MODAUD1 UNIT 2 - Audit of Cash and Cash Transactions

Discussionquestions2-1 1. Describethefollowingcash-relatedterms.Showpro-formaschedulesorexamplesto theclass. a. Cashcountsheet b. Bankreconciliation c. Standardbankconfirmation d. Proofofcash e. Kiting f. Lapping g. Windowdressing 2. What What shoul should d be consi consider dered ed in classi classifyi fying ng cash cash items? items? What What are are those those items items that that shouldbeaccountedforas“cashandcashequivalents”?Howshouldweaccountfor thoseitemsthatare“not  thoseitemsthatare“ not ”cash? ”cash? Discussionquestions2-2Controlsoverthereceiptanddisbursementofcash RefertoLouwers6-9and6-10. DiscussionQuestions2-3Substantiveauditproceduresfortheauditofcash RefertoLouwers6-15,6-16,6-17,and6-18. Problem2-1Analysisandclassificationofcashbalances The valuatio valuationof nof cash shownon shownon thebalanceshee thebalancesheetas tas ofendof 2012was 2012was P3,264,4 P3,264,400. 00. Yourexaminationofcashshowedthebreakdowntobe: Coins and currency Checks received from customers Certificate of deposit, term: 2 months Petty cash fund Postage stamps BDO, checking account balance Post-dated check, customer Post-dated check, employee Money order from customer Cash in savings account Bank draft from customer Utility deposit to gas company, refundable Cash advance received from customer NSF check, customer Cashadvancetocompanyexecutive,collectible ondemand MBTC, checking account, overdraft (OD) IOUs from employees Total

P60,000 560,000 245,000 6,000 400 2,000,100 12,000 8,000 15,000 117,000 45,000 5,000 8,000 20,000 180,000 (25,000) 7,900 P3,264,400

Computeforthecorrectamountofcashandcashequivalentsanditscompositionasof December31,2012.  Auditing Practice Practice I Workbook

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Problem2-2Analysisandclassificationofcashbalances BoyetDee, thecontroller for Fort BonifacioCompany, determined P10,542,700 asthe amountofcashandcashequivalentsthatwouldbereportedonitsDecember31,2012 financialstatements(FS).Asperyouraudit,thefollowingwasthebreakdownofBoyet’s scheduleofcashandcashequivalents: a. CommercialsavingsaccountofP1,200,000andcommercialcheckingaccount balancesofP1,800,000heldatUCPB. b. Traveladvancesof360,000forexecutivetravelforthefirstquarterofnextyear (employeetoreimbursethroughsalarydeduction). c. AseparatecashfundintheamountofP3,000,000restrictedfortheretirement oflong-termdebt. d. PettycashfundofP10,000(inclusiveofunreplenishedvouchersintheamount ofP4,560). e. AnIOUfromacompanysupervisorintheamountofP190,000. f. AbankoverdraftofP250,000whichoccurredatoneofthebanksthecompany usestodeposititscashreceipts.Thecompanyhadnodepositsatthisbank andtheBoyethadthisamountdeductedfromcashandcashequivalentsinhis schedule. g. Two certificates of deposit, each totaling P1,000,000. These certificates of deposit had a maturity of 90 days from the FS date. Date of purchase: December30,2012. h. AcheckdatedJanuary12,2013intheamountofP125,000. i. A cash balance of P400,000 at all times at UCPB to ensure future credit availability(alreadyincludedinitemA).Foundouttobenotlegallyrestrictedas towithdrawal.  j. P2,100,000commercialpaperofPLDTCo.whichisduein190days. k. CurrencyandcoinsonhandamountingtoP7,700. The2012financialstatementsofFortBonifacioshouldinclude(computefortheamounts orprovidethejournalentries,asapplicable): 1. Cashonhand. 2. Cashinbank. 3. AdjustingentryforitemG. 4. AdjustingentryforitemH. 5. Cashandcashequivalents.

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Problem2-3Cashfundcount YouconductedasurprisecashcountoftheimprestpettycashfundofLLLCosmetics CorporationonJanuary5,2013.TheledgerbalanceforpettycashisP5,000.00withPer Dyasthepettycashcustodian.Resultofyourexaminationrevealedthecashier’sdrawer tocontainthefollowing: Bills P1,350.00 Coins 874.75 Petty cash vouchers (PCV): Delivery charges (12.14.2012) 420.00 Computer repairs (12.18.2012) 700.00 Messenger’s fare (12.23.2012) 120.00 Advances to employees (12.27.2012) 900.00 Checks (including Check 30108) 2,600.00 Sales invoices 1,400.00 Envelope tagged as employees’ contribution 760.00 Additionalinformation: 1. Check30108,issuedbyMr.A,anemployee,amountingtoP1,200.00wasreturned bythebankasNSFcheck. 2. The envelope tagged as employees’ contribution has not been opened and still intact. Case1 1. Howmuchisthetotalunreplenishedvoucherscountedinthepettycashfund? 2. Howmuchisthetotalitemscountedinthepettycashfund? 3. Howmuchisthetotalaccountabilityofthecashier? 4. Howmuchisthecashshortage/overage? 5. HowmuchisthepettycashfundasofDecember31,2012? Case2 Inadditiontoinformationgivenabove,youfoundanotherPCVdatedJanuary3,2013 spentforphotocopyingamountingtoP24.50.Moreover,youfoundoutthattheenvelope taggedasemployees’contributionhasbeenopenedandthemoneyremoved. 6. Howmuchisthetotalunreplenishedvoucherscountedinthepettycashfund? 7. Howmuchisthetotalitemscountedinthepettycashfund? 8. Howmuchisthetotalaccountabilityofthecashier? 9. Howmuchisthecashshortage/overage? 10. HowmuchisthepettycashfundasofDecember31,2012?

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Problem2-4Cashfundcount AsanassociatememberoftheteamthatauditsOakTreeFoodsIncorporatedforthe year ended December 31, 2012, when the United States (US) dollar ($)to Philippine pesois$1=P41.50,youwereassignedtoconductasurprisecashcountinthemorning ofJanuary5,2013.YoufoundthefollowingitemsinsidethepettycashdrawerofPretty, thecashcustodian: Pettycashvouchers: Overtime meal for the Christmas Party 12.19.2012 Additional expenses – Christmas Party 12.21.2012 Purchase of hand sanitizer 12.21.2012 Transportation 12.22.2012 Purchase of printer ink and folders 12.26.2012 Gasoline for the van 12.27.2012 Meals of maintenance left during New Year’s Day 01.01.2013 Protectivelotionusedbythepersonwhocollectedthecontribution for Mulanay dengue patients 01.03.2013 Floorwax and Lysol 01.03.2013 Checks No. 00692 12.28.2012 from Australian Bazaar, customer No. 12300 12.29.2012 from Monina, employee No. 10236 01.02.2013 from Nelia Maga, customer No. 45201 01.03.2013 from Arctic Fever, customer No. 78090 01.04.2013 from Stella, an employee Paperbills 2pcs,P1,000;3pcs,P500;2pcs,P100;14pcs,P20;1pc,$5.50 Coins 6loose,P10;34loose,P5;17loose,P1 Envelopecontainingcontributionsforthedenguepatientsof Mulanay,amountindicatedP1,400)butpercountisP1,375.Inside theenvelopewasanofficialreceiptnamedtothecompany amountingtoP25fortheprotectivelotionboughtbyanemployee whopassedaroundtheenvelopearoundtheoffices.

P725.00 965.00 96.25 34.00 375.00 690.00 460.00 25.00 175.00 1,400.75 1,493.50 3,150.60 3,700.45 1,000.10 ? ?

Additionalinformation: 1. TheclientmaintainsanimprestpettycashbalanceofP10,000. 2. FurtherinvestigationalsodisclosedthattheofficialreceiptsfromDecember28to January3totaledP8,251.80.Thesewerealreadyrecordedinthecashreceipts  journal. 3. CheckNo.78090wasencashedbeforeyear-end. 1. 2.

Prepareacashcountsheetindicatinganyoverageorshortage. Determine the adjusted balance of petty cash fund as of December 31, 2012 supportedbyaproof.

Problem2-5Proceduresforauditingaclient’sbankreconciliation RefertoLouwers6-47. Problem2-6Manipulatedbankreconciliation RefertoLouwers6-50.

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Problem2-7Bankreconciliation TopCatCorporationhadpoorinternalcontroloveritscashtransactions.Datapertaining toitscashpositionatOctober31,2012wereasfollows: The cash bookshowed abalance ofP76,634.77,whichincludedundepositreceipts.A creditofP950onthebankrecordsforadepositmadedidnotappearonthebooksofthe company. The bank statement had a balance of P68,835.99. The outstanding checks were as follows: No. 0210667 P462.80 0210671 490.00 0210693 1,053.00 0210734 789.94 0210737 1,648.20 0210749 643.15 The cashier misappropriated all undeposited receipts in excess of P10,880.07 and preparedthefollowingreconciliation: Balance per books, October 31, 2012 Add: Outstanding checks No. 0210734 0210737 0210749

P76,634.77 P789.94 1,648.20 643.15

Less: Undeposited receipts Balance per bank, October 31, 2012 Unrecorded credit Correct cash balance, October 31, 2012

3,081.29 P78,966.06 10,880.07 P68,835.99 950.00 P67,885.99

Howmuchdidthecashiermisappropriateandexplainhowdidithappen? Problem2-8Bankreconciliation YouareauditingthegeneralcashforDaisyDuckCompanyforthefiscalyearendedJuly 31, 2012. 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DaisyDuck’sclerks.Youobtainthefollowinginformation:

Beginning balance Deposits Cash receipts journal Checks cleared Cash disbursements journal July bank service charge Note paid directly NSF check Ending balance

 Auditing Practice I Workbook

General Ledger P49,610

Bank Statement P61,030 250,560

254,560 (236,150) (218,110)

P86,060

(870) (61,000) (3,110) P10,460

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June30BankReconciliation InformationinGeneralLedgerandBankStatement Balance per bank Deposits in transit Outstanding checks Balance per books

P57,530 6,000 17,420 46,110

Additionalinformationobtained: a. ChecksclearingthatwereoutstandingonJune30totalledP16,920. b. Checks clearing that were recorded in the July disbursements journal totalled P204,670. c. 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.Daisy Duck uses the periodicinventorymethod. d. AcheckforP3,960waschargedtoDaisyDuckCompanybuthadbeenwrittenona differentcompany’sbankaccount. e. DepositsincludedP6,000fromJuneandP244,560forJuly. f. ThebankchargedDaisyDuckCompany’saccountforanon-sufficientcheckwitha totalamountof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. g. 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DaisyDuck Company’sbooks. 1. ComputetheamountofchecksoutstandingonJuly31. 2. HowmuchisthedepositsintransitonJuly31? 3. HowmuchistheadjustedcashbalanceonJuly31? Problem2-9Interbanktransfersschedule RefertoLouwers6-49. Problem2-10Proofofcash RefertoLouwers6-48. Problem2-11Proofofcash WhileperforminganopinionauditofthefinancialstatementsofMalaberCompanyasof December31,2012,youhaveextractedthefollowingdataregardingthecashaccount: November 30 a. Balances per books P619,304 b. Balances per bank 742,800 c. Outstanding checks 254,096 *AcheckofP20,000wascertifiedbythebank.

December 31 P670,392 774,696 320,184*

d. Thecashreceiptsbookshowed atotalofP9,341,780 whilethe bankstatementfor themonthofDecembershowedtotalcreditsofP5,401,800. e. Malaber records NSFchecksas reductionofcash receipts. However, NSFchecks whicharelaterredepositedarethenrecordedasregularreceipts.Thedataaboutthe NSFchecksareasfollows: 1. ReturnedbythebankinDecemberandrecordedbythecompanyinJanuary 2011,P9,200.  Auditing Practice I Workbook

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f. g. h.

i.

 j.

2. Returned by the bank in December and recorded by the company in December,P25,000. 3. Returned by the bank in November and recorded by the company in December,P1,000. AbankcreditmemodatedDecember27,2012wasreceivedbyMalaberstatingthat thecompany’saccountwascreditedforthenetproceedsofanoteforP8,060.Thisis notyetrecordedinthebooks. A check of Malabey Company amounting to P9,292 was charged to the company accountbythebankinerroronDecember30. The company has hypothecated its accounts receivable with the bank under an agreementwherebythebanklendsthecompany80%ofthehypothecatedaccounts receivable. The company performs accounting and collection of the accounts. Adjustmentsoftheloanaremadefromdailysalesreportsanddeposits. Thebankcreditsthecompanyaccountandincreasestheamountoftheloanfor80% of the reported sales. The loan agreement states specifically states that the sales reportmustbeacceptedbythe bankbefore the company iscredited. Salesreports areforwardedbythecompanytothebankonthefirstdayfollowingthedateofsales. The bankallocateseach deposit 80% tothepayment oftheloan, and 20% to the companyaccount.Thus,only80%ofeachday’ssalesand20%ofeachcollection deposits are entered in the bank statement. The company accountant records the hypothecationofnewaccountsreceivable(80%ofsales)asadebittoCashanda credittotheBankLoanasofthedateofsales.Onehundredpercentofthecollection onaccountsreceivableisrecordedascashreceipt;80%ofthecollectionisrecorded in the cash disbursements books as a payment on the loan. In addition with the hypothecation,thefollowinginformationwerediscovered: 1. Collection on accounts receivable deposited in December, other than depositsintransit,totaledtoP4,800,000. 2. Included in the undeposited collections is cash from the hypothecation of  accounts receivable. Sales were P162,000 onNovember 30,and P169,000 on December 31, the balance was made up from collections of P128,440 whichwasenteredinthebooksinthemannerindicatedabove. ForthemonthofDecember,theinterestonthebankloanamountingtoP24,560was chargedbythebankagainsttheaccountofMalaber.Thiswasnotrecordedinthe books.

Prepare a four-column proof of cash of the cash receipts and cash disbursements recordedonthebankstatementandonthecompany’sbooksforthemonthofDecember 2012. The reconciliation should agree with the cash figure that will appear in the company’sfinancialstatements.Thereafter,determinethefollowing: 1. CashbalanceasofNovember30. 2. CashbalanceasofDecember31. 3. BookreceiptsforDecember31. 4. BookdisbursementsforDecember31. 5. CashshortageatDecember31,ifthere’sany.

 Auditing Practice I Workbook

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Problem2-12Comprehensiveproblem YouwereabletogatherthefollowingfromtheDecember31,2012trialbalanceofBugs BunnyCorporationinconnectionwithyourauditofthecompany: Cash on hand Petty cash fund Gold Keeper Bank current account Diamond Bank current account no. 01 Diamond Bank current account no. 02 Bronze Bank savings account Bronze Bank time deposit (three-month)

P530,000 10,450 1,230,000 1,080,000 (80,000) 1,200,000 500,000

Cashonhandincludesthefollowingitems: a. Customer’s check for P40,000 returned by bank on December 26, 2012 due to insufficientfundbutsubsequentlyre-depositedandclearedbythebankonJanuary8, 2013. b. Customer’s check for P20,000 dated January 2, 2013, received on December 29, 2012. c. Postalmoneyordersreceivedfromcustomers,P30,000. ThepettycashfundconsistedofthefollowingitemsasofDecember31,2012. Currency and coins P2,350 Unreplenished petty cash vouchers 1,300 Currencyinanenvelopemarked“collectionsforcharity”with 1,200 namesattached Employees’ vales 1,600 CheckdrawnbyBugsBunnyCorporation,payabletothepetty 4,000 cashier Total P10,450 IncludedamongthechecksdrawnbyBugsBunnyCorporationagainsttheGoldKeeper currentaccountandrecordedinDecember2012arethefollowing: a. CheckwrittenanddatedDecember 29, 2012anddelivered topayee onJanuary2, 2013,P80,000. b. CheckwrittenonDecember27,2012,datedJanuary2,2013,deliveredtopayeeon December29,2012,P40,000. ThecreditbalanceintheDiamondBankcurrentaccountNo.2representschecksdrawn inexcessofthedepositbalance.ThesecheckswerestilloutstandingatDecember31, 2012. The savings account deposit inBronze Bank has been set asideby the boardof directors for acquisitionofnewequipment.Thisaccountisexpectedto bedisbursedinthenextfourmonths fromthebalancesheetdate. Basedontheaboveandtheresultofyouraudit,determinetheadjustedbalancesofthefollowing asofDecember31,2012: 1. Cashonhand. 2. Pettycashfund. 3. GoldKeeperBankcurrentaccount. 4. Cashandcashequivalents.  Auditing Practice I Workbook

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