FAR EASTERN UNIVERSITY

INSTITUTEOF ACCOUNTS, BUSINESS AND FINANCE

Department of Accountancy & Internal Auditing

AUDITING PROBLEMS
First Semester AY 2017-2018
LECTURE GUIDE 15 AUDIT OF CASH
Name Date
(Family Name) (First Name) (Middle Name) Section
Professor Day/Time
Stud. No. Score
Room Rating

Short Problems
Solve the following short problems. Supporting computations must be in good form.

Problem 1
You were approached by your parish priest to determine if there was a cash shortage or overage of the parish finances
as of September 30. He stated that he did not maintain a good internal control over its cash transactions. The parish
records showed a balance of cash on hand and in bank of P 250,950. You counted the cash on hand amounting to P
145,600. A pledge of P 2,000 was collected by the bank and for which a service charge of P 150 did not appear in the
parish records. The bank statement balance was P 185,000. Outstanding checks amounted to P 68,500.

Based from the foregoing records/information, there is a cash shortage or overage of ________________________.

Solutions:
Book Bank

Unadjusted balances 250,950 185,000

Collection by bank 2,000
Bank service charge (150)
Outstanding checks (68,500)
Deposit in transit 145,600
Balances 252,800 262,100
Cash overage 9,300
Adjusted balances 262,100 262,100

Problem 2
The Kate Corporation began business on January 4, 2015. At December 31, 2016, the list of accounts and balances
(except two accounts) are shown below:

Trade Accounts Payable P 243,628

Ordinary Share Capital 2,000,000
Trade Accounts Receivable 542,323
Expenses 453,000
Furniture 2,250,000
Inventory - merchandise 931,209
Mortgage Payable 2,000,000
Notes Payable Bank 400,000
Notes Payable - Trade 200,000
Salaries 462,289
Sales 846,910

The balance per bank statement at December 31, 2016 was P 219,750. Miscellaneous bank charges amounted to 464,
checks outstanding totaled P 20,000. The cost of merchandise sold was 97% of sales. Cash of P 30,000 received on
December 31 was deposited on January 2, 2017.
Questions:
1. How much is the cost of sales? P 821,503

Sales P 846,910
Multiply by cost rate 97%
Cost of sales P 821,503

2. How much is cash balance per ledger as at December 31, 2016? P 230,214

Cash Receipts during the year 4,704,587

Cash payments during the year (4,474,373)
Cash balance per ledger, 12/31/2016 230,214

Supporting computations:
CASH RECEIPTS:
Collection from sales:
Sales (assumed all on credit) 846,910
Accounts Receivable, 12/31/2016 (542,323) 304,587
Sales of ordinary share capital 2,000,000
Proceeds of Notes Payable - Bank 400,000
Proceeds of mortgage payable 2,000,000
Total cash receipts during the year 4,704,587

CASH PAYMENTS:
Payment for purchases:
Cost of sales 821,503
Merchandise inventory, 12/31/2016 931,209
Purchases during the year (on credit) 1,752,712
Notes Payable trade, 12/31/2016 (200,000)
Accounts Payable, 12/31/2016 (243,628)
Payment for purchases 1,309,084
Payment for:
Acquisition of furniture 2,250,000
Expenses 453,000
Salaries 462,289 3,165,289
Total cash payments 4,474,373

3. What is the adjusted cash balance to be reported to the statement of financial position as at December 31, 2016?
P 229,750

SOLUTIONS:
Book Bank
Unadjusted balance, 12/31/2016 230,214 219,750
Bank charges (464)
Outstanding checks (20,000)
Deposit in transit 30,000
Adjusted balances, 12/31/2016 229,750 229,750

Problem 3
During your audit of Antlers Corporation, you established the following data concerning the cash position as of
December 31, 2016:

Cash on hand and in bank per ledger P 842,500

Cash on hand per count 203,200
Unrecorded credit memo from bank 10,000
Unrecorded debit memo from ban 500
Cash balance, per bank statement 675,000
Total outstanding checks 81,700
The cashier prepared the following reconciliation:

Balance per bank statement P 675,000

Add: Unrecorded credit memo P 10,000
Cash per count 203,200 213,200
P 888,200
Less: Outstanding checks 45,700
Cash per ledger, December 31, 2016 P 842,500

Questions:
1. In preparing your own reconciliation, the adjusted cash in bank figure should be ______________.
2. The adjusted cash on hand and in bank per ledger would be _________________.
3. From your investigation, the cash shortage (if any) is __________________.

SOLUTIONS:
1. P 593,300
2. P 852,000
3. P 55,500

Book Bank
Cash on hand and in bank per ledger 842,500 675,000
Total outstanding checks (81,700)
Unrecorded credit memo from bank 10,000
Unrecorded debit memo from ban (500)
Balances 852,000 593,300
Adjusted balances 852,000 852,000
Undeposited receipts (258,700)
Actual cash on hand 203,200
Cash shortage (55,500)

Problem 4
Your audit assistant prepared the following bank reconciliation for your client:

Beginning December Ending

August 1 Receipts Payments September 30

Per bank statement 110,530 660,660 653,230 117,960

Deposit in transit:
August 31 2,050 (2,050)
September 30 3,220 3,220
Outstanding checks:
August 31 (2,140) (2,140)
September 30 1,030 (1,030)
Customers check returned by bank, 9/29 (110) 110
Per book 110,340 661,830 652,010 117,040

The adjusted balance of cash in bank for the statement of financial position of September 30, 2016 is
_________________.

SOLUTIONS:
September 30
Per bank statement, unadjusted 117,960
Deposit in transit:
August 31
September 30 3,220
Outstanding checks:
August 31
September 30 (1,030)
Bank balance, adjusted 120,150
Problem 5
A non-profit organization published a monthly magazine that had 15,000 subscribers in January 1, 2016. The number
of subscribers increased steadily throughout the year and on December 31 2016, there were 16,200 subscribers. The
annual subscription cost was P 100 on January 1, 2016 and was increased to P 120 for new members on April 1, 2016.

The auditor expects that the receipts from subscriptions for the year ended December 31 2016 will approximately be
_________________________.

SOLUTIONS:

Number of subscribers at December 31, 2016 16,200

Number of subscribers at January 1, 2016 (15,200)
Increase in subscribers during the year 1,200
Divide by 12 months (assumed evenly) 12
Assumed new subscribers per month 100

Expected receipts from subscriptions:

January to March, 2016 (300 x P 100 each) 30,000
April to December, 2016 (900 x P 120 each) 108,000
Old subscribers (15,000 x P 100 each) 1,500,000
Total 1,638,000

Problem 6
In your cash audit of the Resim Company as of December 31, 2016, you gathered the following:

Balance per books P 100,000

Balance per bank 100,000
Bank charges 250
Outstanding checks 23,750
Deposit in transit 31,250
Customers note collected by bank 37,550
Interest on customers note 1,500
Customers check returned NSF 6,250
Depositors note charged to account 25,000

The correct cash balance amounts to ________________

SOLUTION:
Book Bank
Balance per books 100,000 100,000
Bank charges (250)
Outstanding checks (23,750)
Deposit in transit 31,250
Customers note collected by bank 37,550
Interest on customers note 1,500
Customers check returned NSF (6,250)
Depositors note charged to account 25,000
balances 132,550 132,500
Undeposited receipts 50
Adjusted balances 132,550 132,550

Problem 7
The statement of financial position at December 31, 2016 of Malabo Corporation showed a cash balance of P 917,500.
An examination of the books disclosed the following:

1. Cash sales of P 120,000 from January 1 to 5, 2017 were predated as of December 28 to 31, 2016, and
charged to the cash account.
2. Customers checks totaling P 45,000 deposited with and returned by the Bank NSF, on December 31, 2016,
were not recorded in the books.
 3. Checks of P 56,000 in payment of liabilities were prepared before December 31, 2016, and recorded in the
books, but withheld by the treasurer.
4. Post-dated checks totaling P 34,000 were held by the cashier as part of Cash. The companys experience
shows that post-dated checks are eventually realized.
5. Personal checks of officers, P 27,000 were redeemed on December 31, 2016, but returned to cashier on
January 2, 2017.
6. The cash account includes P 200,000 being reserved for the purchase of computers which will be delivered
soon.

The cash balance to be shown on the December 31, 2016 statement of financial position should be ___________.

SOLUTIONS:

Cash balance, unadjusted, 12/31/2016 P 917,500

Cash sales of 2017 recorded in 2016 (120,000)
NSF Check during December (45,000)
Undelivered checks 56,000
Customers post-dated checks (34,000)
Personal check of officers, uncollected at 12/31/2016 (27,000)
Cash fund for acquisition of computers (200,000)
Cash balance for SFP purposes, 12/31/2016 P 547,500