CHAPTER 3 - Audit of Cash &

Cash Equivalents

Problem 1
The following items are found in the cash account of Ivie Company at December 31, 2006.
The companys controller asks your opinion whether the items listed below should be
considered as part of cash account and come up with adjusting entry to adjust the cash
account.
1.
2.

Customers check dated December 25, 2006, P25,000.

Companys check (P30,000) dated December 26, 2006 which was drawn in payment
for merchandise purchased on that date but not delivered until January 3, 2007. This
check was deducted in the cash balance.
3.
A check worth P196,000 from customer who paid the account net of the 2%
discount. The company records the transaction as credit to Accounts Receivable for the
proceeds.
4.
Cash in closed bank (Urban Bank), P95,000.
5.
Redemption fund, P100,000
6.
Sinking fund, P100,000. This will be used on March 1, 2007 to redeem the bonds
payable.
7.
Metro Bank Checking Account No. 0004568, P210,000.
8.
RCBC Checking Account No. 0002347, P115,000.
9.
Overdraft in PNB Checking Account No. 00011256, P50,000.
10.
Companys check dated January 3, 2007 in payment of account, P50,000. This was
recorded in the companys disbursement ledger at December 31, 2006.
11.
Overdraft in RCBC Checking Account No. 0056791, P15,000.
12.
Postage stamps, P2,000.
13.
90-day Treasury Bills (purchase on November 1, 2006), P100,000
14.
Treasury Bills that matures on February 1, 2007, P50,000.
15.
Change fund, P10,000.
16.
Customers certified check, P20,000.
17.
Companys certified check, P50,000. (This was included in the cash disbursement for
December).
Problem 2
Your audit of the December 31, 2006, financial statements of Mato Corporation reveals the
following:
1.
2.
3.
4.
5.
6.

Current account at PBCom

Current account at PNB
Treasury bills (acquired 3 months before maturity)
Treasury bills (maturity date is 12/31/07)
Payroll account
Foreign bank account - restricted (translated using the
12/31/06 exchange rate)
7. Postage stamps
8. Employees checks marked DAIF
9. IOU from the vice-president
10. Credit memo from a supplier for a purchase returns
11. Travelers check
12. Money order
13. Companys check dated 12/30/06 but not mailed at year-end

P (35,000)
65,000
200,000
500,000
175,000
900,000
600
10,000
50,000
25,000
60,000
10,000
30,000

14. Petty cash fund (P4,000 in currency and expense receipts for
(P6,000)

10,000

Questions
1. The entry to adjust the employees checks marked DAIF is:
a. Accounts receivable
10,000
Cash
10,000
b. Cash
10,000
Accounts receivable
10,000
c. Employees advances
10,000
Cash
10,000
d. Cash
10,000
Employees advances
10,000
2. MATO CORPORATIONS adjusted cash and cash equivalents balance at December 31,
2006 is:
a. P 560,000
b. P 544,000
c. P 514,000
d. P 509,000
Problem 3
The controller of Pacatang Company is attempting to determine the amount of cash to be
reported on its December 31, 2006 balance sheet. The following information is provided:
a.

Commercial savings account of P1,000,000 and a commercial checking account

balance of P900,000 are held at Phil. Banking Corporation.
b.
Money market fund account held at Allied Bank, P600,000
c.
Travel advance of P180,000 for executive travel for the first quarter of next year
(employee to reimburse through salary reduction)
d.
A separate fund in the amount of P1,500,000 is restricted for the retirement of longterm debt.
e.
Petty cash fund, P5,000
f.
An IOU from David Santos, a company officer, in the amount of P10,000.
g.
A bank overdraft of P110,000 has occurred at one of the banks the company uses to
deposit its cash receipts. At the present time, the company has no other deposits at this
bank.
h.
The company has two certificates of deposit, each totaling P500,000.
These
certificates of deposit have a maturity of 120 days.
i.
Pacatang Company has received a check that is dated January 12, 2007 in the
amount of P125,000.
j.
Currency and coins on hand amounted to P5,300.
Questions
1. PACATANG COMPANYS adjusted cash and cash equivalents balance at December 31,
2006 is:
a. P 1,910,300
b. P 2,400,300
c. P 2,510,300
d. P 3,510,300
2. The travel advance of P180,000 for executive travel should be classified as:
a. Accounts receivable
c. Prepaid expenses
b. Travel expenses
d. Advances to employees
Problem 4

Present journal entries to record the following transactions in the books of Marites
Corporation, which uses a calendar year as accounting period. Assume that the company is
using the imprest method in accounting for petty cash fund:
a. A petty cash fund was set up on November 1, 2006 in the amount of P2,400.
b. On November 29, 2006, a check was issued to replenish the fund, the composition of
which was as follows:
Currency bills and coins
166
Vouchers showing expenditures for:
Office supplies
270
Charges from purchased of supplies
124
Repairs and maintenance
350
Wages paid to casual employees
950
Charges from purchased of goods to be sold
400
c. On December 18, 2006, the fund was replenished and correspondingly increased to
P3,000; its composition included the following:
Currency bills and coins
158
Vouchers showing expenditures for:
Store supplies
304
Accounts payable
914
Charges from purchased of goods to be sold
242
Miscellaneous expenses
782
d. An examination on December 31, 2006, disclosed the following composition of the fund,
although it was not replenished on this date:
Currency bills and coins
958
Check of office manager, dated January 5, 2007
1,000
Vouchers showing expenditures for:
Office supplies
126
Miscellaneous expenses
90
Accounts payable
800
e. On January 5, 2007, the check of office manager was cashed and the proceeds were
added to the petty cash fund.
f.

On January 6, 2007, replenished disbursement from December 18, 2006 to January 5,

2007.

Questions
1. The entry to record the November 29 replenishment of petty cash fund is:
a. Operating expenses
1,694
Freight-in
400
Cash short/over
140
Cash
2,234
b. Operating expenses
2,234
Petty cash fund
2,234
c. Operating expenses
1,694
Freight-in
400
Cash short/(over)
140
Petty cash fund
2,234
d. No entry since the company is using an impress fund system.

2. The adjusted Petty Cash Fund balance of MARITES CORPORATION at December 31, 2006
is:
a. P 3,000
b. P 1,958
c. P 984
d. P 958
3. The entry to record the December 31, 2006 adjustment of petty cash fund is:
a. Operating expenses
216
Accounts payable
800
Cash short/over
26
Petty cash fund
1,042
b. Operating expenses
216
Accounts payable
800
Cash short/over
26
Cash
1,042
c. Operating expenses
216
Accounts payable
800
Advances employees
1,000
Cash short/(over)
26
Petty cash fund
2,042
d. No entry since there is no replenishment yet.
4. The entry to record the January 6, 2004 replenishment of petty cash fund is:
a. Operating expenses
216
Accounts payable
800
Cash short/over
26
Petty cash fund
1,042
b. Operating expenses
216
Accounts payable
800
Cash short/over
26
Cash
1,042
c. Operating expenses
216
Accounts payable
800
Advances employees
1,000
Cash short/(over)
26
Cash
2,042
d. No entry since the account has been adjusted on December 31.
Problem 5
Your audit of the petty cash (P10,000) of Juliet Company as of December 31, 2006 revealed
the following: (cash count date is January 3, 2007 at 5:00 pm)
Bills: 10 - P500 bill 15 - P100 bill
18 - P50
15 - P20
5 - P10
Coins: P180 in P5 pieces; P42 in P1.00 pieces; P23 in P0.25 pieces.
IOUs submitted were:
Dec. 18
Nap R. P 750
Dec. 28
Ruel R. 125
Dec. 30
Sonny S.
500
Cashed checks:
Dec. 28, 2006
check drawn by the manager
P 1,125
Dec. 28, 2006
check drawn by an employee
500
Dec. 30, 2006
check drawn by a customer
350

Jan 1, 2007

check drawn by an employee

1,250

The cashier informed you that owing to the lack of cash it was necessary for him to open
certain payroll envelopes unclaimed by employees and use the cash found herein. They
were as follows:
Dec. 15, 2006 - Ed A.
P 1,250
Dec. 30, 2006 - Andoy
1,750
Dec. 30, 2006 - Macky
650
Dec. 30, 2006 - Paz
1,000
The cashier also informed you that all cash sales receipts were passed through his fund
and that cash sales tickets Nos. 2059 to 2061 under dates of Dec. 30, Jan. 3 and Jan. 4
for P350, 500 and P545, respectively, had not yet been turned over to the general
cashier.
The petty cash vouchers found in the petty cash box were as follows:
Dec. 30, 2006Transportation
P515
Dec. 30, 2006Token gifts to visitors
650
Dec. 30, 2006Freight for office supplies purchase
215
Jan. 1, 2007 Freight for mdse. purchased
125
Jan. 2, 2007 Freight for mdse. sold
575
Questions
1. JULIET COMPANYS cash shortage at December 31, 2006 is:
a. P 2,072.75
b. P 1,370.00
c. P 1,027.75

d. P 327.75

2. The adjusted petty cash balance of JULIET COMPANY at December 31, 2006 is:
a. P 10,000
b. P 9,625
c. P 5,975
d. P 4,625
3. The entry to adjust the unclaimed payroll at December 31, 2006 is:
a. Petty Cash Fund
c. Cash
Salaries expense
Accrued salaries
b. Salaries expense
d. Accrued salaries
Petty cash fund
Cash
4. The cashed check dated January 1, 2007
a. Should be adjusted since it was dated January 1, 2007, hence a postdated check.
b. Should be adjusted since it was received December 31, 2006 but the check is dated
January 1, 2007, hence a postdated check.
c. Should not be adjusted since the check is dated January 1, 2007.
d. Should not be adjusted since the check was received December 31, 2007.
5. The Cash account (excluding PCF) of JULIET COMPANY is understated at December 31,
2006 by:
a. P 4,650
b. P 4,900
c. P 6,045
d. P 6,370

Problem 6
You are making an audit of the Darwin Corporation for the past calendar year. The balance
of the Petty Cash account at December 31, 2006 was P1,300. Your count of the imprest
cash count made at 8:30 am on January 3, 2007, in the presence of the petty cash
custodian, revealed:
Currency and coins

571.38

Checks:
Date
12/28/06
12/29/06
12/31/06
01/02/07
01/10/07

Maker
Bank
Macky, vice-president
PNB
360.00
Andy, employee
DBP
60.00
Bobot, customer
RCBC
153.80
Neil, customer
PNB
121.36
Jeff, employee
PNB
60.00
(check received Dec. 29)
(These checks were all considered good when deposited after dates shown on the
checks. The first four checks were actually deposited Jan. 3; the last check was
deposited Jan. 11; all five checks proved to be good.)

Vouchers:
Dec. 11
Dec. 28
Dec. 29
Dec. 31
Jan. 2
IOU

#261 Richard, shipping clerk temporary advance for the use of the
receiving department. Your count of Mr. Richards fund revealed:
currency P28.80; merchandise freight bills, P31.20.
P 60.00
# 301 Postage
12.00
# 302 Freight bill on merchandise purchases
47.30
# 305 Freight bill on office supplies
88.93
# 500 Freight bill on merchandise purchases
29.36

Dec. 21

Mabel, employee

36.00

Sales Invoices (for cash sales, collections handled by the petty cashier):
Invoice # 315
Dec. 30
P 120.00
328
Dec. 31
153.80
334
Jan. 2
121.36
(As a general rule, the petty cashier endeavored to turn over the proceeds of
cash sales to the general cashier on the 10th, 20th and last days of each month.
Proceeds on these sales were recorded and deposited by the general cashier.)

Postage Stamps:
Three one-peso stamps. The petty cashier handled postage stamps.
stamps represent the unused stamps purchased on Voucher # 301.
Questions
1. The petty cash fund shortage at December 31, 2006 is:
a. P 216.39
b. P 123.83
c. P 98.03

d. P 95.03

These

2. The adjusted petty cash fund balance of DARWIN CORPORATION at December 31, 2006
is:
a. P 900.74
b. P 960.74
c. P 1,174.54 d. P 1,234.54
3. DARWIN CORPORATIONS operating expenses found in the petty cash fund at December
31, 2006 is:
a. P 208.23
b. P 205.75
c. P 174.03
d. P 97.93
4. The Cash account (excluding PCF) of DARWIN CORPORATION is understated at
December 31, 2006 by:
a. P 395.16
b. P 273.80
c. P 153.80
d. P 120.00

Problem 7
Mary Jane is the cashier of Adlawan Corporation. AS representative of the Zarate and
Associates, CPAs, you were assigned to verify her cash on hand in the morning of January 3,
2007. You began to count at 9:00 AM in the presence of Mary Jane. In the course of your
counting, you found currencies in paper bills and coins together with checks, vouchers, and
other items, which are mentioned below:
Bills:

(2) P500;

(8) P100;

Coins:

P 5.00
1.00
0.25
0.10
0.05

11 loose
24 loose
5 rolls and 32 loose (50 pieces to a roll)
10 rolls and 15 loose (50 pieces to a roll)
14 rolls and 20 loose (40 pieces to a roll)

Checks:
Date
12/22/06
12/26/06
IOUs:
Date
12/20/06
12/22/06
12/24/06

Maker
Vivian, Asst. Mgr
Mary Jane, cashier

(12) P50;

(5) P20

Payee
Adlawan Corp.
Adlawan Corp.

Maker
Yap, Janitor
Felix, clerk
Ablay, bookkeeper

Amount
P 6,000
4,000
Amount
P 500
750
500

PETTY CASH VOUCHERS FOR REPLENISHMENT

Date
Payee
Accounts Charged
12/16/06 Wagan, messenger
Advances to employees
12/17/06 Maren and Co.
Supplies
12/18/06 Eeman Liner
Freight in
12/18/06 Posts Office
Supplies
12/20/06 Alejandre, carpenter
Repairs
12/21/06 Violan
Miscellaneous expense

Amount
P1,000.00
545.00
982.50
300.00
2,950.00
554.00

Your investigation also disclosed the following:

1. The balance of petty cash fund per books is P20,000.00.

2. Cash sale of January 2, 2007 amounted to P8,650 per sales records, while cash
receipts book and bank deposit slip showed that only P7,650 was deposited in the
bank on January 3, 2007
3. The following employees pay envelopes had been opened and the money removed.
Each envelope was marked Unclaimed - Ernesto, P332.50; Secinando, P447.50.
Questions
1. The petty cash shortage of ADLAWAN CORPORATION at December 31, 2006 is:
a. P 2,748.50
b. P 1,748.50
c. P 968.50
d. P 188.50
2. The adjusted petty cash balance of ADLAWAN CORPORATION at December 31, 2006 is:
a. P 10,950
b. P 11,950
c. P 11,730
d. P 12,730
3. The undeposited sales/collection of ADLAWAN CORPORATION at December 31, 2006 is:
a. P 8,650
b. P 7,650
c. P 1,000
d. P 0
Problem 8
The following data are gathered from the cash books and bank statement received from
Davao Bank by Grace Company:
The cash in bank ledger account shows a debit balance of P290,438.50 as of May 31.
The bank statement shows a credit balance of P318,560 as of May 31.
An examination of the checks encashed by the bank shows that the following checks are not
presented for payment:
No. 187, P3,608; No. 189, P15,499; No. 191, P4,400;
No. 192, P1,545.50, No. 193, P23,001
A certified check for P24,750 payable to creditor, was encashed by the bank during May.
The bank statement shows a deduction of P10,802 for check No. 184.
actually made out at P10,208.

The check was

A check deposited on May 27 for P34,100 was returned by the bank on May 28 marked
Refer to Maker.
A non-interest bearing note for P44,000 was collected by the bank for the account Grace
Company. Collection fee deducted by the bank is P330.
A deposit for P20,900 was recorded in the books twice.
Check No. 179 for P26,400 was erroneously recorded in the books as P46,200.
Interest on an outstanding loan payable, deducted by the bank on May 31, P1,320.
Collections on May 31 to be deposited on June 1, P26,488.
Questions
1. GRACE COMPANYS adjusted cash balance at May 31, 2006 is:
a. P 341,939.50
b. P 283,288.50
c. P 297,588.50

d. P 273,168.50

2. The recorded cash of GRACE COMPANY at May 31 is:

a. Understated by P 17,270
c. Overstated by P 7,150
b. Understated by P 7,150
d. Overstated by P 17,270

Problem 9
The following data pertaining to the cash transactions and bank account of Abiso Company
for May 2006 are available to you:
Cash balance, per accounting records, May 31, 2006
Cash balance, per bank statement, May 31, 2006
Bank service charge for May
Debit memo for the cost of printed checks delivered by the bank;
the charge has not been recorded in the accounting records
Outstanding checks, May 31, 2006
Deposit of May 30 not recorded by bank until June 1
Proceeds of bank loan on May 30, not recorded in the accounting
records, net of interest of P900
Proceeds from a customers promissory note; principal amount P24,000,
collected by the bank, taken up in the books with interest
Check No. 1086 issued to a supplier entered in the accounting records
as P6,300 but deducted in the bank statement at an erroneous amount
of
Stolen check lacking an authorized signature, deducted from Abisos
account by the bank in error

P 51,582
95,874
327
375
20,184
14,610
17,100
24,300
3,600
2,400

Customers checks returned by the bank marked NSF, indicating that the
customers balance was not adequate to cover the checks; no entry has
been made in the accounting records to record the returned check

2,280

Questions
1. The adjusted cash in bank balance of ABISO COMPANY at May 31, 2006 is:
a. P 87,570
b. P 90,000
c. P 90,570
d. P 90,900
2. The cash in bank balance of ABISO COMPANY at May 31, 2006 is:
a. Understated by P39,318
c. Understated by P38,418
b. Understated by P38,988
d. Understated by P35,988
Problem 10
In connection with an audit, you are given the following bank reconciliation.
BANK RECONCILIATION
December 31, 2006
Balance per ledger, 12/31/03
Add: Collections received on the last day of
December and charged to Cash in Bank
on books but not deposited
Debit memo for customers checks returned
unpaid (check is on hand but no entry has been
made on the books)

P 34,349.72
5,324.50
4,000.00

Debit memo for bank service charge for December

Deduct:
Outstanding checks
(see details below)
Credit memo for proceeds of a note receivable
which had been left at the bank for collection
but which has not been recorded as collected
Check for an account payable entered on books
as P12,625 but drawn and paid by bank as
16,225
Computed balance
Unlocated difference
Balance per bank (check to confirmation)
LIST OF OUTSTANDING CHECKS
December 31, 2006
Check No.
14344
14358
14367
14399
14401
14407

1,000.00
P 46,674.22

P 18,625

8,000
3,600

32,225.00
P 14,449.22
36,601.00
P 51,050.22

Amount
P 5,820
1,295
3,543
2,001
4,892
5,074
P 18,625

Questions:
1. The adjusted cash balance at December 31, 2006 is:
a. P 33,749.72
b. P 34,949.72
c. P 37,749.72

d.P40,949.72

2. A check for an account payable entered on books as P12,625 but drawn and paid by
bank as 16,225
a. Should not be included in the reconciliation since the bank already gave the money
to the payee.
b. Should not be included in the reconciliation since banks record is always followed.
c. Should be included as deduction in the book reconciliation since this is considered as
book error, thus a reconciling item.
d. Should be included as addition in the book reconciliation since this is considered as
book error, thus a reconciling item.
3. The outstanding checks at December 31, 2006 is:
a. P 15,025
b. P 18,625
c. P 19,025

d. P 22,625

4. The cash balance of the company per record at December 31, 2006 is:
a. Overstated by P600
c. Understated by P 3,400
b. Overstated by P1,200
d. Overstated by P 6,600
Problem 11
The cash books of Grace Corporation show the following entries during the month of June
2006.
Cash Receipts Journal
Check Register
Date
Amount
Date
Check No.
Amount

10

June 1Balance
4Deposit
4Deposit
7Deposit
10 Deposit
10 Deposit
11 Deposit
17 Deposit
18 Deposit
18 Deposit
19 Deposit
20 Deposit
27 Deposit
30 Deposit

762,000
113,000
811,000
152,200
11,300
12,700
73,000
110,075
3,725
65,000
26,463
133,037
273,628
92,400

June2
3
5
7
8
10
11
13
14
17
19
21
23
25
30

801
802
803
804
805
806
807
808
809
810
811
812
813
814
815

15,625
7,526
229,205
169,555
74,936
274,600
34,842
250,000
1,070,000
167,300
3,130
82,730
127,200
93,080
720

The bank statement for the month of June 2006 shows:

Checks No.
Balance
800
804
805
801
803
807
924

36,000
169,555
74,936
16,525
229,205
34,842
75,000
200
(collection charge)
809 1,070,000
808 250,000
810
812
806

167,300
82,730
274,600

811
DM

3,130
300

Deposits

217,200

Date
May
31
June 5
6
7
8

Amount
798,000
1,722,000
1,686,000
1,516,445
1,658,709

97,000

9
12

1,412,979
1,475,137

40,400 CM

13

1,440,337

198,000 CM
113,800
159,500

14
15
16
19
21
24
28

370,337
120,337
318,337
264,837
341,607
67,007
340,635

30

337,205

924,000

273,628

Upon investigation, the following are discovered:

CM - Represents a 60-day, 6% note for P40,000 collected by the bank for the account of
Grace Company.
CM - Represents a 60-day, 6% own note for P200,000 discounted by Grace Corporation with
the bank and not yet recorded in the books.
DM - Represents bank service charge for the month.
Check No. 924 represents a check signed by Graciele Company.
Collection charge represents collection fee charged by the bank.
Questions
1. The unadjusted cash ledger balance of GRACE CORPORATION at June 30, 2006 is:

11

a.

P 114,079

b. P 113,179

c. P 39,079

d. P 38,179

2. The unadjusted cash bank balance of GRACE CORPORATION at June 30, 2006 is:
a. P 261,305
b. P 336,305
c. P 337,205s
d. P 412,205
3. The deposit in transit of GRACE CORPORATION at June 30, 2006 is:
a. P 92,400
b. P 104,500
c. P 182,000
d. P 0
4. The outstanding checks of GRACE CORPORATION at June 30, 2006 is:
a. P 302,806
b. P 228,526
c. P 227,806
d. P 153,526
5. The adjusted cash balance of GRACE CORPORATION at June 30, 2006 is:
a. P 277,879
b. P 276,079
c. P 261,305
d. P 201,079
6.

The error made in check number 801 is known as:

a. Fundamental error
c. Transplacement error
b. Balance sheet error
d. Transposition error

7.

In the discounting of P200,000 note, the company should credit

a. Notes receivable discounting
c. Notes payable
b. Notes Receivable
d. Notes discounting

Problem 12
The following information pertains to the cash of Jenny Company:
Balance shown on bank statement
Balance shown in general ledger before
reconciling the bank account
Outstanding checks
Deposits in transit
Deposits shown in bank statement
Charges shown on bank statement
Cash receipts shown in companys books
Cash payments shown in companys books

Nov 31
P 27,380

Dec. 31
P 26,960

25,780
8,630
6,850

25,000
10,150
12,450

For Dec.
P 55,880
56,300
53,980
54,760

The bank service charge was P180 in November (recorded by the company during
December) and P240 in December (not yet recorded by the company).
Included with the December bank statement was a check for P5,000 that had been received
on December 25 from a customer on account. The returned check marked NSF by the
bank, has not yet been recorded on the companys books.
During December the bank collected P7,500 of bond interest for the company and credited
the proceeds to the companys account. The company earned the interest during the
current accounting period but has not yet recorded it.
During December the company issued a check for P6,960 for equipment. The check, which
cleared the bank during December, was incorrectly recorded by the company for P8,960.
Questions

12

1. The adjusted cash receipts of JENNY COMPANY at December 31 is:

a. P 61,480
b. P 53,980
c. P 50,280
d. P 46,480
2. The adjusted cash disbursements of JENNY COMPANY at December 31 is:
a. P 63,980
b. P 61,980
c. P 57,820
d. P 54,780
3.

In a proof of cash, the NSF check:

Should be added in the December 31 column since this was
returned back by the bank.
b.
Should be deducted in the December 31 column since this
was returned back by the bank.
a. Should be deducted in the December 31 column since this was returned back and not
paid by the bank, thus not considered as receipts.
b. Should be added in the December 31 column since this was returned back and not
paid by the bank, thus not considered as receipts.
a.

4. The adjusted December 31 cash balance of JENNY COMPANY is:

a. P 29,760
b. P 29,260
c. P 27,260

d. P 25,600

5. The adjusted November 31 cash balance of JENNY COMPANY is:

a. P 29,160
b. P 27,260
c. P 26,160

d. P 25,600

6. The check issued but was incorrectly recorded as P8,960 should be adjusted by:
a. Accounts payable
2,000
c. Cash
2,000
Cash
2,000
Accounts payable 2,000
b. Equipment
2,000
d. Cash
2,000
Cash
2,000
Equipment
2,000
Problem 13
ELEFANTEs check register shows the following entries for the month of December
Date
2006
Dec

Checks
1
5
7
11
26
29

Deposits

Beginning Balance
Deposit
Check # 14344 32,500
Check # 14345 14,000
Deposit
Check #14346
8,600

Balance
P 83,900

P 65,000
49,000

120,800
106,800
147,200

ELEFANTEs bank reconciliation for November revealed one outstanding check (No.14343)
for P12,000 (written on November 28), and one deposit in transit for P5,550 (made
November 29).
The following is from Elefantes bank statement for December 2006:
Date
2006
Dec.

Checks
1
1
4
5
14

Beginning balance
Deposit
Check No. 14344
Deposit
Check No. 14345

Deposits
P
P 32,500
14,000

5,550
56,000

Balance
P 95,970
101,300
68,800
124,800
110,800

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15
20
29
31

Loan Proceeds
NSF check
Service charge
Interest

7,600
1,000

500,000
3,600

610,800
603,200
602,200
605,800

Note: All errors noted in this problem were committed by the Elefante, not the bank. It is
also noted that the company failed to record one deposit in the book.
Questions
1. The unadjusted cash receipts per ledger of ELEFANTE COMPANY for the month of
December is:
a. P 119,620
b. P 114,000
c. P 110,620
d. P 105,000
2. The unadjusted cash receipts per bank of ELEFANTE COMPANY for the month of
December is:
a. P 574,150
b. P 568,600
c. P 565,150
d. P 559,600
3.

ELEFANTE COMPANY is:

a. P 95,970
b. P 89,520

The adjusted December 1 cash ledger balance of

c. P 83,900

d. P 78,280

4. The adjusted December31 cash bank balance of ELEFANTE COMPANY is:

a. P 634,420
b. P 628,800
c. P 623,180
d. P 577,620
5. The overstatement of deposit should be:
a. Deducted in the bank December 31 column.
b. Added in the bank December 31 column.
c. Deducted in the book December 31 column.
d. Added in the book December 31 column.
Problem 14
You are asked to audit the cash of Letty Corporation. Letty Corporation carries its checking
account with Mindanao Bank. The following data are available:
a. Letty Company Cash account for December:
Balance, November 30
Deposits during December
Checks written during December
Balance, December 31

P 20,900
93,400
( 83,000)
P 32,300

b. Bank statement for December:

Balance, November 30
Deposits during December
Checks cleared during December
Funds transferred from foreign operations revenue
(in peso amount not yet recorded by Letty Corp.)
NSF check, Customer Nelly
Bank Service charge
Balance, December 31

14

P 20,000
92,300
( 82,150)
25,000
(
180)
(
70)
P 54,900

c. Additional data:
1. Balance in Petty Cash account, P200 (not included in Letty Cash account).
2. The deposits of P93,400 by Letty Company are overstated by P100; the bank
recorded the correct amount.
3. The checks cleared by the bank of P82,150 erroneously included a P300 check
drawn by Laity Corporation; the bank has not yet corrected this error.
4. November 30: deposits outstanding, P2,000; and checks outstanding, P1,500.
Questions
1. The deposit in transit of LETTY COMPANY at December 31 is:
a. P 3,100
b. P 3,000
c. P 2,900

d. P 2,000

2. The outstanding checks of LETTY COMPANY at December 31 is:

a. P 1,650
b. P 1,500
c. P 2,050

d. P 2,350

3.

The adjusted cash balance of LETTY COMPANY at December 31 is:

a. P 56,050
b. P 55,950
c. P 55,650
d. P 55,550

4. The cash shortage of LETTY COMPANY at December 31 is:

a. P 0
b. P 400
c. P 500
d. P 600
Problem 15
In Your audit of the accounts of Cleenenth Company, you find the following facts on
December 31, 2006.
Balance of cash in bank account
Balance of bank statement
Outstanding checks, December 31:
No. 000567
10,000
581
55,000
582
40,000
602
25,000
615
65,000
616
70,000
Receipts of December 31, deposited the following month
The bank statement shows the following charges:
Service charge for December
NSF check received from a customer

P1,350,000
1,200,000

265,000
275,000
5,000
85,000

Additional information:
The stub for check number 000581 and the invoice relating thereto show that it was for
P35,000 but was incorrectly recorded as P55,000. This was in payment of the accounts
payable.
Payment has been stopped on check number 000567 which was drawn in payment of
accounts payable. The payee cannot be located.
Included in the bank statement was a canceled check the company had failed to record.
The check was in payment of accounts payable.
Questions

15

1. The unrecorded disbursement of CLEENETH COMPANY at December 31, 2006 is:

a. P 80,000
b. P 50,000
c. P 40,000
d. P 10,000
2. Cancellation of check number 567 should be recorded as:
a. Debit to Accounts Payable
c. Credit to Accounts Payable
b. Credit to Cash
d. No adjustment/entry
3.

Cash shortage of CLEENETH COMPANY at December 31, 2006 is:

a. P 0
b. P 50,000
c. P 40,000
d. P 10,000

4. The adjusted cash balance of CLEENETH COMPANY at December 31, 2006 is:
a. P 1,290,000
b. P 1,240,000
c. P 1,210,000
d. P 1,180,000
Problem 16
Dema-ala Company is very profitable small business. It has not, however, given much
consideration to internal control. For example, in an attempt to keep clerical and office
expenses to a minimum, the company has combined the jobs of cashier and bookkeeper. As
a result, Maria handles all cash receipts, keeps the accounting records, and prepares the
monthly bank reconciliation.
The balance per bank statement on October 31, 2006, was P73,520. Outstanding checks
were: No. 62 for P507, No. 183 for P600, No. 284 for P1,103, No. 862 for P762.84, No. 863
for P907.20, No. 864 for P661.12. Included with the statement was a credit memorandum
of P800 indicating the collection of a note receivable for Dema-ala Company by the bank on
October 25. Dema-ala Company has not recorded this memorandum.
The companys ledger showed one cash account with a balance of P87,570.88. The balance
included undeposited cash on hand. Because of the lack of internal control, Maria took for
personal use all the undeposited receipts in excess of P15,182.04. She then prepared the
following bank reconciliation in an effort to conceal her theft of cash.
Cash balance per books, October 31
Add: Outstanding checks
No. 862
P 762.84
No. 863
907.20
No. 864
661.12
Less: Undeposited receipts
Unadjusted balance per bank, October 31
Less: Bank credit memorandum
Cash balance per bank statement, October 31

P 87,570.88

1,931.16
P 89,502.04
15,182.04
P 74,320.00
800.00
P 73,520.00

Questions
1. DEMA-ALA COMPANYS cash shortage at October 31 is:
a. P 4,210
b. P 3,410
c. P 1,600

d. P 800

2. DEMA-ALA COMPANYS adjusted cash balance at October 31 is:

a. P 88,370.88
b. P 87,570.88
c. P 86,770.88

d. P 84,160.88

16

Problem 17
On December 15 of the current year, Darwin, who owns Herald Corporation, asks you to
investigate the cash-handling activities in his firm. He thinks that an employee might be
stealing funds. I have no proof he say, but Im fairly certain that the November 30
undeposited receipts amounted to more than P6,000 although the November 30 bank
reconciliation prepared by the cashier shows only P3,619.20. Also, the November bank
reconciliation doesnt show several checks that have been outstanding for a long time. The
cashier told me that these checks neednt appear on the reconciliation because he has
notified the bank to stop payment on them and he had made the necessary payment on the
books.
At your request, Darwin showed you the following November 30 bank reconciliation
prepared by the cashier.
Bal. Per bank statement
Deposit in transit
Outstanding checks
# 2351 550.10
2353 289.16
2354 484.84
Adjusted Balance

2,360.12
3,619.20

( 1,224.10)
P 4,755.22

Bal. Per Books

P
Bank Service charge (
Unrecorded bank CM (

5,385.22
30.00)
600.00)

Adjusted Balance

________
4,755.22

You discover that the P600 unrecorded bank credit represents a note collected by the bank
on Darwins behalf. It appears in the deposits column of the November bank statement.
Your investigation also reveals that the October 31 bank reconciliation showed three checks
that had been outstanding longer than 10 months: No. 1432 for P300, No. 1458 for
P233.45, and No. 1512 for P126.55.
You also discover that these items were never added back into the cash account in the
books.
In confirming that the checks shown on the cashiers November 30 bank
reconciliation were outstanding on that date, you discover that check No. 2353 was actually
a payment of P829.16 and had been recorded on the books for the amount.
To confirm the amount of undeposited receipts at November 30, you request a bank
statement for December 1-12 (called a cut-off bank statement). This indeed shows a
December 1 deposit of P3,619.20.
Questions
1. The amount of fund stolen by the cashier is:
a. P 3,160
b. P 2,500

c. P 1,840

d. P 580

2. The total outstanding checks of HERALD CORPORATION at November 30 is:

a. P 2,524.10
b. P 1,884.10
c. P 1,864.10
d. P1,224.10
3.

The adjusted cash balance of HERALD CORPORATION at November 30 is:

a. P 5,955.22
b. P 5,355.22
c. P 4,115.22
d. P 3,455.22

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Problem 18
In connection with the general examination of the accounts of Nelson Trading Company at
December 31, 2006, you obtained the information and data as shown below relative to your
verification of Cash.
The record kept by the accountant showed the following:
(a) Balances at the end of the month:
Per Bank Statement
Per Books
Undeposited collections
Outstanding checks
* Composed of the following

December 1, 2006
P 54,000
50,400
3,300
6,900 *

#6515
6517
6518
6519

(b) Totals for the month of December, 2006:

Cash Book:
Receipts
Disbursement
Bank Statement
Receipts
Disbursement

510
2,250
2,400
1,740

December 31, 2006

P101,100
70,215
7,200
12,000 *
#6552 P 1,800
6553
5,700
6554
2,550
6555
1,950

P 425,550
405,735
P 444,225
397,125

After application of the necessary auditing procedures, the following were noted:
a. Footing of disbursement should be P 404,235, instead of P 405,735.
b. Bank service charge of P15 for December has not been booked.
c. Cancelled checks (returned together with the December bank statement) include the
following which were charged in the statement:
1. Check #6530 dated December 15, 2006 for P2,400 - this was issued as
replacement of check # 6518 which was returned by the payee because of
certain erasures. No entry has been made to record the cancellation of check
#6518.
2. Check #6517 for P225 - this was erroneously recorded on the books as
P2,250.
3. Check of Neil Trading for P900 - this was charged by bank in error.
d. Proceeds from sale of stocks amounting to P23,250 (cost is P18,000) transmitted
directly by the broker to the bank and credited on December 31, 2006. No entry has
been made on the books to record this sale of stock investment.
e. The company failed to record disbursement for payment of accounts payable at
December 31, 2006 for P1,500.
Questions
1. The adjusted cash receipts per ledger of NELSON TRADING COMPANY at December 31,
2006 is:

18

a. P 448,800

b. P 448,125

c. P 444,225

d. P 425,550

2. The adjusted cash disbursement per bank of NELSON TRADING COMPANY at December
31, 2006 is:
a. P 401,325
b. P 402,000
c. P 405,735
d. P 406,125
3.

The adjusted cash ledger balance of NELSON TRADING COMPANY at December 31,
2006 is:
a. P 91,350
b. P 95,400
c. P 97,200
d. P 97,500

4. The adjusted cash in bank balance of NELSON TRADING COMPANY at December 31,
2006 is:
a. P 91,350
b. P 95,400
c. P 97,200
d. P 97,500
5. The cash shortage of NELSON TRADING COMPANY at December 31, 2006 is:
a. P 765
b. P 675
c. P 575
d. P 390

19