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Audit of Cash and 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 disclosures with
respect to amounts restricted to withdrawal are made in the financial statements.

Audit Procedures

1. Conduct a cash count of undeposited collections, petty cash and other funds.
 Obtain custodians 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:
o Undeposited collections should be traced to bank deposits
o Checks accommodated in petty cash should be deposited after the count
to establish their validity
o IOU’s in the petty cash should be confirmed and traced to collections in
the next payroll period.
o Expense vouchers should be traced to the succeeding replenishment
voucher.
2. Confirm bank balance by direct correspondence with all banks in which the client
has had deposits and loans during the year
3. 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 the bank.
 Establish authenticity of reconciling items by reference to their respective
sources, like:
o Bank debit or credit advices
o Duly approved journal vouchers
 Investigate checks outstanding for a long period of time.
o Consider adjustments, especially if the check is already stale
o 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 cut off bank statement showing the clients transactions with the bank at least
one week after the reporting date and:
 trace year end reconciling items like:
o deposit of the year end undeposited collections
o completeness of year end outstanding checks
o corrections of bank errors
 Examine supporting documents of year end outstanding checks that did not
clear in the cut off bank statement.
5. Obtain a least of interbank transfer 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 reasonable of cut off by:


Comparing dates of checks returned with cut off bank statement to dates of
recording in the cash disbursement register.
 Tracing receipts recorded a few days before the reporting date to bank
deposits.
7. Inspect savings account passbook and certificates of deposits.
 Reconcile with book balances
 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 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.
 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 balance for the 4th quarter of 2010 amounting to
P1,950 was not recorded.
 Deposit in transit and outstanding checks at December 31, 2010 totaled
P136,250 and P276,380mrespectively.
 Bank service charges totaling P1,260 were not recorded.

2. Various expenses from the company’s imprest petty cash fund dated December
2010 totaled P16,250 while those dated January 2011 amounted to P3,500 a
replenishment of 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 P748,320


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
b.P10,250
c.P30,000
d.P24,097

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

a. P 0
b. P5,903
c. P3,500
d. P4,347

3. What is the adjusted cash in bank Tsunami bank balance on December 31,2010?

a. P500,000
b. P748,320
c. P432,710
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. P6,142,960
b.P5,439,360
c. P4,442,960
d. P5,442,960

Solution 1-1

1. Petty cash fund 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

3.
Book Bank
Unadjusted balances P748,320 P638,340
NSF checks (22,500)
Bank error (7520-5720) 1,800
Unrecorded cash receipt 3,500
Post dated checks (67,300)
Deposit in transit (136,250-67300) 68,950
Banf debit memos (230,000)
Interest earned 1,950
Bank service charges (1,260)
Outstanding checks (276,380)
Adjusted balances P432,710 P432,710

4. Accounts Receivable (P22,500 + 67, 300) 89,800


Accounts payable 230,000
Bank service charges 1,620
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


Petty cash fund 10,250
Time Deposit 1,000,000
Money Market Placement 4,000,000
Cash and Cash Equivalent P5,442,960

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 cash on its December 31, 2010 statement of
financial position?

A. P590, 200
B. P2,790,200
C. P790,200
D. P750,000

Solution 1-2

Undeposited collections P40,200


Current account - unrestricted 620,000
Unreleased/undelivered checks 130,000
Total P790,200
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:


o Current Account P81,000
o Savings Account P132,600
 Undeposited customers checks of P22,200 (including a customer check dated
January 2, 2011 for 3,000).
 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)
 The petty cash fund of P4,000 (currency of P1,200 and unreplenished vouchers 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

What is the correct cash balance of cash and cash equivalents to be reported in the current
assets section of the statement of financial position?

a. P547,480
b.P427,480
c.P430,280
d.P327,480

Solution 1-3

Savings and current accounts – Metropolitan Bank


(|P132,000 + 81,000) P213,600
Undeposited customers checks (22,200-3,000) 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

Answer: B

The ff. items are not included in the solution above:

1. P3,000 postdated customer check.


2. P2,400,000 cash balance at Northern Philippines Bank to be used for future plant
expansion.
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

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 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
b. II only
c. Both I and II
d. Neither I nor II

Solution 1-4

 The check payable to the company is a postdated check, 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 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

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 Prudential Bank 135,000
Treasury Bills (acquired 3 months before maturity) 300,000
Treasury bills (maturity date is December 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
Employees 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 12,000) 15,000

What amount would be reported as “Cash and Cash Eequivalents on the statement of
financial position on the December 31, 2010?

A. P840,050
B. P873,900
C. P849,400
D. P861,900
Solution 1-5

Current account at Prudential Bank P135,000


Treasury Bills (acquired 3 months before maturity) 300,000
Payroll account 390,000
Traveler’s check 21,000
Money order 12,900
Petty cash fund 3,000
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 the 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 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
b. P2,000,000
c. P1,980,000
d. P2,220,000

2. What is the effective interest rate on the loan?

a.13.2%
b.11.8%
c.13%
d.12%

Solution 1-6

1. X=Principal amount of the loan

10%X = 20,000 + (X-2,000,000)


10%X = 20,000 + X-2,000,000
10%X-X = - 1,980,000
90%X = 1,980,000
X = 1,980,000 / 90%
X = 2,200,000

Answer:A

2.
Annual interest payment (2,200,000) 264,000
Interest income on the loan proceeds in the
compensating balance (200,000 x 2%) 4000
Effective interest 260,000
Divide by loan proceeds 2,000,000
Effective interest rate 13%
Answer: A

Problem 1-7
Computation 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 deposited by the bank 350,000
A customers check returned by the bank for insufficient fund 150,000
A check drawn by the vice president of the company
dated January 15, 2001 70,000
A check drawn by a supplier dated December 28, 2010 for goods
returned by 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 reconciliation of Bank of Manila 410,000
Petty cash fund of which P10,000 in in currency, 7200
in form of employee’s IOUs and 2,800 is supported
by approved petty cash vouchers for expenses all
dated prior to closing of the books on December 31, 2010. 20,000
Total
Less: Overdraft with Bank of Manila secured by
a chattel mortgage on the inventories 300,000
Cash balance per ledger P1,660,000

What is the amount to be reported on the December 31, 2010 statement of financial
position of BEA company?

Solution 1-7

Current account – bank of PI P900,000


Undeposited collections 350,000
Suppliers check for goods returned by the company 60,000
Petty cash fund 10,000
Bank of Manila 110,000
Correct cash balance P1430,000

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
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
b. P380 shortage
c. P1880 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 8120
Cash short or over 380
Petty cash fund 8500
b. Miscellaneous general expenses 8120
Cash short or over 380
Petty cash fund 7,740
c. Miscellaneous general expenses 8120
Petty cash fund 8120
d. Miscellaneous general expenses 8,500
Cash short or over 380
Petty cash fund 8120

Solution 1-8

1.
Cash P1,500
Miscellaneous general expenses 8,120
Petty cash accounted (9,620)
Petty cash per ledger 10,000
Petty cah shortage P 380

Answer: B
2.
Miscellaneous general expenses 8,120
Cash short or over 380
Petty cash fund 8,500

Answer: 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
o Postage 420
o Office supplies expense 900
o Transportation expense 340
o Computer repairs 800
o Advances to office staff 1,500
 A check drawn by Samantha, Inc payable to the
petty cash custodian 7,200
 Postage stamps 300
 An employees check, returned by the bank, marked NSF 1000
 An envelope containing 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
b. P2,190 shortage
c. P1,890 shortage
d.P1,890 overage
2. What is the adjusted balance of the petty cash fund at July 31, 2010?
a. P10,740
b.P3,540
c.P7,200
d.P8,850

Solution 1-9

1.
Currency P1,650
Petty cash vouchers (420+900+340+800+1,500) 3,960
Replenishment check 7,200
Employee’s NSF check 1,000
Petty cash accounted 13,810
Petty cash fund per ledger 16,000
Petty cash shortage P2,190

Answer: B

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 following disbursements are made from the fund:

 Office supplies P3,460


 Postage 2,240
 Entertainment 840

The balance in the petty cash box is 3,200.

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.
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


Postage expense 2,240
Entertainment expense 840
Cash over or short 260
Petty cash 6,800

c. Office supplies expense 3,460


Postage expense 2,240
Entertainment expense 840
Cash over or short 260
Cash 6,800

d. Office supplies expense 3,460


Postage expense 2,240
Entertainment expense 840
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 disbursements
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 any
adjusting entries?

a. 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


Postage expense 2,240
Entertainment expense 840
Cash over or short 260
Cash 6,800

Answer: C

4. Facilitate payment of small, miscellaneous items.

Answer: D

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. 27,000

Unreimbursed Vouchers

Date Payee Description Amount


Dec. 23 Mario Lansang, Advance for trip to P 20,000
Sales manager Tagaytay City 14,000
Dec. 28 Central Post Office Postage stamps, 1,620
Dec. 29 Messengers Transportation 150
Dec. 39 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 revealed that Juan’s salary is mingled with the petty cash fund.

2. The sales manager’s liquidation report for his Tagaytay City trip.
Cash advance received on December 23 P20,000
Less: Hotel accommodation, meals, etc. 16,000
Bus fare for two 1,200
Cash given to Pablo, salesman 1,000 18,200
Balance 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 P 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, 2010.

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

a. P240
b. P1,800
c. P120
d. P 0

2. What is the amount of undeposited collections on December 31, 2010?

a. P44,300
b. P84,300
c. P57,300
d. P41,000

3. The adjusting entries on December 31, 2010 should include a net debit to Travel
Expenses of

a.P17,320
b.P18,320
c.P18,200
d.P18,080

4. What is the total unreimbursed vouchers on January 3, 2011 (count date)?

a. P22,450
b. P22.085
c. P22,570
d. P22,205

5. What is the total cash shortage?

a. P22,166
b. P8,166
c. P22,406
d. P20,486

Solution 1-11

1.
Cash advance P 20,000
Less: Actual cash disbursed
Hotel, meals, etc P16,000
Bus fare 1,200
Pablo (1,000-120) 880 18,080
Cash that should be returned 1,920
Cash actually returned 1,680
Shortage due from sales manager P 240

Answer: A

2. Collections per OR nos 4352 - 4355 P 43,300


Unreceipted collections 14,000
Total undeposited collections P 57,300
3. Travel expenses (P16,000 + 1,200 + 880) P18,080
Answer: D

4. Unreimbursed vouchers
(20,000 + 1,620 + 150 + 800) P22,570

Answer: C

5. Total 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


P 100.00 5 P500
50.00 40 2,000
20.00 48 960
5.00 18 90
1.00 206 206
0.25 32 8 P3,764

Checks
Date Maker Amount
Dec. 30 Custodian P 1,200
Dec. 30 SLV, Inc. 14,000
Dec. 31 Mario Lansang,
Sales manager 1,680
Dec. 31 MSU Corp 17,800
Dec. 31 Ateneo, Inc. 8,300 P42,980

Unreimbursed Vouchers

Date Account Amount


Dec. 23 Advances P 20,000
Dec. 28 Postage 1,620
Dec. 29 Transportation 150
Dec. 39 Repairs 800 P22,570

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


Postage expense 1,620
Transportation expense 150
Repairs expense 800
Petty cash fund 22,570

3. Unused postage 365


Postage expense 365

4. Cash 7,500
Salaries Payable 7,500

5. Receivable from custodian 22,166


Cash 22,166

6. Travel expenses
(16,000 + 1,200 + 880) 18,080
Petty cash fund 1,680
Advances to officers and employees 19,760

Problem 1-12

Bank Reconciliation; Computation of Undeposited Collections

On July 7, 2011, 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 banks 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 was totaled P354,400.

1. What is the amount of the customer’s DAUD check?


A. P14,100 C. P21,900
B. P 3,900 D. P334,900

2. The adjusted cash balance is


A. P31,100 C. P38,900
B. P 387,900 D. P4,900

3. The cash balance per ledgers should be increased (decreased) by


A. P3,900 C. P(3,900)
B. P 178,400 D. P(178,400)
4. To gather evidence regarding the balance per bank in a bank reconciliation, an auditor
would examine all 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

2 Book Bank
Unadjusted balances P 35,000.00 P 209,500.00

Bank charge for DAUD check (21,900.00)


Overstatement of Book Disbursement 18,000.00

Outstanding checks (354,400.00)


Undeposited collections (SQUEEZED) 176,000.00
Adjusted balances P 31,100.00 P 31,100.00

3. Adjusting Journal Entries June 30, 2011

a. Accounts receivable 21,900


Cash 21,900

b. Cash 18,000
Accounts payable 18,000

Net decrease in cash balance


(21,900 – 18,000) 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

4. D General ledger

Problem 1-13

Bank Reconciliation: unadjusted to adjusted balance 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 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
2011
April 1 Beginning balance 6,150
1 Deposits 26,167 32,317
1 Check No. 179 250 32,567
4 Check No. 180 10,672 21,898
27 Deposits 11,774 33,672
29 Check No. 181 13,217 20,490

The following is from Garay’s Bank statement for April:

Date Item Checks Deposits Balance


2010
April 1 Beginning balance 3,950
3 Check No.179 250 3,700
3 Deposits 4,350 8,050
5 Check No. 180 10,673 (2,623)
5 Automatic loan 8,150 5,527
5 Deposits 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 banks
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
Unadjusted balances 20,490 30,426
Outstanding checks:
Check No. 178 2,150
Check No. 181 13,217 (15,367)
Deposit in trasit 11,774
Error in recording deposits (26,417-26,167) 250
Automatic loan 8,150
Interest 82
NSF check (1,000)
Bank service charge (600)
Arithmetic error for:
Check No. 179 (32,567-32,067) (500)
Check No. 180 (21,898-21,894) (4)
Check No. 181 (20,490-20,455) (35)
Adjusted balances 26,833 26,833

Answer: A

Problem 1-14

Bank Reconciliation: Bank to Book Format

The information below relates to Charmaine Company’s cash in bank:

Balance per bank statement, Dec. 31, 2011 P27,910


Collections recorded but not yet deposited in bank 1,950
NSF check- not recorded on the books nor redeposited 2,000
Bank charges not recorded 40
Note collected by bank and not recorded on the books 2,800
Outstanding checks 3,000

The cash balance in the books of Charmaine Company on December 31, 2011, 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)
Outstanding checks (3,000)
Balance per books P26,100

Answer: D

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 disbursement 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 November and
Redeposited in December (no entry in Nov. and Dec.) 7,600
Deposits 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 (SQUEEZE) 12,112


Add: Checks issued during the December
Book disbursement during Dec. 34,658
Less: Nov. bank service charge 2,000 32,658
Total 44,770
Less: Checks paid by the bank during December
Bank disbursement during the Dec. 24,320
Less: NSF check in Dec. 16,000
Dec. bank service charge 1,000 17,000 7,320
Outstanding checks, December 31 37,450

Answer: A

Problem 1-16

Bank Reconciliation: Unadjusted to Adjusted Balance Format

Elaine Inc.’s newly hired accountant prepared the following cash reconciliation as of June
30, 2011:
BANK BOOK
Unadjusted balance 268,367 79,367
Deposits in transit (15,000)
Bank service charge 1,000
Check written and recorded on
June 30 but was released on July (12,000)
Outstanding checks 36,000
NSF check 17,000
Loan proceeds (company not informed) 200,000
Erroneous bank debit 15,000
Customers' check received on June 29
(all dated July 6) included in DIT 9,000
Certified check 11,000
Unlocated difference 345,000
Total 477,367 477,367
The adjusted cash balance of Elaine Inc. on June 30, 2011, should be
A. P265,367 C. P273,367
B. P253,367 D. P264,367

Solution 1- 16

BOOK BANK
Unadjusted balance 79,367 268,367
Deposits in transit, net of postdated checks 6,000
Bank service charge (1,000)
Unreleased check 12,000
Outstanding checks, net of certified check (25,000)
NSF check (17,000)
Loan proceeds (company not informed) 200,000
Erroneous bank debit 15,000
Postdated checks (9,000)
Total 264,367 264,367

Answer: D

Problem 1-17

Bank Reconciliation: Unadjusted to Adjusted Balances Format

The following information pertains to Flint Corp.:


Flint Corp.
Bank Reconciliation
November 30,2011

Balance per bank statement 435,000


Less: outstanding checks
No. 4321 6,000
No. 4329 15,000
No. 4340 1,700
No. 4341 4,675 27,375
Total 407,625
Add: Deposits in transit 16,200
Balance per books 423,825

CHECK REGISTER
December 2011
Date Payee No. Vouchers Payable Discount Cash
Dec. 1 San Beda, Inc. 4342 10,000 500 9,500
3 Miriam Corp. 4343 4,200 - 4,200
7 UE Enterprise 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
Total 261,455 762 260,693

BANK STATEMENT
BANKABLE BANK
PERIOD: NOVEMBER 30, 2011- DECEMBER 31, 2011
No: 001-43-44

Date Description Check No. Debit Credit Balance


Balance last statement 435,000
Dec. 1 Cash Deposit 16,200 451,200
1 Check Issued 4329 15,000 436,200
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 Issued 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 DM-service charge 1,000 272,070
29 CM-interest 1550 273,620

Deposits 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

2. What is the cash balance per books on December 31, 2011?


A. P275,132 C. P291,332
B. P226,132 D. P274,370

3. What is the total outstanding checks on December 31,2011?


A. P68,313 C. P46,938
B. P39,238 D. P40,938

4. What is the adjusted cash balance on November 30,2011?


A. P446,375 C. P423,825
B. P417,825 D. P435,000

5. What is the adjusted cash balance on December 31,2011?


A. P281,682 C. P226,682
B. P275,682 D. P274920

Solution 1- 17
1.
Dec. 5 Deposit 49,000
8 Deposit 14,000
31 Deposit in transit 49,000
Total collections/Book receipts 112,000
Answer: D
2.
Cash balance, November 30 432,825
Add: December receipts (see no.1) 112,000
Total 544,825
Less: Disbursement per check register 260,693
Cash balance, December 31 284,132
Answer: A

3.
Outstanding checks, December 31:
Check no. 4321 6,000
4340 1,700
4345 11,880
4347 6,300
4348 14,058
4349 7,000
Total 46,938

Answer: A

4. Adjusted cash balance, Nov. 30, 2011

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
Unadjusted balances 275,132 273,620
Deposits in transit 49,000
Outstanding check (46,938)
Service charge (1,000)
Interest 1,550
Adjusted balances 275,682 275,682

Answer: B

Problem 1-18

Bank Reconciliation: Unadjusted to Adjusted Balances Format

Edgardo Co. was organized on January 2, 2011. The following items are from the
company’s trial balance on December 31, 2011.

Ordinary share capital 1,500,000


Share premium 150,000
Merchandise inventory 69,000
Land 1,000,000
Building 1,400,000
Furniture and Fixtures 367,000
Accounts receivable 165,400
Accounts payable 389,650
Notes payable- bank 500,000
Sales 6,235,200
Operating expenses (including dep'n of P400,000) 1,005,150

Additional information as follows:

1. Deposits in transit, December 31 P384,660


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 collections 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. P653,660 C. P1,203,660
B. P803,660 D. P707,060

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 receivable 165,400
Collections from customer P6,069,800

Answer: D

2. Cost of sales (6,235,200x70%) P4,364,640


Add: Merchandise inventory ,December 31 69,000
Goods available for sale P4,433,640
Less: Accounts payable, December 31 389,650
Payments for purchases P4,043,990

Answer: C

3. Issue price of ordinary shares


(1,500,000+150,000) 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 expense, net of dep’n 605,150
Payment for Purchases 4,043,990
Total cash disbursement per books P7,416,140

Answer: B

5. Cash Receipts per books (no.3) P8,219,800


Cash Disbursement per books (no.4) 7,416,140
Cash balance per books, December 31 P801,660

Answer: B
6.
Book Bank
Unadjusted balances 803,660 892,000
Deposits in Transit 384,660
Service charge (2,000)
Outstanding check (475,000)
Adjusted balances 801,660 801,660

Answer: A

Problem 1-19

Computation of Cash receipts and Disbursements

In connection with your audit of cash account of Annie Corp., you gathered the following
information.

a. Balance per bank, December 1, 2011 P145,000


b. Total bank receipts in December 346,000
c. Balance per bank, December 31, 2011 114,500
d. Outstanding checks, Nov.30, 2011 (including
P12,000 paid by bank in November) 67,000
e. Outstanding checks, December 31,2011 ( including
check issued in November) 94,162
f. Deposits in transit, November 30,2011 39,458
g. A customer’s check received on December 4, 2011, was
returned by bank on December 7, 2011 marked “NSF”.
It was redeposited on December 8,2011.
The only entry made was to take up the collectionon
December 4, 2011. 11,143

1. What is the total book receipts in December?


A. P295,399 C. P334,857
B. P306,542 D. P346,000

2. What is the total bank Disbursement in December?


A. P315,500 C. P231,500
B. P376,500 D. P201,000

3. What is the total book disbursement in December?


A. P447,519 C. P403,662
B. P331,519 D. P392,519

Solution 1-19
1.
Bank receipts in December 346,000
Less: Deposits in transit,November 30 39,458
NSF check redeposited in December 11,143 50,601
Book receipts in December 295,399
Answer: A
2.
Bank balance, December 1, 2011 145,000
Add: Bank receipts in December 346,000
Total 491,000
Less: Bank balance, December 31, 2011 114,500
Bank disbursement in Decemer 376,500
Answer: B
3.
Bank disbursement in December 376,500
Add: Book disbursement in December but
not in December bank disbursement:
check issued in December, outstanding
at December 31:
Outstanding checks, Dec 31 94,162
Less: Check issued in Nov.,
still outstanding at Dec. 31
(67000-12000) 55,000 39,162
Total 415,662
Less: Bank disbursement in December
but not in the book disbursement in Dec.
November outstanding checks
paid by bank in December 12,000
NSF check 11,143 23,143
Book disbursement in December 392,519

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, 2011 P35,000


2. Bank statement balance, December 31, 2011 60,000
3. Note collected by bank in December (principal plus
Interest of P800, less collection fee of P200) 27,600
4. Debit memo for a checkbook ?
5. Deposits in transit, Dec. 31, 2011 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 31,2011 revealed
The following fund items:
Currency and coins P3,000
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, 2011?


A. P52,500 C. P53,000
B. P52,700 D. P51,900

3. The cost of checkbook?


A. P600 C. P0
B. P300 D. P100

4. What is the amount of petty cash shortage at December 31, 2011


A. P400 C. P100
B. P500 D. P0

5. What is the adjusted petty cash balance?


A. P9,500 C. P3,000
B. P3,500 D. P10,000

Solution 1-20

1. Principal (SQUEEZE) P27,000


Interest 800
Collection of fee (200)
Proceeds credited by bank P27,600

2.
Book Bank
Unadjusted Balances 35,000 60,000
Note collected by bank 27,600
Debit memo for checkbook (100)
Deposit in transit 15,200
Transposition error in recoding deposit
(54000-45000) (9,000)
Erroneous bank debit 26,700
Petty cash fund (10,000)
Erroneous bank credit (11,000)
Outstanding check, net of certified check (29,400)
Adjusted balances 52,500 52,500

Answer: A

3. Cost of checkbook (see no. 2) P100

Answer: D

4. Petty cash fund per ledger P10,000


Petty cash accounted 9,500
Petty cash shortage 500

Answer: B

5. Adjusted petty cash balance – currency and coins P3,000

Answer: C

Problem 1- 21

Computation of Book Disbursement

Presented below is the November 30, 2011, reconciliation of the cash account of Ram, Inc.:

Balance per bank statement, November 30, 2011 P78,750


Add: Deposits in transit 36,415
Total P115,165
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, 2011 P 59,214


 Bank credits in December 139,461
 Bank disbursement in December
(Including all outstanding checks on November 30, 2011,
The erroneous bank credit in November) 124,554
 Outstanding checks, December 31, 2011 74,110

1. What is the total book disbursement in December?


A. P149,164 C. P118,380
B. P130,728 D. P124,554

Solution 1-21

Bank disbursement in December 124,554


Add: Book disbursement in December
not yet taken up by bank:
Outstanding checks, Dec 31 74,110
Total 198,664
Less: Bank disbursement in December
but not on books:
Outstanding checks, Nov.30 49,500
Correction of Nov. Erroneous bank credit 18,436 67,936
Book disbursement in Decmber 130,728

Answer: B

Cash and Cash Equivalents


Problem 1-22
The Cash receipts and the cash payments of LIEZEL COMPANY for April 2010 is as follows
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:
Date Item Ref Debit Credit Balance
April 1 Balance 95,550
30 CR 6 528,900 624,450
30 Cr 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
Deposit 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
Checks 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

EFT – Electronic funds transfer BC – Bank collection


US – unauthorized signature SC – service charge
Additional data for the bank reconciliation include the following:
a. The EFT deposit was a receipt of monthly rent. The EFT debit was a monthly insurance payment.
b. The US check was received from Lester Soon.
c. The P68,400 bank collection of a not receivable on April 22 included P9,250 interest revenue.
d. The correct amount of check number 4115, a payment on account, is P69,500. (Liezel’s
accountant mistakenly recorded the check for P96,500)

1 What is the amount of deposit in transit on April 30?


a. P53,000 c. P45,150
b. P69,850 d. P115,000

2 What is the amount of outstanding checks on April 30?


a. P241,000 c. P286,150
b. P337,500 d. P310,500

3 What is the amount of bank receipts in April?


a. P543,750 c. P459,050
b. P527,450 d. P528,900

4 What is the amount of bank disbursements in April?


a. P290,150 c. P289,150
b. P335,300 d. 316,150

5 What is the correct cash balance as of April 30?


a. P132,850 c. P122,150
b. P87,700 d. P223,150

PROBLEM 1-23
Fermin Company’s check register shows the following entries for the month of December:
Date 2010 Check Deposit Balance
Dec Beginning Balance P 89,300
1
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 (# 14343) for
P12,000 (written on November 28), and one deposit in transit for P5,550 (made on November
29).
The following is from Fermin’s banks statement for December 2010:
Date Checks Deposits Balance
2010
Dec Beginning Balance P 95,750
1
1 Deposit P 65,000 101,300
4 Check # 14344 P 32,500 68,800
5 Deposit 26,000 124,800
14 Check # 14345 14,000 110,800
15 Loan Proceed 500,000 610,800
20 NSF Check 7,600 603,200
29 Service Charge 1,000 602,200
31 Interest 3,600 605,800

Assume that all errors were committed by Fermin Company, not the Bank.

Based on the preceding information, determine the following:


1. Adjusted cash balance on November 30
a. P89,300 c. P102,200
b. P95,750 d. P101,300

2. Outstanding checks on December 31


a. P46,500 c. P8,600
b. P45,500 d. P20,600

3. Deposit in Transit on December


a. P52,600 c. P5,550
b. P49,000 d. P43,450

4. Total bank receipts in December


a. P114,000 c. P565,150
b. P119,550 d. P61,550

5. Adjusted cash balance on December 31


a. P663,800 c. P748,200
b. P634,200 d. P597,200

Problem 1-24
The accountant of Narcisa Co. provided the following data in recording the April 30 cash in bank
balance

Balance per Bank, April 30 P 130,350


Balance per book, April 30 85,000
Bank service charge 2,000
Deposit in transit 49,000
Outstanding check 17,650
Note collected by bank including P11,200 interest
(Narcisa Co., not yet informed) 136,000
Check drawn by XYZ Co. erroneously charge by bank
to Narcisa’s account 54,600
A transposition error was made in recoding a sale and deposit in the sales journal and cash
receipts journal in April
Correct amount P 13,658
Recorded amount P16,358

1. What is the adjusted cash balance on April 30?


a. P219,000 c. P216,3000
b. P221,700 d. P161,700
2. Prepare journal entries to correct the cash
account

Problem 1-25
The following information is included in Emil Corporation’s bank statement for the month of
March:
A costumer’s check has been marked “NSF” by
the bank and returned P 13,000
Bank service charge for the March 1,200

In comparing the bank statement to the company’s cash records, you found:
Outstanding checks on March 31 P 184,000
Deposit made but are not yet shown in April
Bank statement 14,000

The deposit in transit and outstanding checks have been correctly taken up in the company’s
books. You also found a costumer’s check for P17,400 that had not yet been deposited and had
not yet been recorded in Emil’s books. Your clients books shows a cash balance of P36,420

What is Emil Corporation’s correct cash balance at March 31?


a. P52,620 c. P P22,220
b.P53,620 d. P39,620

Problem 1-26
The following information to the checking account of a company at June 30,2010.

Balance per bank statement P 200,000


Interest for the second quarter 500
Outstanding check 15,000
Customer’s check returned for insufficient funds 5,000
Deposit in transit 25,000

At June 30,2010, the cash balance per books is


a. P214, 500 c. P185,50
b. P210,000 d. P200,000

Problem 1-27
A company is reconciling its bank statement with internal records. The cash balance per
company’s books is P45,000. There are P5,00 of bank charges not yet recorded, P7,500 of
outstanding checks, P12,500 of deposit in transit, and P15,000 of bank credits and collections
not yet taken up in the company’s books.

What is the cash balance per bank?


a. P20,000 c. P40,000
b. P30,000 d. P50,000

Problem 1-28
A company shows a cash balance of P175,000 on its bank statement stated June 3. As of June
30, there are P55,000 of outstanding checks and P37,500 of deposit in transit.

What is the correct cash balance on the company books as of June 30?
a. P212,500 c. P120,000
b. P267,500 d. P157,500

Problem 1-29
The cash account shows a balance of P225,000 before reconciliation. The bank statement does
not include a deposit of P11,500 made on the last day of the month. The bank statement shows
a collection by the bank of P4,700 and a customer’s check for P1,600 was returned because it
was NSSF. A customer’s check for P2,250 was recorded on the books as P2,700 and a check
written for P395 was recorded as P485.

What should be the correct cash balance?


a. P227,740 c. P228,640
b. P239,240 d. P227,560

Problem 1-30
On July 5, 2010, Emilia Corp, received its bank statement for the month ending June 30. The
statement showed a P209,500 balance while cash account balance on June 30 was P35,000. In
reconciling the balances, the auditor discovered the following
1. The June 30 collections of P176,000 were recorded on the books but were not deposited until
July.
2. The bank service charges for the month June totaled P3,000.
3. A paid check for P24,300 was entered incorrectly in the cash payment journals as P34,200.

What is the total outstanding check at June 30, 2010?


a. P75,400 c. P363,400
b. P343,600 d. P353,500

Problem 1-31
In connection with an audit you are given the following bank reconciliation.
BANK RECONCILAITION
December 31,2010
Balance per ledger, December 31, 2010 P 34,350
Add: Collection received on the last day of December and charged to
Cash in Bank on books but not deposited 5,325
Debit memo for the customer’s returned unpaid (check is on
hand but no entry has been made on the books) 4,000
Debit memo for the bank service charge for December 1,000
P 46,675
Deduct: Outstanding checks (see listed below) P 18,625
Credit memo for the proceeds of a note receivable which had
been left at the bank for the collection but which has not been 8, 000
recorded as collected
Check for an account payable entered on books as P12,625 but
drawn and paid by bank as P16,225 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


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 on December 31?
a. P18,625 c. P17,625
b. P22,625 d. P21,625

2.The journal entry to correct the outstanding checks should include a


a. Dr to Cash in bank of P4,000 c. Dr to Accounts payable of P4,00
b. Cr to Cash in bank of P4,000 d. No journal entry is necessary

3. The correct amount of unlocated difference is ?


a. P32,600 c. P36,600
b. P35,600 d. P 0

4. The cash in Bank to be shown on the company’s December 31, 2010 statement of financial
position is ?
a. P34,750 c. P33,750
b. P37,350 d. P37,750

5. The journal entry to adjust the Cash in bank account as of December 31 should be
a. Dr to Cash in Bank for P8,000 c. Net Cr to Cash in Bank of P600
b. Cr to Cash in Bank for P8,600 d. Net Dr to Cash in Bank of P600

Problem 1-32
In connection with you audit of the Marcelo Company at December 31,2010 the following bank
reconciliation was submitted to you by employee of your client:
Balance per Bank P 30,534
Deposit in Transit 37,856
P 68,390
Outstanding Check 42,756
Balance per books P 25,634
As part of your verification, you obtain 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 P22,482. Checks returned by the bank on January 15,2011,
totaled P58,438. Of the checks outstanding on December 31, 2010, P9,600 were not returned by
the bank with January 15,2011, bank statement; and of those issued, according to the records of
the company, in January 2011, P7,200 were not returned by the bank.

Based on the above data, calculate the disbursements per company records

1. The difference between the disbursement per books as company and reported is
a. P61,912 c. P10,000
b. P2,800 d. P29,874

2. Suggest three possible explanations for the difference between the disbursement per
company as computed an as reported.

Problem 1-33
In auditing Hector Company, you obtained the bank statement canceled checks, and other
memoranda which related to the company 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:

Balance per Bank Statement, 12/31/10 P47,174


Balance per Books 12/31/10 19,289
Outstanding 12/31/10 63,000
Receipts of 12/31/10 and, deposited 1/2/11 6,260
Service charge for November, per Bank memo of
12/15/10 1,000
Proceeds of Bank loan, 12/15/10, discounted for
3 months at 18% per annum, omitted
From company books 47,750
Deposit of 12/22/10, omitted from bank statement 9,170
Check of Milano Company, returned on 12/21/10
for absence of counter-signature and redeposit
with complete signature on 1/3/11, no entry
on the books having been made for the return
or redeposit 77,320
Error on Bank statement in entering deposit of
12/18/10
Correct amount P1,600 1,440
Entered in statement 160
Check No. 021261 of Yek Company, charge by bank
in error to company’s account 13,600
Proceeds of not of Harthur Co., collected by bank
12/10/10, not entered in cash book (principal
amount 25,625
Of P25,000 plus interest of P1,125, less collection
fee)
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
Error on bank statement in entering deposit of
12/4/10
Entered as P14,200.62 1,800
Correct amount 12,400.62
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 by the bank in December?
a. P50,000 c. P48,125
b. P47,750 d. P49,625

2. What amount of the prepaid interest should be shown on Hector’s December 31,2010
statement of financial position?
a. P2,250 c. P375
b. P 0 d. P1,875

3. The amount of the collection of fee is


a. P 625 c. P500
b. P1,625 d. P 0

4. What is the adjusted Cash in bank balance as of December 31,2010?


a. P14,344 c. P17,944
b. P11,464 d. P9,344

5. The cash in bank per ledger as of December 31,2010, should be increased (decreased) by
a. P4,945 c. P(4,945)
b. P5945 d. P(5,945)

SOLUTIONS
Problem 1-22
1. Deposit 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 31,6000
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 P 543,750
credits)
Answer A

4 Bank disbursements in April


(Total checks and other P 335,300
debits)
Answer B

5 Book Bank
Unadjusted balances, April 30 P 78,250 P 304,000
Deposit in Transit 69,850
Outstanding checks
Error in check no. 4115
(P96,500 – P69,500) ( 241,000 )
EFT – rent 27,000
Bank collection 16,300
Unauthorized signature check 68,400
EFT – insurance ( 45,150 )
Service charge ( 10,950 )
Adjusted balances, April 30 P 132,850 P 132,850
Answer B

Problem 1-23
1. Balance per Bank, Nov 30 P 95,750
Outstanding check (# (12,000)
14343)
Deposit in Transit 5,550
Adjusted bank Balance, P 89,300
Nov. 30
Answer A

2. Outstanding Check on
December 31
Check # 14343 P 12,000
Check # 14646 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 receipt in P 565,150


December
Answer C

5. Book Bank
Unadjusted balances P 147,200 P 605,800
Deposit in Transit 49,000
Outstanding check (20,000)
Error in recording deposit ( (9,000)
65,000 – 56,000)
Error in arithmetic for Check 1,000
# 14344
Loan Proceeds 500,000
NSF check (7,600)
Interest 3,600
Service charge (1,000)
Adjusted Balance P 634,200 P 634,200
Answer B

Problem 1-24

1. Book Bank
Unadjusted balances P 85,000 P 13,350
Deposit in Transit 49,000
Outstanding check (17,650)
Transposition error ( 16,358 – (2,700)
13,358)
Collection of note 136,000
Erroneous bank debit 54,600
Bank Service charge (2,000)
Adjusted Balance P 216,300 P 216,300
Answer C

2. Adjusting journal entries


Bank service charge 2,000
Cash in bank 2,000

Cash in bank 136,000


Interest income 11,200
Notes receivable 124,800

Sales 2,700
Cash in bank 2,700

Problem 1-24
Balance per books P 36,420
Unrecorded and undeposited 17,400
costumer’s check
Bank service charge (1,200)
NSF check (13,000)
Adjusted cash balance P 39,620
Answer D

Problem 1-26
Balance per bank statement P 200,000
Outstanding checks (15,000)
Deposit in transit 25,000
Interest earned (500)
NSF Check 5,000
Balance per books at June 30, P 214,500
2010
Answer A

Problem 1-27
Balance per books P 45,000
Bank charges (5,000)
Outstanding checks 7,500
Deposit in transit (12,500)
Bank credits and collections 15,000
Balance per bank P 50,000
Answer D

Problem 1-28
Balance per bank statement P 175,000
Outstanding checks (55,000)
Deposit in Transit 37,500
Adjusted cash balance P 157,500
Answer D

Problem 1-29
Balance per books P 225,000
Bank collection 4,700
Customer’s NSF check (1,600)
Overstatement of Cash (450)
receipt (2,700-2,250)
Overstatement of Cash 90
disbursement (485-395)
Adjusted cash balance P 227,740
Answer A

Problem 1-30
Balance per books, June3 0 P 35,000
Bank service charges (3,000)
Overstatement of 9,900
disbursement (34,200-
24,300)
Adjusted cash balance P 41,900

Balance per books, June 30 P 209,500


Add: Undeposited collection 176,000
Total 385,500
Less: Adjusted cash balance 41,900
Outstanding checks, June 30 P 343,600

Problem 1-31
1. Outstanding checks December 31 (correct total of the list ) P 22,625
Answer B

2. No journal entry is necessary. There is no information in the problem that will dictate
that those included in the list of outstanding checks were not taken up properly on the
books
Answer D

3. A correct reconciliation (see no. 4) shows that there is actually no unloctaed difference.
Answer D

4 Book Bank
Unadjusted balances P 34,350 P 51,050
Deposit in Transit 5,325
Customer’s Check returned (4,000)
Bank service charge (1,000)
Outstanding checks (22,625)
Credit memo for note 8,000
collected
Understatement of books (3,600)
disbursement
Adjusted balances P 33,750 P 33,750
Answer C

5. Adjusting Journal Entries


Accounts Receivable 4,000
Cash in Bank 4,000

Bank Service Charge 1,000


Cash in Bank 1,000

Cash in Bank 8,000


Notes Receivable 8,000

Accounts payable 3,600


Cash in Bank 3,600z

Debit to Cash in Bank P 8,000


Credit to Cash in Bank (4,000 (8,600)
+ 1,000 + 3,600)
Net credit to Cash in Bank (P 600)
Answer C

Problem 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 58,348
statement
Total 75,238
Less: Outstanding checks, 42,756
December 31
Disbursement per books as P 32,482
computed

Disbursement per books as P 32,482


computed
Disbursement per books as 22,482
reported
Difference in Disbursements P 10,000
Answer C
2. Three possible explanation for the above differences:
a. The bank disbursements (58,438) may be overstated by P10,000. Another company check
for P10,000 may have been charge erroneously by the bank against the clients’ account.
b. The December 31 outstanding checks may be understated by P10,000. Since the bank
reconciliation given in the problem was prepared by the company employee, there is no
assurance that it is correct.
c. The client’s employee may failed to record check/s issued in January thus understating the
book disbursements (P22,482)

Problem 1-33
1. = Principal – Interest
Proceeds
47,750 = P – (P x 18% x 3/12)
47,750 = P – 0.045P
47,750 = 0.955 P
P = 47,750 / 0.955
P = P 50,000
Answer A

2. Prepaid Interest, December P 1,875


31 ( 2,250 x 2.5/3)
Answer D

3. Principal P
25,000
Interest Income 1,125
Maturity Value 26,125
Collection fee (SQUEEZE) (500)
Proceeds P 25,625
Answer C

4. Book Bank
Unadjusted balances P 19,289 P 47,147
Outstanding Checks (63,000)
Receipts of 12/31/10 and, 6,260
deposited 1/2/11
Service charge for November (1,0000
Proceeds of Bank loan 47,750
Deposit of 12/22/10, omitted 9,170
from bank statement
Check of Milano Company, (77,320)
charge back
Error in entering deposit of 1,440
12/18/10
Check No. 021261 of Yek
Company charge in error to 13,600
Hector Company
Proceeds of note of Harthur 25,625
Co.
Erroneous debit memo of
12/28/10, to charge by bank
in settlement of bank loan 5,000
which was paid by check no.
112170
Error in entering deposit of (1,800)
12/4/10
Deposit of Bunso Co. of
12/02/10, credited in error to (3,500)
Hector company
ADJUSTED BALANCES P 14,344 P 14,344
Answer A

5.
Adjusted Cash in bank P 14,344
balance (see no. 4)
Cash in bank balance per 19,289
ledger
Net credit adjustment - P 4,945
Decrease
Answer B

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)
Cash disbursement journal (218, 110)
July bank service charge (870)
Note paid directly (61,000)
NSF check (3, 110)
Ending balance P 82,560 P 6,960

June 30 Bank Reconciliation

Information in General Ledger and Bank Statement

Balance per bank P 57,530


Deposits in transit 6,000
Outstanding checks 17,420
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 disbursement 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.
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 recorded at P58,000 on Dion
Company’s books.

Based on the facts given, answer the following:

1. The checks outstanding on June 30 amount to


A. P9,980 C. P13,940
B. P10,380 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 umrecorded
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 disbursement journal and
recording in August.
D. Examine supporting document.

Solution

1. C
Outstanding checks, June 30 P 17,420
Add: checks issued in July (P218, 110 per cash disbursement
journal + P10,600 unrecorded check) 228,710
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 P 13,940

Alternative computation:

Checks outstanding on June 30 that did not clear in July


(P17,420 - P16,920) P 500
Checks issued in July that did not clear in July (P218, 110 –
P204,670) 13,440
Outstanding checks, July 31 P 13,940

2. B
Deposit 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 P 10,000

3. A
Book Bank
Unadjusted balances P 82,560 P 6,960
Outstanding checks (see no. 1) (13,940)
Deposits in transit (see no. 2) 10,000
Bank service charge (870)
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

4. B
The following audit procedures would be performed to verify the note payment:
a. Examine cancelled check.
b. Recompute interest.
c. Check for absence of note on July 31 bank confirmation.

5. A
The following audit procedures would be performed to verify the unrecorded check:
a. Examine check returned with July bank statement.
b. Trace number to absence in July cash disbursements journal and recording in
August.
c. Examine supporting documentation
d. 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.

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 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
Office Cash Office Cash in the Home Date cleared
Amount of Receipts Disbursements Office Bank the Branch
transfer Journal Journal Account Bank Account
P 120,000 12-27-10 12-29-10 12-26-10 12-27-10
260,000 12-28-10 01-02-11 12-28-10 12-29-10
140,000 01-02-11 12-30-10 12-28-10 12-29-10
110,000 12-26-10 12-26-10 12-28-10 01-03-11
150,000 01-02-11 01-02-11 12-28-10 12-31-10
280,000 01-07-11 01-05-11 12-28-10 01-03-11
370,000 01-04-11 01-06-11 01-03-11 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 C. 3 and 5
B. 1, 2 and 4 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 C. 4 and 6
B. 7 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. C
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 propriety of recording.

2. D
There are no deposits in transit on December 31. The list of transfers does not disclose
transfers recorded in December 2010 on Home Office cash receipts journal but deposited in
January 2011.

3. C
Transfers no. 4 P110,000
Transfers no. 6 280,000
Total P390,000

These checks were issued ( i.e., deposited in the Home Office bank account) in December
2010 but cleared the Branch Office bank account in January 2011.

4. B
Transfers no. 3 P140,000
Transfers no. 5 150,000
Transfers no. 6 280,000
Total P570,000

These transfers were deposited in the Home Office bank account in December 2010 but
recorded in January 2011.

5. D
Transfer no. 2 P260,000
Transfer no. 5 150,000
Transfer no. 6 280,000
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 disbursement journal in January 2011.

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 P 115,000
Dec. 2 November bank charges P 50 114,950
4 November bank credit for
notes receivable collected P 10,000 124,950
15 NSF check 1, 300 123,650
20 Loan proceeds 48,500 172,150
21 December bank charges 60 172,090
31 Cash receipts book 707, 300 879,390
31 Cash disbursement book 408,000 471,390

CASH BOOKS
RECEIPTS PAYMENTS
Date OR No. Amount Check No. Amount
Dec. 1 110-120 P 11,000 801 P 2,000
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 19,000 813 20,000
18 391-420 9,000 814 22,000
19 421-480 17,000 816 36,000
22 481-500 21,000 817 11,000
23 501-525 32,000 818 50,000
23 - - 819 7,000
23 - - 820 4,000
26 526-555 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 - - 826 2,000
29 - - 827 11,000
Totals P 707,300 P 408,000
BANK STATEMENT
Date Check No. Charges Credits
Dec. 1 792 P 2,500 P 8,500
2 802 3,000 11,000
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 P 353,030 P 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, net of P150 interest charges for 90 days.
5. CM 16 is for the correction of an erroneous November bank charge.
6. CM 6 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


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


A. P8,500 C. P48,500
B. P19,500 D. P0

4. The deposit in transit at December 31 should be


A. P44,000 C. P46,500
B. P0 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. P765,800
B. P773,800 D. P767,800

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

Solution

1. A
Outstanding checks November 30:
Check no. 792 P2,500
799 7,050
Total P9,550

2. C
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
3. A
Deposits in transit, November 30 P8,500

4. D
Deposit in transit, November 30 (see no. 3) P 8,500
Add: Collections per cash receipts book 707,300
Total 715,800
Less: Deposits credited by bank:
Bank receipts P 831,300
Correction of erroneous bank charge in
December (81,000)
Correction of erroneous bank charge in
November (12,000)
Loan proceeds (48,500)
Note collected (12,000) 677,800
Deposit in transit, December 31 P 38,000

PROOF OF CASH
December 1-31
Balance Balance
Nov. 30 Receipts Disbursements Dec. 31
Balances per bank P 114,000 P 831,300 P 353,030 P 592,270
Bank error corrected the
same date (81,000) (81,000)
Erroneous bank charge in
November 12,000 (12,000)
Deposit 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)
Adjusted bank balances P 124,950 P 767,800 P 415,480 P 477,270

Balance Balance
Nov. 30 Receipts Disbursements Dec. 31
Balances per book P 115,000 P 765,800 P 409,410 P 471,390
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
Unrecorded disbursement
– check no. 815 6,000 (6,000)
Adjusted bank balances P 124,950 P 767,800 P 415,480 P 477,270

5. B
6. D
7. C
8. 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 P 652,000
Add: Deposit in transit 10,000
Total 662,000
Less: Outstanding checks
No. 640 P 10,000
652 8,000
653 2,000 20,000
Adjusted bank balance 642,000

Book balance P 570,800


Add: Proceeds of note receivable collected in May P 70,000
Deposit on May 31 not recorded on books until
June 2,000 72,000
Total 642,800
Less: Bank service charge 800
Adjusted book balance P 642,000

The June 2010 bank statement is shown below:

Pasig Bank
Period covered: May 31, 2010 – June 30, 2010
Account No.: 0021261

Date Checks Deposits


June 1 8,000 10,000
8 2,000
11 14,000 20,000
13 1,000 DM 1,000
16 4,000
21 12,000 56,000
27 18,000
29 1,000 EC 1,000 EC
30 200 SV
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 June 22 through June 30 of P70,000 was deposited in the bank
on July 1.

The debit memos on June 13 and 30 represent customers’ NSF checks returned by the
bank. 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. P57,400 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. B
Bank receipts in June (arrived at by footing the Deposits column of the bank statement)
P88,000

2. D
Bank disbursements in June (arrived at by footing the checks column of the bank
statement) P63,200.

3. A
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

PROOF OF CASH
June 1 – 30, 2010
Balance Balance
May 31 Receipts Disbursements June 30
Bank balances P 652,000 P 88,000 P 63,200 P 676,800
Deposits in transit:
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)
Bank service charges:
May 31 800 800
June 30 (200) 200
Bank collection in May (70,000) 70,000
May deposit 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 P 570,800 P 218,000 P 56,400 P 732,400

4. D
5. C
6. 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.

Balance per bank statement P 194,000


Add: Deposit in transit 11,000
Total 205,000
Less: Outstanding checks
No. 1434 P 1,400
1562 7,500
1571 5,800
1584 8,000
1591 300 23,000
Balance per books P 182,000

2. A summary of the bank statement for December 2010.

Balance brought forward P 194,000


Deposits 1,487,000
Total 1,681,000
Charges (1,325,000)
Balance, December 31, 2010 P 356,000

3. Included with cancelled checks returned with the December bank 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 customers’ 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. Cancellation 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. 144 listed in the November outstanding check 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. Outstanding 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.

Cancelled Checks Returned with the December Bank Statement


Amount of
Number Date of Check Check Comments
1562 11/28/10 P 750 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 was 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 Chelsee
Company.
1595 12/20/10 3,500 This check had been labeled NSF and
returned to the payee because the bank had
erroneously believed that the check was
drawn by the Chelsee Company.
Subsequently, the payee advised 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 understanding 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
Solution:

1. D
Outstanding checks, Dec. 31 ( P49,400 – P1,400 – P8,000) P40,000

PROOF OF CASH
Balance Balance
Nov. 30 Receipts Disbursements Dec. 31
Per bank statement P 194,000 P 1,487,000 P 1,325,000 P 356,000
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
P90,000x6%x60/360 900 900
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 Chelsee
charge in error (3,000) 3,000
Postdated check
presented for payment (100,000) 100,000
Per book balances P 182,000 P 1,496,900 P 1,248,850 P 430,050

2. A
3. D
4. C
5. A
Book Bank
Unadjusted balances P 430,050 P 356,000
Outstanding checks (40,000)
Deposits in transit 24,000
Interest on note discounted (900)
Bank service charge (300)
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 Chelsee charged in error 3,000
Postdated check presented for payment (100,000)
Adjusted balance P 343,000 P 343,000

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 P 16,250


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 recorder on company
books in December 2,500
Bank service charges per December bank statement 3,250
Deposits created by bank during December 145,000
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
b. P20,000
c. P22,500
d. P17500

2. The total unrecorded bank service charges as of December 31,2010 is


a. P750
b. P2250
c. P1750
d. P4250

3. What is the total book receipts in December?


a. P150000
b. P152500
c. P155000
d. P147500

4. What is the total amount of company checks issued in December?


a. P130000
b. P123000
c. P133750
d. P126250

5. What is the total book disbursements in December?


a. P123750
b. P128500
c. P126250
d. P128750

6. What is the book balance on November 30, 2010?


a. P16250
b. P21250
c. P37500
d. P35000

7. What is the bank balance in November 30, 2010?


a. P23000
b. P18500
c. P43500
d. P16250

8. What is the total bank receipts in December?


a. P120000
b. P140000
c. P145000
d. P150000
9. What is the total bank disbursements in Decmber?
a. P154500
b. P132500
c. P129500
d. P137000

10. What is the bank balance in December 31, 2010?


a. P21500
b. P26500
c. P31000
d. P33250

Solution 1-39
1. Deposit in transit, November 30 P12,500
Add: Company collection in December 152,500
Total 165,000
Less: Deposits credited by bank in December 145,000
Deposit in transit, December 30 P20,000
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 books 2,500
Book receipts in December P150,000

Answer: A
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
Outstanding checks in December P 126,250
Answer: D

5. Checks issued in December (see no. 4) P 126.250


Add: Bank service charges recorded in December 2,500
Book disbursement in December P128,750
Answer: D

6. Book balance, December 31 P37,500


Add: Book Disbursements in Dec. (see no. 5) 128,750
Total 166,250
Less: Book receipts in Dec. (see no. 3) 150,000
Book balance, November 30 P16,250
Answer: A

Pinky Co.
PROOF OF CASH
For the month of December 2010

Nov Receipts Disbursements Dec.


Book balances P16,250 P150,000 P128,750 P37,500
Outstanding Checks:
Nov. 16250 16250
Dec. (12500) 12500
Deposit in transit:
Nov. (12500) 12500
Dec. (20000) (20000)
Bank service charges:
Nov. (1500) (1500)
Dec. 2250 (2250)
Underfooting (receipts) 2500 2500
Error bank charge (Dec) 3750 (3750)
Bank balances P18500 P145000 P137000 P26500

7. Bank balance, November 30, 2010 P18500


Answer: B
8. Total bank receipts in December P145000
Answer: C
9. Total bank disbursements in December P137000
Answer: D
10. Bank balance, December 31 P26500
Answer: B

Problem 1-40
Proof of Cash: Unadjusted to Adjusted Balances Format
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 pre bank statement, Nov 30 P24,298
Add: Deposit in transit 3,648
Total P27,946
Less: Outstanding checks
No. 3408 P440
No. 3413 300
No. 3414 6,820
No. 3416 3,924
No. 3417 800 12,284
Balance P15,662
Add: Bank service charge for November 36*
Balance per General Ledger Nov 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.

The balance per bank statement at December 31,2010,is P17,516. This statement
shows total receipts of P373,502 and checks paid of P380,284.

Your examination reveals the following additional information:

a) Check No. 3413 datd November 24, 2010,was entered in the Check Register as
P300. Your examination of the paid checks returned with December bank
statement reveals the amount of this check is P30.
b) Check No. 3417 was mutilated and returned by 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.
c) The December bank statement includes an erroneous charge of P480.
d) On January 3, 2011, the bank informed your client that a December bank
service charge of P42 was omitted from the statement.
e) Your examination of the bank credit memo accompanying the December bank
statement discloses that it represents proceeds from note receivable collection
in December for P4,000.
f) Outstanding checks at December 31, 2011, are as follows:
No. 3408 P440
No. 3417 800
No. 3418 2814
No. 3419 5788

1. What is the total book disbursement for the month of December?


a. P377,668
b. P377,710
c. P377,632
d. P377,596

2. What is the book balance at December 31?


a. P9832
b. P9868
c. P9754
d. P9796
3. The outstanding checks in December 31 totaled
a. P8602
b. P9072
c. P9042
d. P9842

4. What is the adjusted bank balance on November 30?


a. P16690
b. P16732
c. P16804
d. P16774

5. The adjusted book receipts for the month of December should be


a. P375724
b. P371766
c. P371238
d. P375766

6. The adjusted book disbursements for the month of December should be


a. P377,590
b. P377662
c. P377674
d. P377632

7. What is the adjusted book balance on December 31?


a. P14824
b. P14866
c. P14908
d. P14782

8. A proof of cash provided 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 reconciling function with respect to cash.
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 1-40
1. Company checks issued in December P 377,632
Add: November bank service charge 36
Total book disbursements in December P377,668

Answer: A

2. Book balance, Nov.30 P15,698


Add: Dec. book receipts 371,766
Total 387,464
Less: December book disbursements 377,668
Book balance, Dec. 31 P9,796

Answer: D

3. Outstanding checks at December 31:


No. 3408 P440
No. 3418 2814
No. 3419 5788
Total P9042

Answer: C

Nov Receipts Disbursements Dec.


Book balances P15,698 P371,776 P377,668 P9,796
Bank service charges:
Nov. (36) (36)
Dec. 42 (42)
Overstatement of
Nov disb.(#3413) 270 270
Mutilated check (#3417) 4000 4000
Book balances P16732 P375766 P377674 P14824

Nov Receipts Disbursements Dec.


Bank balances P24,298 P373,502 P380,284
P17,516
Outstanding Checks:
Nov. (11,214) ` (11,214)
Dec. 9,042 (9,042)
Deposit in transit:
Nov. 3,648 (3,648)
Dec. 5,912 5,912
Bank service charges 42 (42)
Error bank charge (480) 480
Bank balances P16732 P375766 P377,674 P14,824
4. Adjusted Bank balance, November 30, 2010 P16732
Answer: B
5. Adjusted book receipts in December P375766
Answer: D
6. Adjusted book disbursements in December P377,674
Answer: C
7. Adjusted nook balance, December 31 P14,824
Answer: A
8. A proof of cash usually consists of four columns, with reconciliations 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 the
bank statement should reconcile both horizontally and vertically. This
reconciliation therefore directs unauthorized 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
Proof of Cash: Unadjusted to Adjusted Balances Format
The following data are assembled by the accountant of the HAROLD COMPANY:
Nov.30, 2010 Dec. 31,2010
Cash account balance 41,175 100,712.50
Bank statement balance 267,705 344,542.50
Deposits in transit 20,502.50 32,200
Outstanding checks 69,295 75,280
Bank service charges 1,800 1,500
NSF checks* 20,625
Company’s NR collected 179,537.50 202,250
*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:
Cancelled checks and debit memos 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

1. What is the total book receipts in December?


a. P613,842.50
b. P591,130
c. P411,592.50
d. P580,330

2. What is the total book disbursements in December?


a. P531,592.50
b. P529,792.50
c. P533,092.50
d. P531,292.50

3. What is the adjusted book balance on November 30?


a. P220,712.50
b. P222,512.50
c. P218,912.50
d. P217,412.50

4. The adjusted bank receipts in December should be


a. P634,168.50
b. P622,770
c. P632,667.50
d. P634,467.50
e. 613,842.50

5. The adjusted book disbursements in December should be


a. P545,932.50
b. P552,517.50
c. P548,917.50
d. P551,917.50
e. 531,292.50

6. What is the adjusted book balance on December 31?


a. P301,462.50
b. P302,662.50
c. P322,087.50
d. P280,537.50

Solution 1-41
1. Cash receipts per cash book P411,592.50
Add: Notes collected by the 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

Nov Receipts Disbursements Dec.


Balance per bank P267,705 P622,770 P545,932.50 P344,542.50
Outstanding Checks:
Nov. (69295) ` (69295)
Dec. 75280
(75280)
Deposit in transit:
Nov. 20502.50 (20502.50)
Dec. 32200 32200
NSF check: (20625) (20625)

Bank balances P218912.50 P613,842.50 P531,292.50 P301462.50


(Adjusted)

Nov Receipts Disbursements Dec.


Balance per books P41,175 P591,130 P531,592.50 P100,712.50
Bank service charges:
Nov. (1800) (1800)
Dec. 1500 (1500)
Collections of notes:
Nov. 179537.50 (179537.50)
Dec. 202250 202250
Book balances P218912.50 P613,842.50 P531,292.50 P301462.50
(Adjusted)

3. Adjusted Book balance, November 30, 2010 P218912.50


Answer: C
4. Adjusted bank receipts in December
Answer: SHOULD BE E P613,842.50 NOT D P634467.50
5. Adjusted book disbursements in December
Answer: SHOULD BE E NOT P531,292.50 D P551917.50
6. Adjusted nook balance, December 31 P301462.50
Answer: A

Problem 1-42
Proof of Cash: Book to Bank Balances Format
The auditor of Tsikoy Company gathered the following information:
a. The November 30 bank statement balance include bank service charges of
P2,000.
b. The November 30 cash balance in the general ledger was P244,500.
c. Outstanding checks o November 30 were P63,000 while undeposited receipts
were P36,000.
d. The bank service charges as shown on the bank statement totaled P3,000.
e. The December 31 cash balance in the general ledger was P319,750, which
recognizesP482,750 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
b. P404,500
c. P407,500
d. P405,500

2. What is the November 30 bank balance?


a. P271500
b. P269500
c. P268500
d. P266500

3. What is the total bank receipts in December?


a. P490000
b. P482750
c. P497250
d. P488000

4. What is the total bank disbursements in December?


a. P419000
b. P405500
c. P408500
d. P396000

5. What is the bank balance on December 31?


a. P316750
b. P363500
c. P322750
d. P366500

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

Nov Receipts Disbursements Dec.


Balance per books P244,500 P482,750 P407,500
P319,750
Bank service charges:
Nov. (2000) (2,000)
Dec. 3,000 (3000)
Outstanding Checks:
Nov. 63000 ` 63,000
Dec. (75,500) 75500
Undeposited receipts:
Nov. (36000) 36,000
Dec. (28,750) (28750)
Balance per bank P269,500 P490,000 P396,000 P363,500

2. Bank balance, November 30 P269,500


Answer: B

3. Total bank receipts in December P490,000


Answer: A

4. Total bank disbursements in December P396,000


Answer: D
5. Bank balance, December 31 P363,500
Answer: B

Problem 1-43
Proof of Cash: Unadjusted to Adjusted Balances Format
RODELIO CO., has current account in Pinoy Bank. Your audit of the company’s cash
account reveals the following:
a. 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
b. Balances taken from the December bank statement:

Bank balance, Nov. 30, 2010 P685,180


Bank Balance, Dec. 31, 2010 637, 220
Disbursements (debits) 356,080
c. Outstanding checks, Nov. 30, 2010 (P26,140 was paid

by bank in December) 64,140


d. Checks written and recorded in December; not included

In the checks returned with the Dec. bank statement 36, 080

e. Deposit in transit, Nov. 30, 2010 15,260


f. Deposit in transit, Dec. 31, 2010 16,140
g. A bank credit memo was issued in December to
correct an erroneous charge made in Nov. 1,500
h. Note collected by bank in December (company was
not informed of the collection) 2,060
i. A check for P2,020 (payable to supplier) was recorded
In the Check Register in December as P3,000 980
j. A check for P2,240 was charged by the bank as P2,420
In December 180
k. 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
l. Bank service charge , November 30, 2010 60

1. What is the total book disbursement in December?


a. P367,660
b. P244,780
c. P369,720
d. P368,540

2. What is the total bank receipts in December?


a. P260,160
b. P308,120
c. P306,060
d. P309,020

3. What is the total outstanding checks on December 31?


a. P100,220
b. P38,000
c. P62,220
d. P74,080

4. What is the adjusted bank balance on November 30?


a. P636,300
b. P685,180
c. P637,800
d. P634,800
5. What is the adjusted book receipts in December?
a. P307,500
b. P306,220
c. P303,380
d. P305,440
6. What is the adjusted bank disbursements in December?
a. P353,980
b. P365,840
c. P345,960
d. P366,020
7. What is the adjusted book balance on December 31?
a. P577,500
b. P577,400
c. P576,420
d. P579,460

Solution 1-43
1. Book balance, Nov. 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, 660
Answer: A

2. Bank balance, November 30


P685,180
Add: Bank receipts in December (Squeeze) 308,120
Total 993,300
Less: Bank Disbursement in December 356,080
Bank balance, December 31 P637, 220

Answer: B
3. Checks issued prior to Dec. (P64,140-P26,140) P38,000
Checks issued in December 36,080

Total outstanding checks, December 31 P74,080


Answer: D

Nov Receipts Disbursements Dec.


Balance per books P637,860 P306,220 P367,660
P576,420
Bank service charges:
Nov. (60) (60)
Overstatement of book
disb in Dec(3000-2020) (980) 980
Check stopped for payment (780) (780)

Collections of notes:
Dec. 2,060 2,060
Book balances P637, 800 P307,500 P365,840 P579,460
(Adjusted)

Nov Receipts Disbursements Dec.


Balance per bank P685,180 P308,120 P356,080
P637,220
Outstanding Checks:
Nov. (64,140) ` (64,140)
Dec. 74,080
(74,080)
Deposit in transit:
Nov. 15,260 (15,260)
Dec. 16,140 16,140
Erroneous bank charge
In Nov 1,500 (1,500)
Overstatement of bank
Disb. In Dec. (180) 180

Bank balances P637, 800 P307,500 P365,840 P579,460

4. Adjusted bank balance, November 30 P637, 800


Answer: C

5. Adjusted book receipts in December P307,500


Answer: A
6. Adjusted bank disbursements in December P365,840
Answer: B

7. Adjusted book balance , December 31 P579,460


Answer: D

Problem 1-44
Proof of Cash: Unadjusted to Adjusted Balances Format
Data for Annabelle, Inc are shown below:
Nov.30, 2010 Dec. 31,2010
Cash account balance P20, 340 P48, 540
Bank statement balance 107, 060 137,820
Deposits in transit 8,200 12,880
Outstanding checks 27,700 30,100
Bank service charges for the mo.
not shown on company books 720 600
NSF checks returned by bank, not
Shown in company books 4,300 8,240
NR collected 72,240 80,900

Additional information:
a. Deposits and credit memos per bank statement P249,100

b. Cancelled checks and debit memos per bank statement 218,340

c. Cash receipts per cash book 172,880

d. Checks written per cash book 211,900

1. What is the total book receipts in December?

a. P172,880

b. P245,120

c. P253,780

d. P181,540

2. What is the total book disbursements in December?

a. P 211,900

b. P216,200

c. P211,180

d. P216,920

3. What is the adjusted cash balance on November 30?

a. P89,000

b. P87,560

c. P71,160
d. P96,160

4. What is the adjusted cash balance on December 31?

a. P120,600

b. P94,840

c. P137,080

d. P155,040

5. What is the adjusted book receipts in December?

a. P253,780

b. P236,460

c. P244,420

d. P270,180

6. What is the adjusted bank disbursements in December?

a. P215,940

b. P220,740

c. P248,440

d. P204,260

Solution 1-44
1. Cash receipts per cash book P172,880

Add: November bank collections 72,240


Total book receipts (debits) in December P245,120
Answer: B

2. Checks written per cash book P211,900


Add: Bank service charges in November P720
NSF checks returned in November 4,300 5,020
Total book disbursements (Credits) in December P 216,920

Answer: D

Nov Receipts Disbursements Dec.


Balance per books P20,340 P245,120 P216,920 P48,540
Bank service charges:
Nov. (720) (720)
Dec. 600 (600)
NSF check:
Nov. (4,300) (4,300)
Dec. 8,240 (8,240)
Collections of notes:
Nov. 72,240 (72,240)
Dec. 80,900 80,900
Adj. Book balances P87,560 P253,780 P220,740 P120,600

Nov Receipts Disbursements Dec.


Balance per bank P106,060 P249,100 P218,340
P137,820
Outstanding Checks:
Nov. (27,700) ` (27,700)
Dec. 30,100
(30,100)
Deposit in transit:
Nov. 8,200 (8,200)
Dec. 12,880 12,880

Bank balances P87,560 P253,780 P220,740 P120,600


(Adjusted)

3. Adjusted cash balance, November 30 P87,560

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

Answer: A

5. Adjusted book receipts in December P253,780

Answer: A

6. Adjusted bank disbursements in December P220,740

Answer: B

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 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, 2011:

Accounts Receivable P442,550


Accounts Payable 207,300
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 allowance 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 follows:

Tanying Company
Statement of Financial Position
December 31, 2010

ASSETS

Cash P 32,670
Accounts Receivable 226,230
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
b. P3,293,240
c. P3,522,680
d. P3,707,840

2. What is the total amount of collections from sales?


a. P5,641,520
b. P5,659,850
c. P6,074,160
d. P6,092,490

3. What is the total amount of cash disbursements from January – April 1, 2011?
a. P5,524,090
b. P5,202,070
c. P5,431,510
d. P5,432,510

4. What is the cashier’s accountability (correct cash balance before shortage) on April
15, 2011?
a. P242,680
b. P98,830
c. P143,850
d. P43,850

5. What is the amount of cash shortage chargeable against the cashier?


a. P100,00
b. P43,850
c. P143,850
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 P 3,522,680
Answer: C

2. Accounts receivable, Dec. 31, 2010 P226,230


Net sales (P 5,876,170-P18,330) 5,867,840
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
Answer: C

4. Cash balance, December 31, 2010 P 32, 670


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

5. Cash accountability P242,680


Cash accounted (98,830)
Total shortage 143,850
Shortage chargeable against bank (100,000)
Shortage chargeable against the cashier P 43,850
Answer: B

 1-46
Computation of Cash Shortage
The JUNNEL COMPANY had weak internal controls over its cash transactions.
Facts about it cash position at November 30, 2010 were as follows:
The cash books showed a balance 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 of P18,972 and prepared the
following reconciliation:
Balance per books, Nov. 30, 2010 P94,508
Add: Outstanding check
8621 P 954
8623 1,034
8632 726 __2,214
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 on hand for deposit on November
30, 2010?
A. P23,069 C. P22,569
B. P18,972 D. P22,069

2. How much was stolen 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 other than the cashier is responsible for tracing cash receipts to the
deposit in the bank.
C. Both A and B.
D. Neither A nor B.

5. What is the adjusted cash balance as of November 30, 2010?


A. P95,008 C. P94,008
B. P91,411 D. P87,814
 1-46
1.

1. Balance per books, Nov. 30, 2010 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


Less: Outstanding checks
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.
2. No other than the cashier is responsible for tracing cash receipts to the deposits in the
bank.

Answer: C

5.
Book Bank
Unadjusted
balances P94,508 P77,750
Unrecorded
credit 500
Outstanding
checks (5,311)
Undeposited receipts 18,972
Corrected
balances 95,008 91,411
Cash storage (amount of theft) (3,597)
Adjusted cash balances P91,411 P91,411

Answer: B
 1-47
Computation of Cash Shortage
Presented below is the cash receipts book of APPLE, INC.:

CASH RECEIPTS BOOK


June 1-30, 2010
Date Accounts Cash Sales Net
Receivabl Discoun
e Sales t Cash
June 1 Cash P
Sales P 800 800
P
10 BA P 3,200 64 3,136
15 BO 6,000 120 5,880
20 BE 4,800 96 4,664
20 Cash Sales 2,400 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
P47,46
P45,200 P3,200 P936 4

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
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

 1-47

Cash receipts per book P47,464


Understatement of cash receipts by:
Recording sales discounts for collections made
beyond the discount
period:
P
June 15 120
June 25 216 336
Overfooting the sales discounts
column
(P936-P736) 200* 1.
Cash receipts as corrected P48,000

*To balance, the following extensions to the “Cash” column are understated.

Correct Amount
Amount Extended Understatement
June 20 (P4,800-P96) P 4,704 P 4,664 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

 1-48
Computation of Cash Shortage
You started 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 prepare
by the cashier:
Cash per records, December 31, 2010 P247,200
Cash per bank statement, December 31, 2010 264,095
Outstanding checks 25,325
Check of Tsikoy Co., charged by bank in
error on December 28, 2010;corrected by
bank on January 2, 2011 750
Deposit in transit 3,500

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 has 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 checks 1,950
Expense vouchers 375
P 3,750

Your further investigation revealed the following:


a. Cash received on account from customers:
AMOUN
DATE T ENTRY MADE
7/5/2010 P400 Allowance for bad debts 4,000
Accounts receivable 4,000
12/10/201
0 P3,000 Inventory 3,000
Accounts receivable 3,000

12/15/201
0 P3,500 Not recorded

b. Unrecorded but deposited checks received from customers from January 2,


2011, to January
15, 2011, totaled P2,000.

c. The cashier presented receipts for collections from customers on January 10,
2011, totaling
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. P27,680
B. P18,430 D. P24,930

 1-48
1. ADJUSTING JOURNAL ENTRIES:

a. 1.
Cash 4,000
Allowance for bad
debts 3,000
2.
Cash 3,000
Inventory 3,000
3.
Cash 3,500
Accounts receivable 3,500
b. 4.
Cash 2,000
Accounts receivable 2,000
c. 5.
Cash 4,500
Accounts receivable 4,500

2. Book Bank
Unadjusted
balances P247,200 P264,095
Outstanding
checks -25,325
Bank
error 750
Deposit in transit 3,500
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

Answer: C

3.
Deposit in transit, Dec. 31,
2010 P3,500
Add: Company collections, Jan. 2-15,
2011
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(see no 2) 14,680
Total shortage as of January 15, 2011 P26,465

Answer: A

 1-49
Computation of Cash Shortage
The LEINOR COMPANY does not have adequate controls over its cash
transactions. During an audit, you found the following data concerning 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 P135,500.
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:

Balance per bank statement P135,500


Deduct: Outstanding checks:
No. 1431 P3,600
1445 4,080
1446 3,460 10,140
P124,860
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?


 1-49
1. Book Bank
Unadjusted
balances P173,500 P135,000
Note collected by the bank 2,500
outstanding checks (16,340)
Undeposited collections 46,140
Corrected balances P176,000 P164,800
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

 1-50
Computation of Cash Shortage
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 P60,000
August 70,000 110,000
September 120,000 68,000
October 172,000 92,000
November 260,000 122,000
December 80,000 180,000
P964,000 P668,000

Additional information:

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
 1-50
Book balance, July1 (see note
1) P200,000
Add: total book receipts as corrected (see note 2) 1,004,000
Total 1,204,000
Less: Total book disbursements as corrected (see note 2) 632,000
Corrected book balance, December 31 P572,000

Bank balance, December 31 P524,000


Add: Undeposited receipts 24,000
Total 548,000
Less: Outstanding checks 42,000
Adjusted bank balance 506,000
Corrected book balance
(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 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.)

 1-51
Computation of Cash Shortage
In connection with the audit of the financial statements of JEM COMPANY for the
year ended October 31, 2010, you have conducted a surprise count of undeposited
receipts on October 31, 2010. It was witnessed by the company’s cashier whose
accountability on October 31 was determined to be P80,000. Your count revealed
the following:

Currency and coins P48,840


unused postage stamps 440
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. P30,080
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

 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 P 7,080

Answer: A

2. Simultaneous verification
Answer: C

 1-52
Computation of Working Capital &Current Ratio
Jam Company’s unadjusted trial balance at December 31, 2010, included the
following accounts:

Debit Credit
Cash P69,200
Accounts receivable 102,650
Merchandise inventory 947,160
Accounts payable P789,715
Accrued expenses 13,214

Jam Co.‘s year-end is December 31. At the end of 2010, it held its cash book
open so that its statement of financial position would show a more favorable
financial condition. Your audit revealed the following items:

1. The December cash book include 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 of 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?

Working Current
Capital Ratio
A. P316,081 1.42
B. 316,081 1.39
C. 329,295 1.42
D. 329,295 1.39
2. What are Jam’s correct working capital and current ratio at December 31,
2010?

Working Current
Capital Ratio
A. P244,381 1.29
B. 278,831 0.33
C. 330,835 1.40
D. 280,381 1.33

 1-52
ADJUSTING JOURNAL ENTRIES
December 31, 2010

a. Accounts receivable (P29,450 ÷


95%) 31,000
Sales 36,010
Cash 65,460
Sales discounts (P31,000 ×
5%) 1,550
b. Cash 36,000
Purchase discounts 1,240
Accounts payable 37,240

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 (P789,715 +
P37,240) P789,715 P826,955
Accrued
expenses 13,214 13,214
Total P802,929 P840,169

Working Capital (CA - CL) P316,081 P280,381

Current ratio (CA ÷ CL) 1.39 1.33

1. Answer: B
2. Answer: D

 1-53
Computation of Cash Shortage
Fe Company, organized on March 1, 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 cash 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
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?


A. P121,612 C. P127,612
B. P101,612 D. P206,992

 1-53
1. Cost of sales (P340,000 total sales ×
60%) P204,000
Add: Merchandise inventory, November 15 93,920
Purchases 297,920
Less: Accounts payable - trade, November 15 46,284
Payments for purchases P251,636
Answer: D

2. Sales P340,000
Less: Accounts receivable-trade, November 15 85,380
Collection from sales P254,620
Answer: B

3. Cashier's Accountability:
Receipts:
Issuance of ordinary shares
(P300,000 + 20,000) 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 P200,000
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

P151,
5. Cashier's accountability ( see no.3) 228
Cash Accounted (see no.4) (29,616)
Cash shortage as of Nov. 15, 2010 P121,612
Answer: A

 1-54
Computation of Cash Shortage
Your client, a successful small business, has never 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. 7282 7,320
No. 7285 10,612
No. 8722 6,322
No. 8724 12,280
No. 8733 6,200

The company’s general ledger shows a cash balance of P696,469 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 717,302
Deduct: Cash on hand 127,301
Balance per bank statement, March 31 P590,000

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

 1-54
1.
Book Bank
Unadjusted
balances P696,499 P590,000
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
Corrected balances P696,499 P665,994
CASH
SHORTAGE (30,555)
Adjusted balances P665,994 P665,944
Answer: A

2. 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