,140-P10,140) 1,000
Adding(instead of deducting) the unrecorded
Note collected by the bank 5,000
Total shortage P11,200
Page 123
Problem 1-50
The following table summarizes the cash receipts and

disbursements of LOI COMPANY for the last six months of 2010:
Month Receipts Disbursements

July P102,000 P 60,000
August 70,000 110,000
September 120,000 68,000
October 172,000 92,000
November 260,000 122,000
December 280,000 180,000
P964,000 P668,000
1. Bank balance, July 1, 2010 P200,000
2. Bank balance, December 31,2010 524,000
3. Outstanding checks, December 31,2010 42,000
(No checks were outstanding on July 1)
4. Undeposited receipts, December 31,2010
(Included in the December receipts) 24,000
5. Bank deposits, July 1 through December 31 914,000
1. What is the total shortage?

A. P 0 C. P30,000
B. P76,000 D. P66,000
Solution 1-50
Book balance, July 1 (see note 1) P 200,000

Add: Total book receipts as corrected (see note 2) 1,004,000
Page 124
Total 1,204,000
Less: Total book disbursements as corrected 632,000
Corrected book balance, December 31 P 572,000
Bank balance, December 31 P 524,000

Add: Undeposited receipts 24,000
Total 548,000
Less: Outstanding checks 42,000
Adjusted bank balance 506,000
Corrected book (accountability) (572,000)
Cash shortage P (66,000)
Answer: D
NOTES:
1. Because there were no book and bank reconciling items on July

1, the bank balance on that date was also the cash balance per
books.
2. The receipts column of the table of cash receipts and

disbursements is underfooted by P40,000 (P1,004,000 correct total-
P964,000) while the disbursements column is overfooted by P36,000
(P668,000-P632,000 correct total)
Problem 1-51
In connection with the audit of the financial statements of JEM
COMPANY for the year ended October 31,2010, you conducted a
surprise count of undeposited receipts on October 31,2010. It was
witnessed by the company’s cashier whose accountability on
October31 was determined to be P80,000. You count revealed the
following:
Currency and coins P48,840

Unused postage stamps 440
Page 125
Checks:
Date Payee Maker
1-22 Cash Cashier 4,000
10-19 Jem Company DWU, Inc. 9,400
10-28 Jem Company PSU Co. 7,840
10-31 CCP Co. Jem Company 3,600
Office supplies paid out of receipts 6,400
Total per count P80,520
1. What is the cash shortage on October 31,2010?

A. P7,080 C. P3,080
B. P3,480 D. P7,600
2. A cash shortage may be concealed by transporting funds from one

location to another or by converting negotiable assets to cash.
Because of this, which of the following is vital?
A. Simultaneous confirmations
B. Simultaneous bank reconciliations
C. Simultaneous verification
D. Simultaneous surprise cash count
Solution 1-51
1. Cashier’s accountability P80,000

Accounted for as follows:
Total per count P80,520
Less: Cashier’s stale check P4,000
Unreleased
Disbursement check 3,600 7,600 72,920
Cash shortage P7,080
Answer: A
2. Simultaneous verification
Answer: C
Page 126
Problem 1-52
Computation of Working Capital and Current Ratio
KAMP COMPANY’s unadjusted trial balance at December 31,2010,

included the following accounts:
Debit Credit
Cash P 69,200
Merchandise inventory 947,160
Accounts payable P789,715
Accrued expenses 13,214
Jam Co.’s year end December 31. At the end of 2010, it held is
cash book open so that its statement of financial position would
show a more favourable financial condition. You audit revealed the
following items:
1. The December cash book included January cash receipts of

P65,460, of which P36,010 represents cash sales and P29,450
represents collections from customers, net of 5% cash
discounts.
2. The December check register included payments if accounts

to suppliers of P37,240 on which discounts of P1,240 were
taken.
3. The merchandise inventory account balance was determined

by physical count on December 31, 2010.
1. What are Jam’s working capital and current ratio at December

31,2010, based on balances per company books?
Page 127
Working Current
Capital Ratio
A. P244,381 1.29
B. 278,831 0.33
C. 330,835 1.40
D. 280,381 1.33
Solution 1-52
ADJUSTING JOURNAL ENTRIES

December 31,2010
a. Accounts receivable (P29,450/95%) 31,000

Sales 36,000
Cash 65,460
Sales discounts(P31,000x5%) 1,550
b. Cash 36,000
Purchase discounts 1,240
COMPUTATION OF WORKING CAPITAL AND CURRENT RATIO
Per Books Per Audit

Current assets:
Cash(P69,200-P65,460+P36,000) P69,200 P 39,740
Accounts receivable
(P102,650+P31,000) 102,650 133,650
Merchandise inventory 947,160 947,160
Total P1,119,010 P1,120,550
Current liabilities:
Accounts payable
(P789,650+P37,240) P789,715 P826,955
Accrued expenses 13,214 13,214
Total P802,929 P840,169
Page 128
Working Capital (CA-CL) P316,081 P280,381

Current ratio (CA/CL) 1.39 1.33
1. Answer: B
2. Answer: D
Problem 1-53
FE COMPANY, organized March1,2010, has a very poor internal

control system. The company’s cashier is also its accountant.
After 9 months of operations, the company’s manager suspects that
the cashier accountant has been misappropriating company
collections. You have been engaged to audit the company’s accounts
to determine the extent of fraud, if any.
You started the audit on November 15. On that date the on hand per
your surprise count was P5,140. Also on that date, the bank
confirmed that the balance of the company’s current account was
P26,328. Your examination of the records reveals that a check for
P1,852 was outstanding on November 15. The company’s mark up is
40% of sales.
Further examination of the company’s records reveals the following

balances at November 15,2010:
Ordinary share capital P300,000

Share premium 20,000
Real property purchased for cash 200,000
Mortgage payable 80,000
Furniture and fixtures(of the
Acquisition cost,P6,000 remains
Unpaid as of Nov. 15) 29,000
Notes payable-bank 32,000
Accounts payable-trade 46,284
Expenses paid(excluding purchases) 60,756
Page 129
Merchandise inventory at cost 93,920

Accounts receivable-trade 85,380
Total sales 340,000
1. How much was paid for inventory purchases?

A. P157,716 C. P183,636
B. P293,716 D. P251,636
2. How much was collected from customers?

A. P118,620 C. P50,620
B. P254,620 D. P340,000
3. How much is the cashier’s accountability at November 15,2010?

A. P131,228 C. P145,228
B. P83,228 D. P151,228
4. What is the adjusted bank balance as of November 15,2010?

A. P31,468 C. P29,616
B. P26,328 D. P23,040
5. The cash shortage as of November 15,2010 totaled

A. P121,612 C. P127,612
B. P101,612 D. P206,992
Solution 1-53
1. Cost of sales(P340,000 total sales x 60%) P204,000
Add: Merchandise inventory, November 15 93,920
Purchases 297,920
Less: Accounts payable-trade, November15 46,284
Payments for purchases P251,636
Answer: D
Page 130
2. Sales P340,000
Less: Accounts receivable-trade, November 15 85,380
Collections from sales P254,620
Answer: B
3. Cashier’s Accountability
Receipts:
Issuance of ordinary shares
(P300,000+P20,000) P320,000
Mortgage payable 80,000
Note payable-bank 32,000
Collections from sales(see no.2) 254,620
Total 686,620
Disbursements:
Real property 200,000
Furniture and fixtures
(P29,000-P6,000) 23,000
Expenses 60,756
Purchases(see no.1) 251,636 535,392
Cash balance P151,228
Answer: D
4. Bank balance, Nov. 15 P26,328

Add: Undeposited collections 5,140
Total 31,468
Less: Outstanding check 1,852
Adjusted bank balance, Nov.15 P29,616
Answer: C
5. Cashier’s accountability(see no.3) P151,228

Cash accounted(see no.4) (29,616)
Cash shortage as of Nov. 15,2010 P121,612
Answer: A
Page 131
Problem 1-54

Your client, a successful small business, has given much attention
to a sound internal control. In its employ is Alex Coopit, the
company’s cashier-bookkeeper. Alex handles cash receipts, makes
small disbursements from the cash receipts, maintains accounting
records and prepares the monthly bank reconciliation.
The bank statement for the month ended March 31,2010, shows a cash
balance of P590,000. The following checks are outstanding on March
31:
No. 7163 P8,623

No. 7284 7,320
No. 7285 10,612
No. 8722 6,322
No. 8724 12,280
No. 8733 6,200
The bank company’s general ledger shows a cash balance of {696,499

on March 31,2010.
Realizing that being the cashier-accountant of the company he can

easily misappropriate collections and conceal it, Alex removed all
the cash on hand in excess of P127,301 and then prepared the
following reconciliation in an effort to conceal this theft.
BANK RECONCILIATION
Balance per accounting records P696,499
Add: Outstanding checks
No. 8722 P6,322
No. 8724 12,280
No. 8733 6,200 20,802
Total 717,301
Deduct: Cash on Hand 127,301
Balance per bank statement, March 31 P690,000
Page 132
1. How much was taken by the cashier-accountant?
A. P30,555 C. P4,000
B. P157,856 D. P26,555
2. What is the amount of cash that should be on hand at November

15,2010?
A. P127,301 C. P157,856
B. P131,301 D. P30,555
Solution 1-54
1. Book Bank
Outstanding checks
No. 7163 P8,623
No. 7284 7,320
No. 7285 10,612
No. 8722 6,322
No. 8724 12,280
No. 8733 6,200 (51,357)
Undeposited collections 127,301
CASH SHORTAGE (30,555)
Answer: A
Cash on hand P127,301

Add: Cash shortage (see no. 1) 30,555
Cash that should be on hand, Nov. 15 P157,856
Answer: C

Chapter 1 Audit of Cash and Cash Equivalents

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Chapter 1 Audit of Cash and Cash Equivalents

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Chapter 1

AUDIT PROGRAM FOR CASH

1. Cash balances at the end of the reporting period represent

 Conduct a cash count of undeposited collections, petty cash

 Coordinate cash count with count of marketable

 Confirm bank balance by direct correspondence with all

 Obtain or prepare bank reconciliation.

 Check arithmetical accuracy of reconciliation.

Cash and Cash Equivalents

In connection with your audit of the financial statements of

1. The company maintains its current account with the Tsunami

 Post dated checks totaling P67,300 were included in

Cash in bank – Tsunami Bank P 748,320

Cash in bank – Earthquake Bank (restricted account for

Petty cash fund 30,000

Money market placement – Prudential Bank 4,000,000

1. What is the adjusted Petty cash fund balance on December

2. The petty cash shortage on December 31, 2010 is

3. What is the adjusted Cash in bank – Tsunami Bank balance

5. The December 31, 2010 statement of financial position

1. Petty cash fund per trial balance P30,000

2. The petty cash shortage cannot be determined because of

Cash in bank – Tsunami Bank P432,710

Computation of Correct Cash Balance

The following are the cash balances of LEONOR, INC. at

Undeposited collections (in currency and coins)P40,200

Leonor, Inc. has agreed to maintain a P200,000 compensating

Undeposited collections P40,200

Current account – unrestricted 620,000

Unreleased/Undelivered checks 130,000

1. The P200,000 compensating balance should be reported as

2. The time deposits should be reported separately as short-

Cash and Cash Equivalents

The accountant of SANTIAGO COMPANY is in the process of

 Balances in the company’s accounts at the Metropolitan

What is the correct balance of cash and cash equivalents to

Savings and current accounts – Metropolitan Bank (P132,600 +

Undeposited customer checks (P22,000 – P3000) 19,200

Currency and coins on hand 3,480

Petty Cash 1,200

Two-month treasury bills 90,000

Time deposit 100,000*

*It is assumed that the term is three months or less and

The following items are not included in the computation above:

1. P3,000 postdated customer check.

 As stated in PAS 7, cash equivalents are short-term,

Identifying Cash Items

Which of the following items should be included in the cash

Cash and Cash equivalents on the Statement of Financial Position

Your audit of the December 31, 2010, financial statements of

Current account at Prime Bank P (30,000)

Current account at Prudent Bank 135,000

Treasury bills (acquired 3 months before maturity) 300,000

Treasury bills (maturity date is Dec. 31, 2011) 1,500,000

Payroll account 390,000

Employee’s postdated check 4,500

IOU from the vice-president 8,000

Credit memo from a supplier for a purchase return 8,100

Traveler’s check 21,000

Money order 12,900

Petty cash fund (3,000 in currency and expense receipts for

What amount would be reported as “cash and cash equivalents” on

Current account at Prudent Bank P135,000

Treasury bills (acquired 3months before maturity) 300,000