I - AUDIT OF CASH AND CASH EQUIVALENTS

PROBLEM NO. 1 - Composition of Cash and Cash Equivalents

SOLUTION:

Items included:
Current account at Metrobank 1,800,000
500,
Payroll account 000
Foreign bank account (in equivalent pesos) 800,000
Traveler’s check 50,000
Money order 30,000
Petty cash fund - currency 4,000
Time deposit – 30 days 200,000
Treasury bills, due 3/31/13 (purchased
12/31/12) 200,000
3,584,000

Items not included:

(100,000
Current account at Allied Bank ) Short term borrowing
Savings deposit in a closed bank 150,000 Other noncurrent assets
Postage stamps 1,000 Unused supplies (Other CA)
Employee’s post dated check 4,000 Trade and other receivables
10,
IOU from employees 000 Trade and other receivables
Credit memo from a vendor for a purchase Deduction from accounts
return 20,000 payable
Petty cash fund - expense receipts 6,000 Expenses
Pension fund 2,000,000 Noncurrent asset
DAIF check of customer 15,000 Trade and other receivables
Customer’s check dated 1/1/13 80,000 Trade and other receivables
Money market placement (due 6/30/13) 500,000 Short term investment
Treasury bills, due 1/31/13 (purchased 2/1/12) 300,000 Short term investment

PROBLEM NO.2 - Computation of adjusted cash and cash equivalents

SOLUTION:
Requirement No. 1.a

1
 372,00
Cash on hand, per trial balance 0
(60,000
(a) NSF check )
(30,000
(b) Postdated check received )
282,00
Cash on hand, as adjusted 0

Adjusting journal entries

Accounts receivable 60,000
60,00
Cash on hand 0

Accounts receivable 30,000

30,00
Cash on hand 0

Requirement No. 1.b

Petty cash fund per total 10,300
(1,600
Employees' vales )
(1,200
Currency in envelope marked "collections for charity" )
(800
Unreplenished petty cash vouchers )
Petty cash fund, as adjusted 6,700
Alternative computation:
Currency and coins 2,100
Replenishment check 4,600
Petty cash fund, as adjusted 6,700

Adjusting journal entries:

Advances to officers and employees 1,600
Expenses 800
Cash short/over (balancing figure or see computation
below) 900
Petty cash fund (P10,000 - P6,700) 3,300

Computation of shortage:
Currency and coins 2,100
Employees' vales 1,600
Unreplenished petty cash vouchers 800
Replenishment check 4,600
Cash and cash items counted 9,100
Cash accountability 10,000
2
 (900
Unaccounted/Shortage )

Requirement No. 1.c

950,00
BPI current account, per trial balance 0
Unreleased check 50,000
Post dated check delivered 86,000
1,086,00
BPI current account, as adjusted 0

Adjusting journal entries:

BPI current account 50,000
50,00
Accounts payable 0

Accounts receivable 86,000

86,00
Cash on hand 0

Requirement No. 1.d

282,00
Cash on hand (see no. 1.a) 0
Petty cash fund (see no. 1.b) 6,700
1,086,00
BPI current account (see no. 1.c) 0
1,280,00
Security Bank current account no. 1 0
(40,000 1,240,00
Security Bank current account no. 2 ) 0
300,00
PNB time deposit (cash equivalent) 0
2,914,70
Cash and cash equivalents, as adjusted 0
Note: The P500,000 PNB savings account should be presented separately from
cash and cash equivalents since it has been earmarked for the acquisition
of a noncurrent asset.

3
PROBLEM NO. 3 - Cash count and shortage computation

SOLUTION:

Requirement No. 1
Bills and coins
Denomination Quantity Amount Total
1,00
P100.00 10 0
4,00
50.00 80 0
1,40
20.00 70 0
54
10.00 54 0
41
1.00 410 0
16
0.50 324 2
1 7,5
0.25 64 6 28

Checks
Date Drawer Amount
2,40
Dec. 30 Ms. Jessie 0
28,000
Dec. 30 Robert
3,360
Dec. 31 Jay Ar
35,600
Dec. 31 Francis
16,600 85,96
Dec. 31 Ryan 0

Unreplenished vouchers

Date Account Amount

Dec. 23 14,000
Advances
Dec. 27 3,240
Postage
Dec. 29 300
Transportation

4
 Dec. 29 1,600 19,14 AJE
Repairs 0 1&2
Total cash and cash items 112,6
counted 28
Less accountabilities:
20,0
Petty cash 00
Undeposited collections - per 86,6
OR 00
28,0
Undeposited collections - without OR 00 AJE 4
Excess travel advance 3,36
returned 0 AJE 3
15,0 152,9
Unclaimed salaries 00 60 AJE 5
(40,3
Cash shortage 32) AJE 6

Requirement No. 2
Advances to officers and 14,0
1 employees 00
3,24
Postage expense 0
30
Transportation expense 0
1,60
Repairs and maintenance 0
19,1
Petty cash fund 40

73
2 Unused postage 0
7
Postage expense 30

10,1
3 Travel expense [P9,000+P800+(P600-P240)] 60
3,36
Petty cash fund (personal check of sales manager) 0
13,5
Advances to officers and employees 20

28,0
4 Cash 00

5
 28,0
Accounts receivable 00

15,0
5 Cash 00
15,0
Salaries payable 00

40,3
6 Cash short/over (Receivable from custodian) 32
40,3
Cash 32

54,0
7 Cash 00
54,0
Accounts payable 00

PROBLEM NO. 4 - Bank reconciliation

SOLUTION:
DOLLAR COMPANY
Bank Reconciliation - Bank to Book Method
December 31, 2012

Balance per bank 106,000

Add (deduct):
a) Customer's uncollectible check (NSF) 30,000
b) Dishonored note receivable
(including P2,000 protest fee) 62,000
c) Book error in recording collection (P15,400 - P14,500) (900)
d) Book errors in recording disbursements
Check no. 142 (P12,425 - P12,245) - under 180
Check no. 156 (P3,290 - P32,900) - over (29,610)
e) December bank service charges 1,830
f) Note collected by bank (including interest income

6
 of P1,000 and net of service charge of P500) (25,500)
g) Deposits in transit 24,000
h) Outstanding checks (35,000)
I) Bank error in recording deposit (20,000)
j) Petty cash fund 10,000
k) Stolen cash sales to be recovered from insurance co. 60,000
l) Double counted deposit - NSF 20,000

Balance per books 203,000

DOLLAR COMPANY
Bank Reconciliation - Book to Bank Method
December 31, 2012

Balance per books 203,000

Add (deduct):
a) Customer's uncollectible check (NSF) (30,000)
b) Dishonored note receivable
(including P2,000 protest fee) (62,000)
c) Book error in recording collection (P15,400 - P14,500) 900
d) Book errors in recording disbursements
Check no. 142 (P12,425 - P12,245) - under (180)
Check no. 156 (P3,290 - P32,900) - over 29,610
e) December bank service charges (1,830)
f) Note collected by bank (including interest income
of P1,000 and net of service charge of P500) 25,500
g) Deposits in transit (24,000)
h) Outstanding checks 35,000
I) Bank error in recording deposit 20,000
j) Petty cash fund (10,000)

7
 k) Stolen cash sales to be recovered from insurance co. (60,000)
l) Double counted deposit - NSF (20,000)

Balance per bank 106,000

DOLLAR COMPANY
Bank Reconciliation - Adjusted Balance Method
December 31, 2012
BANK BOOKS

Unadjusted balances, December 31 106,000 203,000

Add (deduct):

a) Customer's uncollectible check (NSF) (30,000) AJE No. 1

b) Dishonored note receivable

(including P2,000 protest fee) (62,000) AJE No. 2

c) Book error in recording collection (P15,400 - P14,500) 900 AJE No. 3

d) Book errors in recording disbursements

Check no. 142 (P12,425 - P12,245) - under (180) AJE No. 4

Check no. 156 (P3,290 - P32,900) - over 29,610 AJE No. 5

e) December bank service charges (1,830) AJE No. 6

f) Note collected by bank (including interest income

of P1,000 and net of service charge of P500) 25,500 AJE No. 7

g) Deposits in transit 24,000

h) Outstanding checks (35,000)

I) Bank error in recording deposit (20,000)

j) Petty cash fund (10,000) AJE No. 8

k) Stolen cash sales to be recovered from insurance co. (60,000) AJE No. 9

l) Double counted deposit - NSF (20,000) AJE No. 10

Adjusted balances, December 31 75,000 75,000

Adjusting Journal Entries

8
1) Accounts receivable 30,000
Cash in bank 30,000

2) Notes receivable - dishonored 62,000

Cash in bank 62,000

Notes receivable - discounted 60,000

Notes receivable 60,000

3) Cash in bank 900

Accounts receivable 900

4) Accounts payable 180

Cash in bank 180

5) Cash in bank 29,610

Accounts payable 29,610

6) Bank service charge 1,830

Cash in bank 1,830

7) Cash in bank 25,500

Bank service charge 500
Notes receivable 25,000
Interest income 1,000

8) Petty cash fund 10,000

Cash in bank 10,000

9) Claims from insurance co. 60,000

Cash in bank 60,000

10) Accounts receivable 20,000

9
 Cash in bank 20,000

PROBLEM NO. 5 - Bank reconciliation and shortage computation

SOLUTION:

Requirement No. 1.a

175,25
Unadjusted deposit in transit 0
(50,0
Post dated check received 00)
125,25
Adjusted deposit in transit 0

Requirement No. 1.b

246,75
Unadjusted outstanding checks 0
(14,7
Unreleased check 50)
(37,2
Post dated check issued 10)
194,79
Adjusted outstanding checks 0

Requirement No. 1.c&d

Bank Books
350,0 293,50
Unadjusted balances 00 0
Add (deduct) adjustments:
(50,0
Post dated check received 00) AJE 1
125,2
Deposit in transit (see 1.a) 50
14,75
Unreleased check 0 AJE 2
37,21
Post dated check issued 0 AJE 3
15,00
Note collected by bank 0 AJE 4
(194,7
Outstanding checks (see 1.b) 90)

10
 (30,0
Erroneous bank credit 00)  
250,4 310,46
Balances 60 0
(60,0
Shortage 00) AJE 5
250,4 250,46
Adjusted balances 60 0

Requirement No. 2

50,0
1 Accounts receivable 00
50,00
Cash 0

14,7
2 Cash 50
14,75
Accounts payable 0

37,2
3 Cash 10
37,21
Accounts payable 0

15,0
4 Cash 00
15,00
Notes receivable 0

Cash short/over (Receivable from 60,0

5 cashier) 00
60,00
Cash 0

PROBLEM NO. 6 - Cash shortage computation

SOLUTION:

91,50
Unadjusted balance per bank, 12/31 0
(4,500
Outstanding checks , 12/31 )

11
 Undeposited collections, 12/31 5,000
92,00
Adjusted balance per bank, 12/31 (Cash accounted) 0
Cash balance per books, 12/31/Cash accountability (see computation 122,00
below) 0
(30,00
Cash over (short) 0)

Computation of cash balance per books, 12/31

Cash receipts:
150,00
Owners' investment 0
98,00
Proceeds from loan 0
414,00
Collections from customers (see computation below) 0
662,00
Total 0

Cash disbursements:

Purchases (P250,000 - P15,000) 235,000

Store fixtures (P50,000 - P5,000) 45,000

Loan payment 80,000

540,00
Expenses paid 180,000 0
122,00
Cash balance per books, 12/31 0

Computation of collections from sales

250,00
Purchases/TGAS 0
30,00
Less merchandise inventory, 12/31 0
220,00
Cost of sales 0
264,00
Add gross profit (P220,000 x 120%) 0
484,00
Sales 0
70,00
Less accounts receivable, 12/31 0
414,00
Collections from sales 0

12
PROBLEM NO. 7 - Proof of cash

SOLUTION:
Euro Company
Proof of Cash - Bank to Book Method
For the month of December, 2012
Beginnin
g Receipts Disb Ending

500,00
Unadjusted bank balances 230,000 420,000 0 150,000

Undeposited collections
(200,000
November 200,000 )

December 120,000 120,000

Outstanding checks
(80,000
November (80,000) )
60,00 (60,000
December 0 )

Customers' note collected by bank

November (100,000) 100,000

(120,000 (120,000
December ) )

Bank service charges

2,00
November 2,000 0

December 3,000) 3,000

Erroneous bank debits

(10,000
November 10,000 )

December 20,000) 20,000

Erroneous bank credits

November (40,000) 40,000)

December (30,000) (30,000)

NSF checks not redeposited

5,00
November 5,000 0

13
 December (7,000) 7,000
(10,000 (10,000
NSF check redeposited ) )

407,00
Unadjusted book balances 227,000 270,000 0 90,000

Euro Company
Proof of Cash - Book to Bank Method
For the month of December, 2012

Beginning Receipts Disb Ending

407,00
Unadjusted book balances 227,000 270,000 0 90,000
Undeposited collections
November (200,000) 200,000
(120,000
December (120,000) )
Outstanding checks
80,00
November 80,000 0
(60,000
December ) 60,000
Customers' note collected by bank
(100,000
November 100,000 )
December 120,000 120,000
Bank service charges
(2,000
November (2,000) )

14
 3,00 (3,000
December 0 )
Erroneous bank debits
November (10,000) 10,000
20,00 (20,000
December 0 )
Erroneous bank credits
40,00
November 40,000 0
December 30,000 30,000
NSF checks not redeposited
(5,000
November (5,000) )
7,00 (7,000
December 0 )
10,00
NSF check redeposited 10,000 0

500,00
Unadjusted bank balances 230,000 420,000 0 150,000

Euro Company
Proof of Cash - Adjusted Balance Method
For the month of December, 2012

Beginnin
g Receipts Disb Ending

Unadjusted bank balances 230,000 420,000 500,000 150,000

Undeposited collections
November 200,000 (200,000)
December 120,000 120,000
Outstanding checks
(80,000
November (80,000) )
December 60,000 (60,000)

15
Erroneous bank debits
November 10,000 (10,000)
(20,000
December ) 20,000
Erroneous bank credits
(40,000
November (40,000) )
December (30,000) (30,000)
(10,000
NSF check redeposited (10,000) )

Adjusted bank balances 320,000 290,000 410,000 200,000

Unadjusted book balances 227,000 270,000 407,000 90,000

Customers' note collected by bank
November 100,000 (100,000)
December 120,000 120,000 AJE 1
Bank service charges
(2,000
November (2,000) )
December 3,000 (3,000) AJE 2
NSF checks
(5,000
November (5,000) )
December 7,000 (7,000) AJE 3

Adjusted book balances 320,000 290,000 410,000 200,000

Adjusting journal entries:

1) Cash in bank 120,000

Note receivable 120,000

16
 2) Bank service charge 3,000
Cash in bank 3,000

3) Accounts receivable 7,000

Cash in bank 7,000

PROBLEM NO. 8 - Proof of cash

SOLUTION:
Cebu Company
Proof of Cash - Bank to Book Method
For the month of December, 2012

11/30 Receipts Disb. 12/31

Balances per bank (a,g) 14,010 281,070 275,450 19,630

Deposits in transit (b)

November 30 2,740 (2,740)

December 31 3,110 3,110

Outstanding checks (c,f)

November 30 (4,260) (4,260)

December 31 (P3,870 - P700) 3,170 (3,170)

Bank collections not in books (d)

November 30 (1,200) 1,200

December 31 (1,600) (1,600)

Bank service charges not in books (e)

November 30 950 950

December 31 (640) 640

DAIF checks

Returned in Dec., not recorded (h) (800) 800

Returned in Nov., recorded in Dec. (i) 1,050 (1,050)

Returned and recorded in Dec. (j) (900) (900)

17
Bank error - Check of Cibo Company (k) (2,010) 2,010

Cash receipts used for payment (l) 750 750

Book errors (m,n)

Customer check (P465-P165) (300) (300)

Disb check (P3,250-P325) 2,925 (2,925)

Balances per books 13,290 279,540 274,635 18,195

Cebu Company
Proof of Cash - Book to Bank Method
For the month of December, 2012

11/30 Receipts Disb. 12/31

Balances per books (refer to requirement 1.a) 13,290 279,540 274,635 18,195

Deposits in transit (b)

(2,740
November 30 ) 2,740
(3,110 (3,110
December 31 ) )

Outstanding checks (c,f)

November 30 4,260 4,260

(3,170
December 31 (P3,870 - P700) ) 3,170

Bank collections not in books (d)

(1,200
November 30 1,200 )

December 31 1,600 1,600

Bank service charges not in books (e)

November 30 (950) (950)

December 31 640 (640)

DAIF checks

Returned in Dec., not recorded (h) 800 (800)

(1,050
Returned in Nov., recorded in Dec. (i) ) 1,050

Returned and recorded in Dec. (j) 900 900

(2,010
Bank error - Check of Cibo Company (k) 2,010 )

18
Cash receipts used for payment (l) (750) (750)

Book errors (m,n)

Customer check (P465-P165) 300 300

(2,925
Disb check (P3,250-P325) ) 2,925

Balances per bank (a,g) 14,010 281,070 275,450 19,630

Cebu Company
Proof of Cash - Adjusted Balance Method
For the month of December, 2012

11/30 Receipts Disb. 12/31

Balances per bank (a,g) 14,010 281,070 275,450 19,630

Deposits in transit (b)

November 30 2,740 (2,740)

December 31 3,110 3,110

Outstanding checks (c,f)

November 30 (4,260) (4,260)

December 31 (P3,870 - P700) 3,170 (3,170)

Bank error - Check of Cibo Company (k) (2,010) 2,010

Cash receipts used for payment (l) 750 750

12,490 282,190 273,100 21,580

Balances per books 13,290 279,540 274,635 18,195

Bank collections not in books (d)

November 30 1,200 (1,200)

December 31 1,600 1,600 AJE 1

Bank service charges not in books (e)

November 30 (950) (950)

December 31 640 (640) AJE 2

19
 DAIF checks

Returned in Dec., not recorded (h) 800 (800) AJE 3

Returned in Nov., recorded in Dec.
(i) (1,050) 1,050

Returned and recorded in Dec. (j) 900 900

Book errors (m,n)

Customer check (P465-P165) 300 300 AJE 4

Disb check (P3,250-P325) (2,925) 2,925 AJE 5

12,490 282,190 273,100 21,580

Adjusting journal entries:

1,6
1) Cash in bank 00
1,60
Note receivable 0

6
2) Bank service charge 40
64
Cash in bank 0

8
3) Accounts receivable 00
80
Cash in bank 0

3
4) Cash in bank 00
30
Accounts receivable 0

2,9
5) Cash in bank 25
2,92
Accounts payable 5

PROBLEM NO.9 – Proof of cash

20
SOLUTION:

MQM Company
Proof of Cash - Bank to Book Method
For the month of December, 2012

December

Nov. 30 Receipts Disb. Dec. 31

Unadjusted bank balances 215,600 2,204,500 2,189,700 230,400

Undeposited receipts:

November 90,600 (90,600)

December 101,200 101,200

Outstanding checks:

November (26,750) (26,750)

December 14,300 (14,300)

Erroneous bank debit (9,500) 9,500

Payment to creditor in cash 12,100 12,100

NSF checks:

Returned, recorded in December (10,400) (10,400)

Returned, recorded in January (8,600) 8,600

Unrecorded bank collections:

November (121,500) 121,500

December (116,400) (116,400)

Bank service charges:

November 7,500 7,500

December (4,200) 4,200

Book error in December (3,600) 3,600

Unadjusted book balances 165,450 2,221,900 2,160,550 226,800

MQM Company
Proof of Cash - Book to Bank Method
For the month of December, 2012

21
 December

Nov. 30 Receipts Disb. Dec. 31

Unadjusted book balances 165,450 2,221,900 2,160,550 226,800

Undeposited receipts:

November (90,600) 90,600

December (101,200) (101,200)

Outstanding checks:

November 26,750 26,750

December (14,300) 14,300

Erroneous bank debit 9,500 (9,500)

Payment to creditor in cash (12,100) (12,100)

NSF checks:

Returned, recorded in December 10,400 10,400

Returned, recorded in January 8,600 (8,600)

Unrecorded bank collections:

November 121,500 (121,500)

December 116,400 116,400

Bank service charges:

November (7,500) (7,500)

December 4,200 (4,200)

Book error in December 3,600 (3,600)

Unadjusted bank balances 215,600 2,204,500 2,189,700 230,400

MQM Company
Proof of Cash - Adjusted Balance Method
For the month of December, 2012

December

Nov. 30 Receipts Disb. Dec. 31

Unadjusted bank balances 215,600 2,204,500 2,189,700 230,400

22
Undeposited receipts:

November 90,600 (90,600)

December 101,200 101,200

Outstanding checks:

November (26,750) (26,750)

December 14,300 (14,300)

Erroneous bank debit (9,500) 9,500

Payment to creditor in cash 12,100 12,100

Adjusted bank balances 279,450 2,227,200 2,179,850 326,800

165,45
Unadjusted book balances 0 2,221,900 2,160,550 226,800

NSF checks:

Returned, recorded in December 10,400 10,400

Returned, recorded in January 8,600 (8,600) AJE 1

Unrecorded bank collections:

121,50
November 0 (121,500)

December 116,400 116,400 AJE 2

Bank service charges:

(7,500
November ) (7,500)

December 4,200 (4,200) AJE 3

Book error in December 3,600 (3,600) AJE 4

279,45
Adjusted book balances 0 2,227,200 2,179,850 326,800

- - - -

Adjusting journal entries:

8,60
1) Accounts receivable 0
8,60
Cash in bank 0

116,40
2) Cash in bank 0

23
 116,40
Note receivable 0

4,20
3) Bank service charge 0
4,20
Cash in bank 0

3,60
4) Accounts payable 0
3,60
Cash in bank 0

PROBLEM NO.10- Proof of cash

SOLUTION:

Baht Company
Proof of Cash - Bank to Book Method
For the month of December, 2012
December
Receipt
Nov. 30 s Disb. Dec. 31
76,5
Unadjusted bank balances 00 104,000 51,000 129,500
Add (deduct) adjustments:
Customers' note collected by bank
(25,0
November 00) 25,000
Bank service charges
30
November 0 300
December (400) 400
10,0
Erroneous bank debit-November 00 (10,000) -
Undeposited collections
20,0
November 00 (20,000)
December 54,900 54,900
Outstanding checks
24
 (42,5
November 00) (42,500)
December 90,490 (90,490)
NSF checks
December (6,000) 6,000
Book errors in December
Uncollected customer's note treated as receipts 30,000 30,000
Error in recording a check (SB P990, AR
P9,900) 8,910 (8,910)
39,3
Unadjusted book balances 00 183,900 101,800 121,400

Computation of deposits in transit, December 31:

Deposit in transit, Nov. 30 20,000

Add collections in December:
December book receipts 183,900
Less receipts not representing collections in December:
Customers' note collected by bank, Nov.
30 25,000
Note with the bank treated as receipts 30,000 55,000 128,900

Total 148,900
Less deposits credited by the bank in December:
December bank receipts 104,000
Less receipts not representing
deposits:
Erroneous bank debit, Nov.; corrected
Dec. 10,000 94,000

54,900

Outstanding checks, December 31:

Outstanding checks, Nov. 30 42,500

Add checks issued in December:

25
 December book disbursements 101,800
Less disbursements not representing checks for
December:
Book error (SB P990, AR
P9,900) 8,910
Bank service charge, Nov.; recorded Dec. 300 9,210 92,590

Total 135,090
Less checks paid by the bank in
December:
December bank disbursements 51,000
Less disbursements not representing checks:
NSF checks, Dec. 6,000
Bank service charge, Dec. 400 6,400 44,600

90,490

Baht Company
Proof of Cash - Book to Bank Method
For the month of December, 2012
December
Nov. 30 Receipts Disb. Dec. 31
Unadjusted book balances 39,300 183,900 101,800 121,400

Add (deduct) adjustments:

Customers' note collected by bank

(25,000
November 25,000 )

Bank service charges

November (300) (300)

December 400 (400)

(10,000
Erroneous bank debit-November ) 10,000 -

Undeposited collections
(20,000
November ) 20,000
(54,900 (54,900
December ) )

Outstanding checks

26
 November 42,500 42,500
(90,490
December ) 90,490

NSF checks
(6,000
December 6,000 )

Book errors in December

(30,000 (30,000
Uncollected customer's note treated as receipts ) )
Error in recording a check (SB P990, AR (8,910
P9,900) ) 8,910
Unadjusted bank balances 76,500 104,000 51,000 129,500

Baht Company
Proof of Cash - Adjusted Balance Method
For the month of December, 2012
December

Nov. 30 Receipts Disb. Dec. 31

76,50 104,00 51,00 129,50
Unadjusted bank balances 0 0 0 0
Add (deduct) adjustments:
10,00 (10,00
Erroneous bank debit-November 0 0) -
Undeposited collections
20,00 (20,00
November 0 0)
December 54,900 54,900
Outstanding checks
(42,50 (42,50
November 0) 0)
(90,49
December 90,490 0)
64,00 128,90 98,99 93,91
Adjusted bank balances 0 0 0 0

Unadjusted book balances 39,300 183,90 101,80 121,40

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 0 0 0
Add (deduct) adjustments:
Customers' note collected by bank
25,00 (25,00
November 0 0)
Bank service charges
(300 (300
November ) )
(400 AJE
December 400 ) 1
NSF checks
6,00 (6,00 AJE
December 0 0) 2
Book errors in December
Uncollected customer's note treated as (30,00 (30,00 AJE
receipts 0) 0) 3
Error in recording a check (SB P990, AR (8,91 8,91 AJE
P9,900) 0) 0 4
64,00 128,90 98,99 93,91
Adjusted book balances 0 0 0 0

- - - -
Adjusting journal entries:

1) Bank service charge 400

Cash in bank 400

2) Accounts receivable 6,000

Cash in bank 6,000

3) Notes receivable 30,000

Cash in bank 30,000

4) Accounts payable 8,910

Cash in bank 8,910

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PROBLEM NO.11 – Proof of cash

SOLUTION:

Hangover Company
Proof of Cash - Bank to Book Method
For the month of July, 2012

July
Receipt
6/30 s Disb 7/31

Unadjusted bank balances 66,405 76,800 77,395 65,810

Direct deposits
June (675) 675
July (675) (675)
NSF check redeposited - July (472) (472)
Book error - July (SB P1,492, AR P1,000) (492) 492
Bank error - July (386) 386
Bank service charges
June 165 165
July (175) 175
Interest earned
June (3,054) 3,054
July (3,160) (3,160)
Book error - June (SB P9,850, AR
P8,955) 895 895
Deposits in transit
June 3,156 (3,156)
July 2,238 2,238
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Outstanding checks
June (4,742) (4,742)
July 5,857 (5,857)

Unadjusted book balances 62,150 75,304 77,150 60,304

Hangover Company
Proof of Cash - Book to Bank Method
For the month of July, 2012

July
Receipt
6/30 s Disb 7/31

Unadjusted book balances 62,150 75,304 77,150 60,304

Direct deposits
June 675 (675)
July 675 675
NSF check redeposited - July 472 472
Book error - July (SB P1,492, AR P1,000) 492 (492)
Bank error - July 386 (386)
Bank service charges
June (165) (165)
July 175 (175)
Interest earned
June 3,054 (3,054)
July 3,160 3,160
Book error - June (SB P9,850, AR
P8,955) (895) (895)
Deposits in transit
June (3,156) 3,156
July (2,238) (2,238)

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Outstanding checks
June 4,742 4,742
July (5,857) 5,857

Unadjusted bank balances 66,405 76,800 77,395 65,810

Hangover Company
Proof of Cash - Adjusted Balance Method
For the month of July, 2012
July
Receipt
6/30 s Disb 7/31

Unadjusted bank balances 66,405 76,800 77,395 65,810

Deposits in transit
June 3,156 (3,156)
July 2,238 2,238
Outstanding checks
June (4,742) (4,742)
July 5,857 (5,857)
NSF check redeposited - July (472) (472)
Bank error - July (386) 386

Adjusted bank balances 64,819 75,410 77,652 62,577

Unadjusted book balances 62,150 75,304 77,150 60,304

Direct deposits
June 675 (675)
July 675 675 AJE 1

31
Bank service charges
June (165) (165)
July 175 (175) AJE 2
Interest earned
June 3,054 (3,054)
July 3,160 3,160 AJE 3
Book errors
June (SB P9,850, AR
P8,955) (895) (895) AJE 4
July (SB P1,492, AR P1,000) 492 (492) AJE 5

Adjusted book balances 64,819 75,410 77,652 62,577

- - - -
Adjusting journal entries:
6
1) Cash in bank 75
Rent income 675
1
2) Bank service charge 75
17
Cash in bank 5
3,1
3) Cash in bank 60
3,16
Interest income 0
8
4) Rent expense 95
89
Cash in bank 5
4
5) Wages expense 92
49
Cash in bank 2

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PROBLEM NO.12- Proof of cash

SOLUTION:

Requirement No. 1
9,000,0
Total deposits per bank statement in June 00
(200,0
Note collected by bank in July 00)
(400,0
Deposits in transit, June 30 00)
1,000,0
Deposits in transit, July 31 00
9,400,0
Cash receipts per books in July 00

Requirement No. 2
7,000,0
Total disbursements per bank statement in June 00
(140,0
July NSF check 00)
(10,0
July service charge 00)
(900,0
Outstanding checks, June 30 00)
600,0
Outstanding checks, July 31 00
6,550,0
Cash disbursements per books in July 00

Requirement No. 3
2,500,0
Balance per books, June 30, 2007 00
9,400,0
July receipts per books (see no. 21) 00
(6,550,0
July disbursements per books (see no. 22) 00)
5,350,0
Balance per books, July 31, 2007 00

Requirement No. 4
Balance per bank statement, July 31 (P3M+P9M- 5,000,0

33
 P7M) 00
1,000,0
Deposits in transit, July 31 00
(600,0
Outstanding checks, July 31 00)
5,400,0
Adjusted bank balance, July 31 00

5,350,0
Balance per books, July 31 00
200,0
Note collected by bank in July 00
(140,0
NSF check 00)
(10,0
Bank service charges 00)
5,400,0
Adjusted book balance, July 31 00

PROBLEM NO.13 – Proof of cash

SOLUTION:

Syria Company
Proof of Cash - Bank to Book Method
For the month of December, 2012

December
Nov. 30 Receipts Disb Dec. 31

Unadjusted bank balances 480,000 240,000 300,000 420,000

Undeposited collections:

November 30 100,000 (100,000)

December 31 140,000 140,000

Outstanding checks:

November 30 (150,000) (150,000)

December 31 120,000 (120,000)

DAIF checks:
Returned in Nov.,
recorded in Dec. 10,000 (10,000)

34
 Returned and recorded
in Dec. (25,000) (25,000)

Returned in Dec., recorded in Jan. (29,000) 29,000

Erroneous bank debit (90,000) 90,000

Unrecorded bank collection
in Dec. (106,000) (106,000)
Anticipated loan proceeds from AR
hypothecation
Nov. 30 sales
(P180,000 x 80%) 144,000 (144,000)

Dec. 31 sales (P200,000 x 80%) 160,000 160,000

Deposits with loan payment (P725,000 x 80%) 580,000 580,000

Anticipated loan payment from undeposited collections

Nov. 30 (P100,000 x
80%) (80,000) (80,000)
Dec. 31 (P140,000 x
80%) 112,000 (112,000)

Interest charge for bank loan in Dec. (38,000) 38,000

Unadjusted book balances 504,000 735,000 700,000 539,000

Syria Company
Proof of Cash - Adjusted Balance Method
For the month of December, 2012

December
Nov. 30 Receipts Disb Dec. 31

Unadjusted bank balances 480,000 240,000 300,000 420,000

Undeposited collections:
November 30 100,000 (100,000)
December 31 140,000 140,000
Outstanding checks:
November 30 (150,000) (150,000)
December 31 120,000 (120,000)
Erroneous bank debit (90,000) 90,000
Deposits with loan payment (P725,000 x 580,000 580,000

35
 80%)
Adjusted bank balances 430,000 860,000 760,000 530,000

Unadjusted book balances 504,000 735,000 700,000 539,000

DAIF checks:
Returned in Nov.,
recorded in Dec. (10,000) 10,000
Returned and
recorded in Dec. 25,000 25,000
Returned in Dec., recorded in Jan. 29,000 (29,000)
Unrecorded bank
collection in Dec. 106,000 106,000
Anticipated loan proceeds from AR
hypothecation
Nov. 30 sales
(P180,000 x 80%) (144,000) 144,000
Dec. 31 sales (P200,000 x 80%) (160,000) (160,000)
Anticipated loan payment from undeposited collections
Nov. 30 (P100,000 x
80%) 80,000 80,000
Dec. 31 (P140,000 x
80%) (112,000) 112,000
Interest charge for bank loan in Dec. 38,000 (38,000)
Adjusted book balances 430,000 860,000 760,000 530,000

PROBLEM NO.14 –Three-dated bank reconciliation

SOLUTION:

Requirement 1.a
Deposits in transit, Nov. 35,00
30 0
Add collections in
December:
December book 963,2
receipts 30
Customers' note collected by bank in (20,0 943,23
Nov. 00) 0
978,23
Total 0

36
Less deposits credited by the bank in
December:
December bank 941,0
receipts 10
(3,2 937,74
NSF check redeposited (Customer A) 70) 0
Deposits in transit, Dec. 40,49
31 0

Requirement 1.b
Outstanding checks, 88,24
Nov. 30 0
Add checks issued in December:
1,008,4
December book disbursements 80
( 1,008,40
Collection fee for note collected in Nov. 80) 0
1,096,64
Total 0
Less checks paid by the bank in December:
1,010,4
December bank disbursements 10
Bank error in check payment (P1,340 - (1,0
P340) 00)
NSF check - (3,2
Customer A 70)
NSF check - (6,7 999,41
Customer B 30) 0
Outstanding checks, 97,23
Dec. 31 0

Requirement 1.c
Deposits in transit, Dec. 31 (see Requirement 40,49
1.a) 0
Add collections, Jan. 1-
12:
Jan. 1-12 book 292,5
receipts 00
NSF check - 6,73 299,23
Customer B 0 0
339,72
Total 0
Less deposits credited by the bank, Jan. 1-12:

37
 Jan. 1-12 bank 321,4
receipts 90
Correction of error in check payment in (1,0 320,49
Dec. 00) 0
Deposits in transit, Jan. 19,23
12 0

Requirement 1.d
Outstanding checks, Dec. 31 (see 97,23
Requirement 1.b) 0
Add checks issued, Jan. 1-12:
177,5
Jan. 1-12 book disbursements 70
5,50 183,07
Unrecorded payroll checks 0 0
280,30
Total 0
230,18
Less checks paid by the bank, Jan. 1-12: 0
Outstanding checks, Jan. 50,12
12 0

December January 1-12

Nov. Receipt Receipt
30 s Disb Dec. 31 s Disb Jan. 12

Unadjusted bank 344,42 941,0 1,010,4 275,02 321,4 230,18 366,3

balances 0 10 10 0 90 0 30
Deposits in transit:
35,00 (35,0 (40,4
eginning of period 0 00) 90)
40,49 40,49 19,2 19,2
End of period 0 0 30 30
Outstanding checks:
(88,24 (88,2 (97,23
Beginning of period 0) 40) 0)
97,2 (97,23 50,12 (50,1
End of period 30 0) 0 20)
Bank error in check (1,0 1,00 (1,00
payment 00) 0 0)
NSF check redeposited (Customer (3,27 (3,2
A) 0) 70)
Adjusted bank balances 291,18 943,2 1,015,1 219,28 299,2 183,07 335,4

38
 0 30 30 0 30 0 40

Unadjusted book 271,26 963,2 1,008,4 226,01 292,5 177,57 340,9

balances 0 30 80 0 00 0 40
Note collected by bank 19,92 (20,0 (
in Nov. 0 00) 80)
6,73 (6,73 6,73
NSF check not redeposited (Customer B) 0 0) 0
Unrecorded payroll in 5,50 (5,50
Jan. 0 0)
291,18 943,2 1,015,1 219,28 299,2 183,07 335,4
Adjusted book balances 0 30 30 0 30 0 40

PROBLEM NO.15- Theory

Select the best answer for each of the following:

1. Who is responsible, at all times, for the amount of petty cash fund?
a. General cashier
b. President of the company
c. Petty cash custodian
d. Chairman of the Board of Directors

2. What is the effect of not replenishing the petty cash fund at the year-end and not making
the appropriate adjusting entry?
a. A detailed audit is necessary.
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.

3. The primary purpose of sending a standard confirmation request to financial institutions

with which the client has done business during the year is to.
a. Detect kiting activities that may otherwise not be discovered.
b. Corroborate information regarding deposit and loan balances.
c. Provide the data necessary to prepare a proof of cash.
d. Request information about contingent liabilities and secured transactions.

4. The auditor should ordinarily mail confirmation request to all banks with which the client
has conducted any business during the year, regardless of the year-end balance, since
a. The confirmation form also seeks information about indebtedness to the bank.

39
 b. This procedure will detect kiting activities which otherwise not be detected.
c. The mailing of confirmation forms to all such banks is required by GAAS.
d. This procedure relieves the auditor of any responsibility with respect to non-detection
of forged checks.

5. How will the auditor most likely utilize the bank reconciliation as evidence in the audit of
cash?
a. The auditor test deposits-in-transit and outstanding items to other corroborating
evidence.
b. The auditor sends the reconciliation to the bank for independent verification.
c. The auditor performs the reconciliation for the client to record the proper cash balance.
d. The auditor traces the book balance of the reconciliation to the cut off bank statement.

6. The auditor will send a standard bank confirmation to which of the following?
a. Financial institutions for which the client has a balance greater than P0 at the end of
the year.
b. Financial institutions with which the client has transacted during the year.
c. Financial institutions of customers using the lockbox.
d. Financial institutions used by significant shareholders.

7. An auditor who is engaged to examine the financial statements of a business enterprise

will request cut-off bank statement primarily in order to
a. Verify the cash balance reported on the bank confirmation inquiry form.
b. Verify reconciling items on the client’s bank reconciliation.
c. Detect lapping.
d. Detect kiting.

8. Which of the following cash transfers would appear as a deposit in transit on the
December 31, 2015 bank reconciliation?

Bank Account A Bank Account B

Disbursing Date (Month/Day Receiving Date (Month/Day)
Per Bank Per Books Per Bank Per Books
a. 12/31 12/30 12/31 12/30
b. 1/2 12/30 12/31 12/31
c. 1/3 12/31 1/2 1/2
d. 1/3 12/31 1/2 12/31

40
 9. Which of the following transfers would not appear as an outstanding check on the
December 31, 2015 bank reconciliation?

Bank Account A Bank Account B

Disbursing Date (Month/Day) Receiving Date (Month/Day)
Per Bank Per Books Per Bank Per Books
a. 12/31 12/30 12/31 12/30
b. 1/2 12/30 12/31 12/31
c. 1/3 12/31 1/2 1/2
d. 1/3 12/31 1/2 12/31

Use the following information for the next two question.

The information below was taken from the bank transfer schedule prepared during the audit of
Khaye Ting Company’s financial statements for the year ended December 31,2015. Assume all
checks are dated and issued on December 30, 2015.

Disbursements Receipts
No. From To Per Books Per Bank Per Books Per Bank
101 Pbcom HSBC 12/30 1/4 12/30 1/3
102 UCPB MBank 1/3 1/2 12/30 12/31
103 HSBC PSBank 12/31 1/3 1/2 1/2
104 MBank PNB 1/2 1/2 1/2 12/31

10. Which of the following checks might indicate kiting?

a. Check No. 101 and 103
b. Check No. 102 and 104
c. Check No. 101 and 104
d. Check No. 102 and 103

11. Which of the following checks illustrates deposits/transfers in transit at December 31?
a. Check No. 101 and 102
b. Check No. 101 and 103
c. Check No. 102 and 104
d. Check No. 102 and 104

12. Which of the following cash transfer results in a misstatement of cash at December 31?

Disbursements Receipts
From To Per Books Per Bank Per Books Per Bank
a. Pbcom HSBC 12/31/15 1/4/16 12/31/15 12/31/15
b. UCPB MB 1/4/16 1/5/16 12/31/15 1/4/16

41
 c. HSBC PBank 12/31/15 1/5/16 12/31/15 1/4/16
d. MBank PNB 1/4/16 1/11/16 1/4/16 1/4/16

ANSWERS:
1. C 5. A 9. B
2. C 6. B 10. B
3. B 7. B 11. B
4. A 8. D 12. B

42
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