Audit Of Cash

AUDIT OF CASH (CPAR OCT 2013 AP-7408) PROBLEM NO.1 You are auditing general cash for the din company for the fiscal year july 31 2013. 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 46,110 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 82,560 6,960 June 30 bank reconciliation Information in general ledger and bank statement Balance per bank Deposit in transit Outstanding checks Balance per books

57,530 6,000 17,420 46,110

Additional information obtained is: 1. Checks clearing that were outstanding on june 30 totaled 16,920 2. Checks clearing that were recorded in the july disbursement journal totaled 204,670 3. A check for 10,600 cleared the bank, but had not been recorded in the cash disbursement journal. It was for an acquisition of inventory. Dion uses the periodic inventory method 4. A check for 3,960 was charged to dion company but had been written on a different company bank account 5. Deposit included 6,000 from june and 244,560 for july 6. The bank charged dion company account for a non-sufficient check totaling 3,110. 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 58,000 plus interest was paid directly to bank under an agreement signed four months ago. The note payable was recorded at 58,000 on dion company books Based on the facts given, determine the following: 1. Outstanding checks on july 31 a. 9,980 b. 10,830 c. 13,940 d. 3,340 2. Deposit in transit on july 31 a. 6,890 b. 10,000 c. 6,000 d. 9,110 3. Adjusted cash balance on july 31 a. 6,980 b. 10,940 c. 3,870 d. 3,020 PROBLEM NO.3 The cash account of nunal company shows the following activites: Date debit

credit

balance

Nov.30 Dec.2 Dec.4

balance nov. bank charges nov. bank credit for notes Receivable collected nsf check loan proceeds dec. bank charges cash receipts book cash disbursement book

Dec.15 Dec.20 Dec.21 Dec31 Dec31

345,000 150

344,850

30,000 3,900 145,500 180 2,121,900 1,224,000

374,850 370,950 516,450 516,270 2,638,170 1,414,170

CASH BOOKS Date Dec 1 2 3 4 5 8 9 10 11 12 15 16 17 18 19 22 23 23 23 26 28 28 29 29 29 Totals DATE Dec 2 3 4 5 8 9 10 11

RECEIPTS or no. 110-120 121-136 137-150 151-165 166-190 191-210 211-232 233-250 251-275 276-300 301-309 310-350 351-390 391-420 421-480 481-500 501-525 526-555 556-611 612-630 -

1

Amount 33,000 63,900 60,000 168,000 117,000 198,000 264,000 231,000 63,000 90,000 165,000 24,000 57,000 27,000 51,000 63,000 96,000

check no 801 802 803 804 805 806 807 808 809 810 811 812 813 814 816 817 818 819 820 821 822 823 824 825 826

222,000 15,000 114,000 2,121,900 BANK STATEMENT CHECK 792 802 804 EC 805 CM 16 799 DM 57

PAYMENTS payments 6,000 9,000 3,000 9,000 36,000 57,000 78,000 90,000 183,000 21,000 24,000 48,000 60,000 66,000 108,000 33,000 150,000 21,000 12,000 9,000 36,000 39,000 87,000 6,000 33,000 1,224,000 CHARGES 7,500 9,000 9,000 243,000 36,000 21,150 3,900

CREDITS 25,500 33,000 63,900 60,000 243,000 285,000 36,000 462,000 231,000

12 15 16 17 18 19 22 23 23 23 26 28 28 29 29 29

808 803 809 DM 61 813 CM20 815 816 811 801 814 818 DM 112 821 CM 36 820

90,000 3,000 183,000 180 60,000 18,000 108,000 24,000 6,000 66,000 150,000 360 9,000 12,000

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 450 interest charges for 90 days 5. CM 16 is for the correction of an erroneous November bank charge 6. CM 36 is for customers’ note collected by bank in December 7. Bank balance on December 31 is P1,776,810 Based on the following proceeding information, determining the following 1. Outstanding checks at nov 30 a. 39,150 b. 28,650 c. 21,150 d. 46,650 2. Outstanding checks at dec 31 a. 459,000 b. 477,000 c. 441,000 d. 487,650 3. Deposit in transit at nov 30 a. 58,500 b. 145,500 c. -0d. 25,500 4. Deposit in transit at dec 31 a. 114,000 b. 139,500 c. 132,000 d. -05. Adjusted book balance at nov 30 a. 410,850 b. 345,000 c. 375,000 d. 374,850 6. Adjusted bank receipts for the month of dec a. 2,297,400 b. 2,291,400 c. 2,303,400 d. 2,321,400 7. Adjusted book disbursements for the month of dec a. 1,228,440 b. 1,246,440 c. 1,210,440 d. 1,246,620 8. Adjusted bank balance at dec 31 a. 1,449,810 b. 1,674,810 c. 1,431,810 d. 1,776,810 9. Unadjusted bank balance at nov 30 a. 550,060 b. 94,560 c. 1,776,810 d. 342,000 10. The best evidence regarding year-end bank balances is documented in the a. Cutoff bank statement b. Bank reconciliation c. Interbank transfer schedule d. Bank deposit lead schedule

63,000 255,000 24,000 57,000 145,500 141,000 96,000 222,000 15,000 36,000 -

PROBLEM NO.5 Fe company organized on march 1 2013, have 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 the date the cash on hand per your surprise count was 5,140. Also on the date, the bank confirmed that the balance of the company’s current account was 26,328. Your examination of the records reveals that the check for 1,852 was outstanding on November 15. The company’s markup is 40% of sales. Further examination of the company’s records reveals the following balances at November 15 2013 Ordinary share capital 300,000 Share premium 20,000 Real property purchased for cash 200,000 Mortgage payable 80,000 Furniture and fixtures (of acquisition cost, 6,000 remains unpaid as of nov 15 29,000 note payable – bank 32,000 accounts payable – trade 46,284 expenses paid (excluding purchases 60,756 merchandise inventory at cost 93,920 accounts receivable – trade 85,280 total sales 340,000 1. How much is the inventory purchases a. 157,716 b. 293,620 c. 183,636 d. 251,636 2. How much was allocated from customer a. 118,620 b. 254,620 c. 50,620 d. 340,000 3. How much is the cashiers’ accountability at November 15 2012 a. 131,228 b. 83,228 c. 145,225 d. 151,228 4. What is the adjusted bank balance as of November 2012 a. 31,468 b. 26,328 c. 29,616 d. 23,040 5. The cash shortage as of November 15 2012 totaled a. 121,612 b. 101,612 c. 127,612 d. 206,992 PROBLEM NO.6 Your client, a successful small business, has never give much attention to a sound internal control. In tis employ alex coopit, the company’s cashier-bookkeeper. Alex handles cash receipts, makes small disbursements from cash receipts, maintains accounting records, and prepares the monthly bank reconciliation The bank statement for the month ended march 31 2013 shows a cash balance of 590,000 The following checks are outstanding on march 31 No 7163 8,623 No 7284 7,320 No 7285 10,612 No 8722 6,322 No 8724 12,280

No

8733

6,200

The company’s general ledger shows general ledger shows a cash balance of 696,499 on march 31 2013. Realizing that being cashier-accountant of the company he can easily misappropriate collections conceal it, alex remove all the cash on hand in excess of 127,301, and then prepared the following reconciliation in an effort to conceal this theft Bank reconciliation Balance per accounting records Add: outstanding checks No. 8722 No 8724 No 8733 Total Deduct cash on hand Balance per bank statement march 31

696,499 6,322 12,280 6,200

20,802 717,301 127,301 590,000

1. How much was taken by the cashier-accountant a. 30,555 b. 157,856 c. 4,000 d. 26,555 2. What is the amount of cash that should be on hand at November 15 2013 a. 127,301 b. 131,301 c. 157,856 d. 30,555 Theory 1. Who is responsible, at all times for the amount of pettry cash fund a. General cashier b. Petty cash custodian c. President of the company d. Chairman of the board of directors 2. The following are appropriate procedures for controlling the petty cash fund except a. The monitor variations in different types of expenditures, the petty cash custodian files petty cash vouchers by category of expenditures after replenishing the fund b. To replenish the fund, the general cashier uses a company check to the petty cash custodian, rather than cash c. To determine that the fund is being accounted for satisfactory, surprise counts of the funds are made from time to time by the internal auditor to other responsible official d. Each individual to whom petty cash is paid is required to present signed receipts on the petty cash custodian 3. What is the effect of not replenishing the petty cash fund at year-end and not making appropriate adjusting entry a. A detailed audit is necessary b. The petty cash custodian should turnover the petty cash to the general cashier c. Cash will be overstated ad expenses understated d. Expenses will be overstated ad cash will be understated 4. As one of the year-end audit procedures, the auditor inspected the clients personnel to prepare a standard bank confirmation request for a bank account that had been closed during the year. After the clients treasurer and signed the request, it was mailed by the assistant treasurer. What is the major flaw in this audit procedure a. The confirmation request was signed by the treasurer

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b. Sending the request was meaningless because the account was closed before yearend c. The request was mailed by assistant treasurer d. The CPA did not sign the confirmation request before it was mailed On receiving the bank cutoff statement, the auditor should trace a. Deposit in transit on the year-end bank reconciliation to deposits in the cash receipts journal b. Checks dated prior to year-end to the outstanding checks listed on the year-end bank reconciliation c. Deposit listed on the cutoff bank statement to deposit the cash receipts journal d. Checks dated subsequent to year-end to the outstanding checks listed on the yearend bank reconciliation An unrecorded check issued during last week of the year would most likely be discovered by the auditor when a. Check register for the last month is reviewed b. Cutoff bank statement is reconciled c. Bank confirmation is reviewed d. Search for unrecorded liabilities is performed To gather evidence regarding the balance per bank in bank reconciliation, an auditor would examine all of the following except a. Cutoff bank statement b. Year-end bank statement c. Bank confirmation d. General ledger An auditor compares information on cancelled checks with information combined in the cash disbursement journal. The objective of this test is to determine that a. Recorded cash disbursement transaction are properly authorized b. Proper cash purchase discounts have been recorded c. Cash disbursement are for goods and services actually received d. No discrepancies exist between the data on the checks and the data in the journal 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 collowing is vital a. Simultaneous confirmation b. Simultaneous bank reconciliation c. Simultaneous verification d. Simultaneous surprise cash count When counting cash on hand, the auditor must exercise control over all cash and other negotiable asset to prevent a. Theft b. Irregular endorsement c. Substitution d. Deposit in transit