Applied Auditing Audit of Cash and Receivables

Masters Technological Institute of Mindanao 1.
What is the adjusted petty cash fund balance on

Applied Auditing December 31, 2016?
2. The petty cash shortage on December 31, 2016?
AUDIT OF CASH AND RECEIVABLES 3. What is the adjusted Cash in Bank- Tsunami Bank
balance on December 31, 2016?
Cash and Cash Equivalents 4. The December 31, 2016 statement of Financial
Problem 1 position should show “Cash and cash Equivalents” at?
In connection with your audit of the financial statements of Problem 2

HOGWARTS Company for the year ended December 31, 2016, You were engaged to audit the account of Diagon Alley
you gathered the following information. Corporation for the year ended December 31, 2017. In
your examination, you determined that the cash account
1. The company maintains its current account with Tsunami represents both cash on hand and cash in bank. You
Bank. The bank statement on December 31, 2016, showed a further noted that the company’s internal control over
balance of P638,340. cash is very poor.
Your audit company’s account with Tsunami Bank disclosed You started to audit on January 15, 2018. Based on your
the ff: cash count on this date, cash on hand amounted to
 A check for 22,500 received from a customer whose 19,200. Examination of the cash book and other evidence
account is current had been deposited and then of transactions disclosed the ff:
returned by the bank on December 28, 2016. No
entry was made for the return of this check. The a. January collections per duplicate receipts, P75,000.
customer replaced the check on January 15, 2017. b. Total duplicate deposit slips, all dated January, P
 A check for P5,720 was cleared by the bank as 7,520. 44,000. This amount includes a deposit representing
The bank made correction on January 2, 2017. collections on December 31.
 A check for P3,500 representing payment of an c. Cash book balance at December 31, 2017 amounted to
employee advance was received and deposited on P 186,000, representing both cash on hand and cash in
December 27, 2016, but was not recorded until bank.
January 3, 2017. d. Bank statement for December showed a balance of P
 Postdated checks totaling P67,300 were included in 170,400.
the deposits in transits. These represent collections e. Outstanding checks at December 31:
of current accounts receivable from customers. The
checks were actually deposited on January 5, 2017. November Checks December checks
 Various debit memos for drafts purchased for No. 280 P 1,800 No. 331 P 2,400
payment of importation of equipment totaling 290 6,600 339 1,600
P230,000 were not yet recorded. These purchases. 345 20,000
These purchases were previously set up as accounts 353 3,600
payable. Said equipment arrived in December 2016. 364 10,000
 Interest earned on the bank balance for the 4th f. Undeposited collections at December 31, 2017
quarter of 2016, amounting to P1,950 was not amounted to 20,000.
recorded. g. An amount of P 4,400 representing proceeds of a clean
draft on a customer was credited by bank, but is not yet
 Ban services charges totaling P1,260 were not
taken up I company’s books.
recorded.
h. Bank service charges for December, P 400.
 Deposit in transit and outstanding checks at
December 31, 2016, totaled P136, 250 and
The company cashier presented to you the following
P276,380, respectively.
reconciliation statement for December 2017, which he
has prepared:
2. Various expenses from the company’s petty cash fund
dated December 2016, totaled P16,250, while those
Balance per books, 12/31/17 180,000
dated January 2017, amounted to P5,903. Another
Add outstanding checks:
disbursement from the fund dated December 2016 was a
No. 331 P2,400
cash advance to an employee amounting to P3,500. A
339 1,600
replenishment of the petty cash fund was made on
345 2,000
January 8, 2017.
353 3,600
364 1,000 _10,600
3. The company’s trial balance on December 31, 2016
TOTAL 191,200
includes the ff accounts:
Bank service charge (400)
Undeposited collections (20,000)
Cash in Bank-Tsunami Bank P748,320
Balance per bank, December 31, 2017 170,400
Cash in Bank – Earthquake Bank
(Restricted account for plant expansion,
How much is the adjusted cash balance as of 12/31/17?
expected to be disbursed in 2017) 700,000
How much is the cash shortage as of 12/31/17?
Petty cash Fund 30,000
Time deposit, placed December 20,
2016, and due March 20, 2017 1,000,000
Money Market placement 4,000,000
Audit of Accounts Receivable

Required:
3. Ravenclaw Company sells variety of imported goods.
Problem 3 By selling on credit, Ravenclaw cannot expect to collect
The December 31, 2015, statement of financial position 100% of its AR. At December 31, 2015, Ravenclaw
of the Quidditch Company included the following reported the ff in its statement of Financial Position:
information: Accounts Receivable P2,197,500
Less: Allowance for Bad debts (133,500)
Accounts Receivable 672,000 Accounts receivable, net P2,064,000
Less: Allowance for bad debts (42,300) 629,700
Notes receivable* 65,400 During the year ended December 31, 2016, Ravenclaw
Total receivables P695,100 earned sales revenue of P537,702,500 and collected cash
of P528,070,500 from customers. Assume bad debt
*The company is contingently liable for discounted notes expense for the year was 1% of Sales revenue and that
receivable of P114,000. Ravenclaw wrote off uncollectible accounts receivable
totaling P5,349,500.
During the year ending December 31, 2016 the following
transactions occurred: a. What is the AR balance at December 31, 2016?
b. What is the December 31, 2016 balance of the
1. Sales on credit P2,623,800 Allowance for Bad Debts account?
2. Collections of AR 2,523,000
3. AR written off as Uncollectible 41,400 4. The following information pertains to Hupplepuff, Inc
4. Notes receivable collected 87,000 for the year ended December 31, 2016:
5. Customer notes received in payment
of AR 216,000 Credit Sales during 2016 P 4, 450,000
6. Notes receivable discounted Collection of accounts written
that were paid at maturity 108,000 Off in prior periods 170,000
7. Notes receivable discounted Worthless accounts written off in 2016 191,000
that were defaulted, including Allowance for doubtful accounts,
interest of P60 and a P15 fee. This January 1, 2016
amount expected to be collected
during 2017. 6,075 Hupplepuff, Inc provides for doubtful accounts based on
8. Proceeds from customer notes 1 ½ % of credit sales.
discounted with recourse (Principal
P135,000, accrued interest, P600) 135,225 What is the balance of the allowance for doubtful
9. Collections on accounts previously accounts at December 31, 2016?
written off 1,500
10. Sales returns and allowances 5. The following amounts are shown on the 2016 and
(on credit sales) 6,000 2015 financial statements of Nicholas Flamel Co:
11. Bad debts were estimated to be 1.5% of credit sales
2016 2015
Based on the preceding information, determine the A/R ? P470,000
balances of the ff accounts at 12/31/16 Allowance for Bad
1. Accounts Receivable debts 20,000 10,000
2. Allowance for doubtful accounts Net Sales 2, 600,000 2,400,000
3. Notes receivable COGS 1, 900,000 1,752,000
4. Notes receivable discounted
Nicholas Flamel Co.’s AR turnover for 2016 is 6.5 times.
Problem 4 (Unrelated Situations)
What is the AR balance at December 31, 2016?
1. The following information is from Gryffindor’s first
year of Operations:
Merchandise Purchase P450,000

Ending merchandise Inventory 123,000
Collections from customers 150,000
All sales are on account and goods
sell at 30% above cost
What is the AR balance at the end of the company’s first

year of operations?
2. Slytherin Co. reported the ff information at the end of

its first year of operations, December 31, 2016:
Bad Debt expense for 2016 P271,000

Uncollectible accounts written off
during 2016 35,400
Net realizable value of AR 895,000
What is the AR balance at December 31, 2016?

Applied Auditing Audit of Cash and Receivables

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Masters Technological Institute of Mindanao 1.

What is the adjusted petty cash fund balance on

In connection with your audit of the financial statements of Problem 2

Audit of Accounts Receivable

Merchandise Purchase P450,000

What is the AR balance at the end of the company’s first

2. Slytherin Co. reported the ff information at the end of

Bad Debt expense for 2016 P271,000

What is the AR balance at December 31, 2016?

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