1 1 AUDIT OF CASH

AUDIT PROGRAM FOR CASH

Audit Objectives
To determine that:
a. Cash balances at the balance sheet date represent cash and cash items on hand, in
transit to, or in depository bank.
b. Cash transactions have been properly recorded.
c. Cash balances are properly described and classified, and adequate disclosures with
respect to amounts restricted as to withdrawal are made in the financial statements.

Audit Procedures
1. Conduct a cash count of undeposited collections, petty cash, and other funds.
a. Obtain custodian's signature to acknowledge return of items counted.
b. Reconcile items counted with general ledger balances.
c. Trace undeposited collections counted to bank reconciliation.
d. Follow up dispositions of items in cash counted:
d1. Undeposited collections should be traced to bank deposits.
d2. Check accommodated in petty cash should be deposited after the count to
establish their validity.
d3. IOUs in the petty cash should be confirmed and traced to collections in the next
payroll period.
d4. Expense vouchers should be traced to the succeeding replenishment voucher.
e. Coordinate cash count with count of marketable securities and other negotiable
assets of the client.
f. Obtain confirmation of year-end fund balances of cash not counted in branches or
other offices.

2. Confirm bank balance by direct correspondence with all banks in which the client has
had deposits and loans during the year.

3. Obtain or prepare bank reconciliation.

a. Check arithmetical accuracy of reconciliation.
b. Trace balance per book to the general ledger balance of cash account.
c. Trace balance per bank to bank statement and compare with amount confirmed by
bank.
d. Establish authenticity of reconciling items by reference to their respective sources,
like:
d1. Bank debit or credit advice.
d2. Duly approved journal vouchers.
e. Investigate checks outstanding for a long period of time.
e1. Consider adjustment, especially if the check is already stale.
e2. Consider the possibility of an erroneous preparation of the check.
f. Investigate any unusual reconciling items.
 g. Where internal control over cash is weak, consider preparing a proof of cash
reconciliation.

4. Obtain cutoff bank statement showing the client's transactions with the bank at least one
week after the balance sheet date, and:
a. Trace year-end reconciling items, like:
a1. Deposit of the year-end undeposited collections.
a2. Completeness of year-end outstanding checks.
a3. Corrections of bank errors.
b. Examine supporting documents of year-end outstanding checks that did not clear
in the cutoff bank statement.

5. Obtain a list of interbank transfers of funds a few days before and after the balance sheet
date.
a. Vouch supporting documents.
b. Ascertain that the related receipts and disbursements were booked by the client
within the same day or at least within the same month.

6. Test reasonableness of cutoff by:

a. Comparing dates of checks returned with cutoff bank statement to dates of recording
in the cash disbursements register.
b. Tracing receipts recorded a few days before balance sheet date to bank deposits.

7. Inspect savings account passbook and certificates of deposits.

a. Reconcile with book balances.
b. Update interest earned posting on passbooks, if necessary.
c. Compare balances with bank confirmation reply.

8. Determine any restrictions on availability of cash.

9. Determine propriety of financial statement presentation and adequacy of disclosures.

 1 problems
Problem 1-1
During your audit of the financial statements of Velvet Company you acquired the following detail of
cash and cash equivalent as of December 31, 2020:

On deposit in current account with the East Bank

Cash collection not yet deposited to the bank
A customer's check returned by the bank for insufficient fund
A check drawn by the VP of the company dated January 15, 2021
A check drawn by a supplier dated December 28, 2020 for goods returned by
the company
A check dated May 31, 2020 drawn by the company at West Bank in payment of
customs duties. Since the importation did not materialized, the check was
returned by the customs broker. This check was an outstanding check
in the reconciliation of West Bank.
Petty cash fund of which $10,000 is in currency, $7,200 in form of employees' IOUs;
and $2,800 is supported by approved petty cash vouchers for expenses all
dated prior to closing of the books on December 31, 2020
TOTAL
Less: overdraft with West Bank secured by a chattel mortgage on the inventories
Cash balance per ledger

Required:
What is the amount of cash to be reported on the December 31, 2020 statement of financial
position of Velvet Company?

Problem 1-2
As the accountant of Smith Company, you are in the process of preparing the company's financial
statements for the year ended December 31, 2020. You are trying to determine the current balance
of cash and cash equivalents to be reported as a current asset on the statement of financial position.
You are considering the following items:

● Balances in the company's accounts at the National Bank:

Current account
Savings account

● Undeposited customer checks of $22,200 (including a customer check dated January 5, 2021
for $3,000)
 ● Currency and coins on hand, $3.480.

● Savings account at the Metro Bank with a balance of $2,400,000. This account is being used
to accumulate cash for future plant expansion (in 2021)

● Petty cash of $4,000 (currency of $1,200 and unreplenished vouchers for $2,800)

● $120,000 in a current account at the Metro Bank. This represent a 20% compensating balance
for $600,000 loan with the bank. Smith Company is legally restricted to withdraw the funds
until the loan is due in 2023.

● Treasury bills:
Two-month maturity bills
Seven-month bills

● Time deposit (placement terms is 2 months), $100,000

Required:
What is the correct cash and cash equivalents to be reported in the current asset section of
the statement of financial position?

Problem 1-3
During your audit of December 31, 2020 books and records of Oswald Company, you uncover the
following facts regarding the cash and cash equivalent presented as current assets:

1. Savings account of $900,000 and a checking account balance of $1,200,000 are held at
North Bay Bank.
2. Money market placement with maturity of 3 months, $7,500,000.
3. Currency and coins on hand amounted at $11,550
4. Travel advances of $270,000 for the first quarter of next year (employee reimbursement
will ne through salary deduction)
5. Oswald Company has purchased $3,150,000 of commercial paper of Moon Company which is
due in 60 days.
6. A separate cash fund amounting to $2,250,000 is restricted for the retirement of long-term debt.
7. Petty cash fund of $1,500.
8 An IOU from an employee of Oswald Company in the amount of $2,000.
9 Two certificates of deposit, each totaling $500,000. These CD's have maturity of 120 days.
10. Oswald Company has received a check from a customer in the amount of $187,500 dated
11. January 15, 2021.
On January 1, 2020, Oswald Company purchased marketable equity securities to be held as
"trading" for $3,000,000. On December 31, 2020, its market value is $4,300,000.

Required:
What amount should be reported as cash and cash equivalents on December 31, 2020?
Problem 1-4
On January 1, 2020, Davis Company established a petty cash fund of $10,000. On December 31, 2020
the petty cash fund was examined and found to have receipts and documents for miscellaneous general
expenses amounting to $8,120. In addition, there was cash amounting to $1,500.

Required:
1. What is the amount of petty cash shortage or overage?
2. What entry would be required to adjust the petty cash fund on December 31, 2020?

Problem 1-5
You are reviewing the cash accounting for Bolton Company. Your focus is on the petty cash account
and the bank reconciliation for the month ended May 31, 2020. You have collected the following
information from Bolton Company's bookkeeper for this task:

Petty Cash Fund

1. The petty cash fund was established on May 2, 2020, in the amount of $10,000.
2. Expenditures from the fund by the custodian as of May 31, 2020 were evidenced by approved
petty cash vouchers for the following:
Various office supplies
IOU from employees
Shipping charges
Miscellaneous expense

On May 31, 2020 , the petty cash fund was replenished and increased to $12,000; currency and coins
in the fund at that time totaled $756.

Bank Reconciliation

Smart Bank
Bank Statement
Disbursements

Balance, May 1, 2020

Deposits
Note payment direct from customer (interest, $1,200)
Checks cleared during May $ 1,246,000
Bank service charges 1,080
Balance, May 31, 2020

Bolton Company's Cash Account

Balance, May 1, 2020

Deposits during May 2020
Checks written during May 2020

Deposit in transit are determined to be $120,000, and checks outstanding at May 31, total $34,000. Cash
on hand (besides petty cash) at May 31, 2020, is $9,840.

Required:
1. What is the amount of petty cash shortage or overage?
2. The journal entry to record the replenishment of and increase in the petty cash fund.
3. What amount of cash should be reported in the May 31, 2020, statement of financial
position?

Problem 1-6
The bank statement of the current account of Island Company showed a December 31, 2020, balance
of $585,284. You have gathered the following information that might be useful in preparing a bank
reconciliation:

a. Outstanding checks were $52,810.

b. The December 31, 2020, cash receipts of $23,000 were not deposited in the bank until January 2
2020.
c. One check written in payment of rent $8,940 was correctly recorded by the bank but was
recorded by Island Company as a $9,840 disbursement.
d. In accordance with prior authorization, the bank withdrew $18,000 directly from the current accou
as payment on a mortgage note payable. The interest portion of that payment was $14,000. Isla
Company has made no entry to record the automatic payment.
e. Bank service charges of $740 were listed on the bank statement.
f. A deposit of $35,000 was recorded by the bank on December 12 but it did not belong to island
Company.
g. The bank statement included a charge of $3,400 for the not-sufficient-fund check. The company
will seek payment from the customer.
h. Island Company maintains an $8,000 petty cash fund that was appropriately reimbursed at the
end of December.
i. According to instruction from Island Company on December 30, the bank withdrew $40,000 from
the account and purchased treasury bills of Island Company. The company recorded the
transaction in its books on December 31 when it received notice from the bank. Half of the
treasury bills mature in three months and the other half in six months.

Required:
1. What is the cash balance per books on December 31, 2020?
2. What is the adjusted cash balance on December 31, 2020?
3. What amount should Island Company report as cash and cash equivalents in the current
assets section of the December 31, 2020 statement of financial position?

Problem 1-7
In connection with your audit of the cash account of Belle Company, you gathered the following informatio
 a. Balance per bank, December 1, 2020
b. Total bank receipts (credits) in December
c. Balance per bank, December 31, 2020
d. Outstanding checks, November 30, 2020 (including $12,000 paid by bank
in December)
e. Outstanding check, December 31, 2020 (including checks issued in November)
f. Deposit in transit, November 30, 2020
g. A customer's check received on December 4, 2020 was returned by bank on
December 7 marked "NSF". It was redeposited on December 8, 2020.
The only entry made was to take up the collection on December 4, 2020.

Required:
1. What is the total book receipts in December 2020?
2. What is the total bank disbursements in December 2020?
3. What is the total book disbursements in December 2020?

Problem 1-8
In connection with an audit, you are given the following bank reconciliation:

BANK RECONCILIATION
December 31, 2020

Balance per ledger, December 31, 2020

Add: Collections received on the last day of December and charged to
"Cash in Bank" on books but not deposited
Debit memo for customer's check returned unpaid (check is on hand
but no entry has been made on the books)
Debit memo for bank service charge for December

Deduct:
Outstanding check (see detail 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 $12,625
but drawn and paid by bank as $16,225
Computed balance
Unlocated difference
Balance per bank (checked to confirmation)

List of Outstanding Checks, December 31, 2020

Check No
1434
 1435
1436
1439
1440
1441

Required:
1. What is the correct amount of outstanding checks on December 31,?
2. Journal entry to correct the outstanding checks?
3. The cash balance to be shown on the company's December 31, 2020 statement of
financial position.
4. Journal entries to adjust the Cash in Bank account as of December 31.
5. Amount of "Unlocated difference"

Problem 1-9
PROOF OF CASH

You have been instructed by your supervisor on an audit to prepare a four-column proof of cash
receipts and disbursements for the month of June.

RECONCILIATION
May 31, 2018

Bank balance
Add: Deposit in transit
Total
Less: Outstanding checks
No. 640 $ 10,000
652 8,000
653 2,000
Adjusted bank balance

Book balance
Add: Proceeds for note receivable collected in
May $ 70,000
Deposit on May 31 not recorded on books
until June 2,000
Total
Less: Bank charges
Adjusted book balance

The June 2009 bank statement is shown below:

Westlake Bank
 Period covered: May 31, 2018 - June 30, 2018

Date Checks Deposits

1-Jun $ 8,000 $ 10,000

8-Jun 2,000
11-Jun 14,000 20,000
13-Jun 1,000 DM 1,000
16-Jun 4,000
21-Jun 12,000 56,000
27-Jun 18,000
29-Jun 1,000 EC 1,000
30-Jun 200 SV
30-Jun 3,000 DM

SV Service Charge DM Debit Memo

EC Error Corrected CM Credit Memo

The paid checks accompanying this bank statement (all clearing in June) are the following:

No. 652 $ 8,000 No. 655 $4,000

No. 653 2,000 No. 657 12,000
No. 654 14,000 No. 658 18,000

The check register reveals that the last check issued in June is No, 659 for $5,000 and that
check no. 656 is for $2,600.

Cash received for the period June 22 through June 30 of $70,000 was deposited in the bank
on July 1.

the debit memos on June 13 and June 30 represent customers' NSF checks returned by the
bank. The June 13 NSF check was immediately redeposited without entry. The June 30 NSF
check was redeposited on July 1 without entry.

Required:
1. Determine the following:
a. Bank receipts in June.
b. Bank disbursements in June.
c. Bank balance on June 30, 2018.

2. Prepare a proof of cash for June. Use the bank to book format.

Problem 1-10
PROOF OF CASH - UNADJUSTED TO ADJUSTED BALANCES

In your audit of Langley Company's cash account as of December 31, 2018, you ascertain the
following information:

The bookkeeper's bank reconciliation on November 30, 2018, is as follows:

Balance per bank statement, November 30

Add: Deposits in transit
Total
Less: Outstanding checks
No. 3408 $ 440
No. 3413 300
No. 3414 6,820
No. 3416 3,924
No. 3417 800
Balance
Add: Bank service charge for November
Balance per general ledger, November 30

*Entered in Check Register in December.

The Cash Receipts Journal shows total receipts for December of $371,766. The Check Register
reflects total checks issued in December of $377,632. A collection was recorded on company books
on December 31 but was not deposited until January 2, 2019.

The balance per bank statement at December 31, 2018 is $17,516. This statement shows total receipts
of $373,502 and checks paid of $380,284.

Your examination reveals the following additional information:

1. Check no. 3413 dated November 24, 2018, was entered in the Check Register as $300.
Your examination of the paid checks returned with the December bank statement reveals that
the amount of this check is $30.

2. Check no. 3417 was mutilated and returned by the payee. A replacement check (no. 3453)
was issued. Both checks were entered in the Check Register but no entry was made to
cancel no. 3417.

3. The December bank statement includes an erroneous charge of $480.

4. On January 3, 2019, the bank informed your client that a December bank service charge of $42
was omitted from the statement.

5. Your examination of the bank credit memo accompanying the December bank statement
discloses that it represent proceeds from the note receivable collection in December for $4,000.

6. The outstanding checks at December 31, 2018 are as follows:

No. 3408 $ 440

 No. 3417 800
No. 3418 2,814
No. 3419 5,788

Required:
Prepare a proof of cash for December 2009. Use the unadjusted to adjusted balances format.

Problem 1-11
CASH IN BANK - CASH SHORTAGE COMPUTATION

The Hummingbird Company does not have adequate controls over its cash transactions. During your
audit, you found the following data concerning its cash position at December 31, 2018.

1. On the company's records, the cash balance was $173,500.

2. A credit of $2,500 for a note collected by the bank does not appear on the company's records.
3. The bank statement balance is $135,000.
4. Outstanding checks are as follows:

Number Amount
1428 $ 5,200
1431 3,600
1445 4,080
1446 3,460

The cashier made the following reconciliation:

Balance per bank statement $

Deduct: Outstanding checks
1431 $ 3,600
1445 4,080
1446 3,460
$
Add: Undeposited collections
(per count) $ 46,140
Collected note 2,500
Cash per books, December 31, 2018. $

Required:
1. What is the amount of the shortage?
2. How did the cashier attempt to hide the shortage?
 the following detail of

$ 900,000
350,000
150,000
70,000

60,000

410,000

20,000
$ 1,960,000
300,000
$ 1,660,000

tatement of financial

company's financial
ne the current balance
ent of financial position.

$ 81,000
132,600

k dated January 5, 2021

his account is being used

s for $2,800)

0% compensating balance
to withdraw the funds

$ 90,000
120,000

rent asset section of

any, you uncover the

200,000 are held at

yee reimbursement

Moon Company which is

tirement of long-term debt.

e maturity of 120 days.

nt of $187,500 dated

securities to be held as
ket value is $4,300,000.

ember 31, 2020?

0. On December 31, 2020
for miscellaneous general

mber 31, 2020?

the petty cash account

ected the following

of $10,000.
e evidenced by approved

$ 3,920
1,200
2,298
1,526

,000; currency and coins

k
ent
ursements Receipts Balance

$ 350,760
$ 1,120,000
37,200

260,880

$ 354,000
1,240,000
 1,273,400

May 31, total $34,000. Cash

n the petty cash fund.

statement of financial

ember 31, 2020, balance

ul in preparing a bank

d in the bank until January 2,

by the bank but was

ectly from the current account

payment was $14,000. Island

it did not belong to island

-fund check. The company

priately reimbursed at the

bank withdrew $40,000 from

mpany recorded the
the bank. Half of the

equivalents in the current

position?

ered the following information:

 $ 145,000
346,000
114,500

67,000
94,162
39,458

mber 8, 2020.
ember 4, 2020. 11,143

$ 34,350

5,325

4,000
1,000
$ 46,675

$ 18,625

8,000

3,600 32,225
$ 14,450
36,600
51,050

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

, 2020 statement of

umn proof of cash

$ 652,000
10,000
$ 662,000

20,000
$ 642,000

$ 570,800

72,000
$ 642,800
800
$ 642,000
 EC

the following:

,000 and that

ted in the bank

eturned by the
he June 30 NSF

you ascertain the

 $ 24,298
3,648
27,946

12,284
$ 15,662
36
$ 15,698

The Check Register

ded on company books

ement shows total receipts

k Register as $300.
nk statement reveals that

ment check (no. 3453)

entry was made to

bank service charge of $42

mber bank statement

on in December for $4,000.
balances format.

ansactions. During your

n the company's records.

135,000

10,140
124,860

48,640
173,500