AUDITING PROBLEMS

AUDIT OF CASH AND CASH EQUIVALENTS

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 disclosures with respect to
amounts restricted as to withdrawal are made in the financial statements.

Audit Procedures:
1. Conduct a cash count of undeposited collections, petty cash, and other funds.
2. Confirm bank balance by direct correspondence with all banks in which the client has had
deposits and loans during the year.
3. Obtain bank reconciliation.
4. Obtain cutoff bank statement showing the client’s transactions with the bank at least one week
after the reporting date.
5. Obtain a list of interbank transfers of funds a few days before and after the reporting date.
6. Test reasonableness of cutoff.
7. Insect savings account passbook and certificates of deposits.
8. Determine any restrictions on availability of cash.
9. Determine propriety of financial statement presentation and adequacy of disclosures.

PROBLEM 1

In connection with your audit of the financial statements of ANDA COMPANY for the year ended
December 31, 2018, you gathered the following information:

1. The company maintains its current account with Wave Bank. The bank statement on December
31, 2018 showed a balance of P638,340.
Your audit of the company’s account with Wave 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, 2018. No entry was made for
the return of this check. The customer replaced the check on January 15, 2019.
 A check for P5,720 was cleared by the bank as P7,520. The bank made the correction on
January 2, 2019.
 A check for P3,500 representing payment of an employee advance was received and
deposited on December 27, 2018 but was not recorded until January 3, 2019.
 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
deposited on January 5, 2019.
 Various debit memos for drafts purchased for payment if importation of equipment
totaling P230,000 were not yet recorded. These purchases were previously set up as
accounts payable. Said equipment arrived in December 2018.
 Interest earned in the bank balance for the 4th quarter of 2018, 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, 2018 totaled P136,250 and
P276,380, respectively.
2. Various expenses from the company’s imprest petty cash fund dated December 2018 totaled
P16,250, while those dated January 2019 amounted to P5,903. Another disbursement from the
fund dated December 2018 was a cash advance to an employee amounting to P3,500. A
replenishment of the petty cash fund was made on January 8, 2019.
3. The company’s trial balance on December 31, 2018 includes the following accounts:
Cash in Bank – Wave Bank 748,320
Cash in Bank – Earth Bank
(restricted for plant expansion,
Expected to be disbursed in 2019) 700,000
Petty Cash Fund 30,000
Time Deposit, placed 12/20/18
And due 03/20/19 1,000,000
Money Market Placement
– Prude Bank 4,000,000

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 AUDITING PROBLEMS
AUDIT OF CASH AND CASH EQUIVALENTS

1. What is the adjusted petty cash fund balance on December 31, 2018?
2. The petty cash shortage on December 31, 2018 is?
3. What is the adjusted Cash in Bank – Wave Bank balance on December 31, 2018?
4. The entry to adjust the Cash in Bank – Wave Bank account should be?
5. The December 31, 2018 statement of financial position should show “Cash and Cash Equivalents”
at?

PROBLEM 2

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

Currency 1,650
Petty Cash Vouchers:
Postage 420
Office Supplies Expense 900
Transportation Expense 340
Computer Repairs 800
Advances to Office Staff 1,500
A check drawn by Sunny Inc., payable
to the petty cash custodian 7,200
Postage Stamps 300
An employee’s check, returned by bank, NSF 1,000
An envelope containing currency of P1,980 for
A gift for a retiring employee 1,890
P16,000

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

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

2. What is the adjusted balance of the petty cash fund at July 31, 2018?

PROBLEM 3

In connection with your audit of the financial statements of BUTTON CORP. for the year ended December
31, 2018, you conducted a surprise count of the company’s petty cash fund and undeposited collections
at 8:20 a.m. on January 3, 2019. Your count disclosed the following:

Bills Coins
P100 – 5pcs 5.00 – 18pcs
50 – 40pcs 1.00 – 206pcs
20 – 48pcs 0.25 – 32pcs

Postage stamps (unused) – P365

Checks
DATE PAYEE MAKER AMOUNT
Dec. 30 Cash Custodian P1,200
Dec. 30 Button Corp. SLV Inc. 14,000
Dec. 31 Button Corp. Mario Lansang, Sales Manager 1,680
Dec. 31 Button Corp. MSU Corp. 17,800
Dec. 31 Button Corp. Ateneo Inc. 8,300
Dec. 31 Taiwan Corp. Button Corp. 27,000

Unreimbursed Vouchers
DATE PAYEE DESCRIPTION AMOUNT
Dec. 23 Mario Lansang, Sales Manager Advance for trip to Tagaytay P20,000
Dec. 28 Central Post Office Postage Stamps 1,620
Dec. 29 Messengers Transportation 150
Dec. 29 Byte, Inc. Computer Repair 800
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 AUDITING PROBLEMS
AUDIT OF CASH AND CASH EQUIVALENTS

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, 2018.

O.R. No. Amount Form of Payment

4352 13,600 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, 2018.

1. What is the amount of shortage due from the sales manager?

2. What is the amount of undeposited collections on December 31, 2018?
3. The adjusting entries on December 31, 2018 should include a net debit to Travel Expenses of?
4. The cash count should include total checks of?
5. What is the total cash shortage?

PROBLEM 4

The following information pertains to FLINTSTONES CORP.:

Flintstones Corp.
BANK RECONCILIATION
November 30, 2018

Balance per bank statement 435,000

Less: Outstanding Checks
No. 4321 6,000
4329 15,000
4340 1,700
4341 4,675 27,375
407,625
Add: Deposit in Transit 16,200
Balance per Books 423,825

CHECK REGISTER
December 2018

DATE PAYEE NO. VOUCHERS DISCOUNT CASH

PAYABLE
12/1 San Beda, Inc. 4342 10,000 500 9,500
12/3 Miriam Corp. 4343 4,200 4,200
12/7 UE Enterprises 4344 3,755 3,755
12/12 PSBA Corp. 4345 12,000 120 11,880
12/15 Payroll 4346 96,000 96,000
12/16 BU, Inc. 4347 6,300 6,300
12/18 New Era Co. 4348 14,200 142 14,058
12/21 UST, Inc. 4349 7,000 7,000
12/22 Petty Cash Fund 4350 10,000 10,000
12/28 Payroll 4351 98,000 98,000
261,455 762 260,693

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 AUDITING PROBLEMS
AUDIT OF CASH AND CASH EQUIVALENTS

BANK STATEMENT
BANKABLE BANK
PERIOD: NOV. 3, 2018 – DEC. 31, 2018
CHECK
DATE DESCRIPTION DEBIT CREDIT BALANCE
NUMBER
Balance – Last Statement 435,000
12/1 Cash Deposit 16,200 451,200
12/1 Check Issued 4329 15,000 436,200
12/4 Check Issued 4342 9,500 426,700
12/4 Check Issued 4341 4,675 422,025
12/5 Check Deposit 49,000 471,025
12/6 Check Issued 4343 4,200 466,825
12/8 Check Deposit 14,000 480,825
12/10 Check Issued 4344 3,755 477,070
12/15 Encashment 4346 96,000 381,070
12/22 Encashment 4350 10,000 371,070
12/28 Encashment 4351 98,000 273,070
12/29 Debit Memo – Service Charge 1,000 272,070
12/29 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?

2. What is the cash balance per books on December 31, 2018?
3. What is the total outstanding checks on December 31, 2018?
4. What is the adjusted cash balance on November 30, 2018?
5. What is the adjusted cash balance on December 31, 2018?

PROBLEM 5

The cash account of VOLTA COMPANY shows the following activities:

DATE DESCRIPTION DEBIT CREDIT BALANCE

11/30 Balance 115,000
12/2 November Bank Charges 50 114,950
12/4 November Bank Credit for 10,000 124,950
notes receivable collected
12/15 NSF Check 1,300 123,650
12/20 Loan Proceeds 48,500 172,150
12/21 December Bank Charges 60 172,090
12/31 Cash Receipts – book 707,300 879,390
12/31 Cash Disbursements – books 408,000 471,390

CASH BOOKS
RECEIPTS PAYMENTS
DATE
OR NO. AMOUNT CHECK NO. AMOUNT
12/1 110-120 11,000 801 2,000
12/2 121-136 21,300 802 3,000
12/3 137-150 20,000 803 1,000
12/4 151-165 56,000 804 3,000
12/5 166-190 39,000 805 12,000
12/8 191-210 66,000 806 19,000
12/9 211-232 88,000 807 26,000
12/10 233-250 77,000 808 30,000
12/11 251-275 21,000 809 61,000
12/12 276-300 30,000 810 7,000
12/15 301-309 55,000 811 8,000
12/16 310-350 8,000 812 16,000
12/17 351-390 19,000 813 20,000
12/18 391-420 9,000 814 22,000

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 AUDITING PROBLEMS
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12/19 421-480 17,000 816 36,000

12/22 481-500 21,000 817 11,000
12/23 501-525 32,000 818 50,000
12/23 819 7,000
12/23 820 4,000
12/26 526-555 74,000 821 3,000
12/28 556-611 5,000 822 12,000
12/28 823 13,000
12/29 612-630 38,000 824 29,000
12/29 825 2,000
12/29 826 11,000
TOTAL 707,300 408,000

BANK STATEMENT
DATE CHECK NO. CHARGES CREDITS
12/1 792 2,500 8,500
12/2 802 3,000 11,000
12/3 21,300
12/4 804 3,000 20,000
12/5 EC 81,000 81,000
12/8 805 12,000 95,000
12/9 CM 16 12,000
12/10 799 7,050 154,000
12/11 DM 57 1,300 77,000
12/12 808 30,000 21,000
12/15 803 1,000
12/16 809 61,000 85,000
12/17 DM 61 60 8,000
12/18 813 20,000 19,000
12/19 CM 20 48,500
12/22 815 6,000
12/23 816 36,000 47,000
12/23 811 8,000
12/23 801 2,000
12/26 814 22,000 32,000
12/28 818 50,000 74,000
12/28 DM 112 120
12/29 821 3,000 5,000
12/31 CM 36 12,000
12/31 820 4,000
353,030 831,300

Additional Information:
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, ne of P150 interest charges for 90 days.
5. CM 16 is for the correction of an erroneous November bank charge.
6. CM 36 is for customers’ 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?

2. The total outstanding checks at December 31 should be?
3. The deposit in transit at November 30 should be?
4. The deposit in transit at December 31 should be?
5. The adjusted book balance at November 30 should be?
6. The adjusted bank receipts for the month of December should be?
7. The adjusted book disbursements for the month of December should be?
8. The adjusted bank balance at December 31 should be?

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 AUDITING PROBLEMS
AUDIT OF CASH AND CASH EQUIVALENTS

PROBLEM 6

The bookkeeper-cashier of the TONYA COMPANY absconded on the evening of April 16, 2019, 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
which 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 16, 2019:

Accounts Receivable 442,550
Accounts Payable 207,300
Cash in Bank, less checks outstanding 98,830

TRANSACTIONS, JANUARY 1 – APRIL 16, 2019:

Sales, per receivable clerk 5,876,170
Cash sales none
Sales allowances 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

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 are as follows:

TONYA COMPANY
Statement of Financial Position
December 31, 2018

A S S E T S
Cash 32,670
Accounts Receivable 226,230
Inventory (at cost) 440,350
Furniture 74,560
Less: Accumulated Depreciation 31,800 42,760
TOTAL ASSETS 742,010

LIABILITIES AND SHAREHOLDERS’ EQUITY

Accounts Payable 114,720
Share Capital 500,000
Retained Earnings 127,290
Total Liabilities and Shareholders’ Equity 742,010

1. What is the total amount paid for merchandise purchases?

2. What is the total amount of collections from sales?
3. What is the total amount of cash disbursements from January 1 – April 15, 2019?
4. What is the cashier’s accountability (correct cash balance before shortage) on April 15, 2019?
5. What is the amount of cash shortage chargeable against the cashier?

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