Session 2.

4: Audit of Cash - Proof of Cash

I. Simple Proof of Cash

BA 123

Learning Objectives: 1. To refresh the students memories about preparing a simple proof of cash. 2. To explain underlying principles/analysis to simple proof of cash line adjustments. This framework used in line adjustments will be used later in more complex adjustments such as NSF checks and clerical errors. Exercise proper: A. Goshen Company The accountant for the Goshen Company assembled the following data: June 30 P 15,822 107,082 8,201 27,718 72 July 31 P 39,745 137,817 12,880 30,112 60 8,250

Cash account balance Bank statement balance Deposits in transit Outstanding checks Bank service charge* Customer's check deposited July 10, returned by bank on July 16 marked NSF, and redeposited immediately; no entry made on books for return or redeposit Collection by bank of company's notes receivable 71,815 * (Recorded on books in month following charge or collection) ........................... The bank statements and the company's cash records show these totals: Disbursements in July per bank statement ................ Cash receipts in July per Goshen's books ................ Checks written in July per Goshen's books ............... Receipts in July per bank statement .....................

80,900

P218,373 236,452 212,529 249,108

Prepare a 4-column bank reconciliation as of July 31, using the form that reconciles both the book and bank balances to a correct cash amount. B. Plastics Company Plastics Company deposits all receipts and makes all payments by check. The following information is available from the cash records: MARCH 31 BANK RECONCILIATION Balance per bank Add: Deposits in transit Deduct: Outstanding checks Balance per books P26,746 2,100 (3,800) P25,046

Session 2.4: Audit of Cash - Proof of Cash

Month of April Results Balance April 30 April deposits April checks April note collected (not included in April deposits) April bank service charge April NSF check of a customer returned by the bank (recorded by bank as a charge) Instructions (a) Calculate the amount of the April 30: 1. Deposits in transit 2. Outstanding checks (b) What is the April 30 adjusted cash balance? II. Comprehensive Proof of Cash Per Bank P27,995 10,784 11,100 3,000 35 900

BA 123

Per Books P24,355 12,889 13,080 -0-0-0-

Learning Objectives: 1. To determine the basic data needed for the preparation of proof of cash from source documents and accounting books, i.e. cash receipts and cash disbursement books and current period and prior period bank statements. 2. To analyze more complex adjustments and reflect its effect on the proof of cash statement. Examples of complex adjustments are Customers Non-Sufficient Fund checks, bank error, correction of bank errors, clerical error and correction of clerical errors. 3. To determine cash shortage or overage. Exercise proper: WonderTwin You have completed your examination of the cash on hand and in banks in your audit of the WonderTwin Companys financial statements for the year-ended December 31, 2008, and noted the following: 1. The company maintains a general bank account at the Continental Bank and an imprest payroll account at the First Republic Bank. All checks are signed by the company president Allan Co. 2. Data and reconciliation prepared by Choeri Fer, the Company accountant, at November 30, 2008, indicated that the payroll account had a P1,000 general ledger and bank balance with no in-transit or outstanding items. The general bank account had a P12,405 general ledger balance with checks outstanding aggregating P918 (#1403 for P575 and #1404 for P343) and one deposit of P492 in transit. 3. Your surprise cash count on January 2, 2009 revealed customers checks totaling P540 and a Continental Bank deposit slip for that amount dated December 29, 2008, were in the company safe and that no cash was in transit to the bank at that time. Your examination of the general account checkbook revealed Check #1416 to be the first unused check.

Session 2.4: Audit of Cash - Proof of Cash

4. The Cash ledger for the period of December is reprinted below: WonderTwin Company Cash Account Period: December 1 - 31, 2008 Ref # Date Debits CR798 C#1405 C#1406 CR799 C#1408 CR800 C#1409 C#1410 C#1411 CR801 CR802 C#1412 JV123 C#1413 JV147 CR803 C#1414 C#1415 CR804 CR805 C#1416 1-Dec 6-Dec 7-Dec 7-Dec 8-Dec 8-Dec 9-Dec 10-Dec 1-Dec 12-Dec 15-Dec 12-Dec RT 13-Dec D 12-Dec 14-Dec 15-Dec 29-Dec 31-Dec 16-Dec 496.00 1,675.00 645.00 832.00 1,706.00 975.00 2,062.00 3,945.00 6,237.00 8,045.00 9,549.00 1,845.00 241.00 350.00 2,072.00 1,513.00 2,597.00 1,739.00 540.00 942.00 1,120.00 22,892.00 26,234.00

BA 123

Credits

Balance 12,405.00 12,901.00 11,226.00 10,581.00 11,413.00 9,707.00 10,682.00 8,620.00 4,675.00 (1,562.00) 6,483.00 16,032.00 14,187.00 13,946.00 13,596.00 11,524.00 13,037.00 10,440.00 8,701.00 9,241.00 10,183.00 9,063.00

5. The December statements from both banks were delivered unopened to you. The First Republic bank statement contained the following: Deposits P 1,675.00 1,706.00 1,845.00 2,597.00

A total of 72 checks were paid totaling P7,823.

Session 2.4: Audit of Cash - Proof of Cash

BA 123

The bank statement of Continental Bank is reprinted below: Client: Date 30-Nov 1-Dec 5-Dec 8-Dec 11-Dec 14-Dec 18-Dec 21-Dec 22-Dec 26-Dec 28-Dec 29-Dec WonderTwin Company Debits Charges Credits Balance 12,831.00 13,323.00 11,877.00 12,134.00 10,749.00 14,745.00 16,612.00 16,371.00 15,812.00 13,215.00 13,859.00 14,209.00

1,675.00 575.00 1,706.00 1,987.00 6,237.00 241.00 RT 2,072.00 D 2,597.00 362.00 12.00 DM 17,464.00

267.00 RT 654.00 2,062.00 D 1,845.00 546.00 RT

492.00 496.00 832.00 975.00 8,045.00 9,949.00 546.00 CM 1,513.00 1,010.00 CM 362.00 24,220.00

4.00 DM 5,378.00

6. Cutoff statement were secured by you personally from both banks on January 8, 2009, and the Continental Bank statement reproduced below: Client: Date 12/29/01 1/2/02 1/5/02 WonderTwin Company Debits Charges Credits Balance 14,209.00 9,065.00 9,657.00

1,739.00 350.00

3,945.00

540.00 942.00

7. You determined that the bank statements are correct except that the Continental Bank incorrectly charged a returned check on December 21 but credited the account the same day. 8. The P362 check charged by the Continental Bank on December 28 was Check #1407 drawn payable to Wonder Twin Company and endorsed Wonder Twin Company by Choeri Fer. 9. Your investigation showed that the amount credited by Continental Bank to Wonder Twins account on December 29 was an unauthorized transfer from the First Republic Bank to the Continental Bank account by the companys bookkeeper who made no related entry in the companys records. The check was charged to Wonder Twin Company on January 2, 2009, on the cut-off statement received by you from the First Republic Bank. 10. Drafts charged against the Continental Bank account were made for trade acceptances which were signed by Allan Co and issued to a supplier.

Session 2.4: Audit of Cash - Proof of Cash

BA 123

11. On December 28, a 60 day, 6% P1,000 note was collected by Continental Bank for Wonder Twin for a P4.00 collection fee. 12. The P12 debit memo from the Continental Bank was a charge for check printing. 13. Check #1413 was issued to replace Check #1404 when the latter was reported not received by the vendor. Because of the delay in paying this account, Wonder Twin Company was no longer entitled to the 2% discount it had taken in preparing the original check.

Required: As the auditor of Wonder Twin Company, you are to prepare a 4 column bank reconciliation (proof of cash) for the clients Continental Bank account. Present the adjusted bank and book balances. Use the format illustrated below:

Nov. 30 Descriptions Balance Receipts

December Withdrawal

Dec. 31 Balance