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AUDIT OF CASH
D. ASUNCION, CPA, MBA & R. PARAGAS, CPA

AUDIT OF CASH
DARRELL JOE O. ASUNCION, CPA MBA
RALLEY S. PARAGAS, CPA

PROBLEM NO. 1
On December 31, 2022, TOP1 Co’s “cash account” balance per ledger of ₱5,320,000 includes:
Time deposit-PCIB, it can be preterminated ₱ 60,000
Time deposit-PNB- 90 days 170,000
Time deposit-BPI- 120 days 180,000
Money market instrument-due date 2/28/2023 40,000
Money market instrument-due date 6/1/2023 45,000

Cash in bank-BDO, which includes a compensating balance of ₱50,000 for short-term borrowing
arrangement. The compensating balance is not legally restricted as to withdrawal. 1,050,000
Cash in bank-BDO (100,000)

Cash in bank-RCBC, which includes a compensating balance of ₱50,000 for long-term borrowing
arrangement. The compensating balance is legally restricted as to withdrawal. 450,000
Cash in bank-PNB (60,000)

Cash in bank-BPI, which includes a compensating balance of ₱40,000 for short-term borrowing
arrangement. The compensating balance is legally restricted as to withdrawal. 150,000
Cash in bank-Eastwest, which includes a compensating balance of ₱40,000 for short- term
borrowing arrangement. 250,000
Petty cash fund, which includes an unreplenished voucher for ₱4,000 10,000
Payroll fund 100,000
Manager’s checks 90,000
Traveler’s checks 100,000
Bank drafts 20,000
Postal money orders 25,000
Demand deposit 100,000
90-day BSP treasury bill 50,000
160-day treasury bill 30,000
Travel fund 20,000
Interest fund 40,000
Tax fund 30,000
Sinking fund 420,000

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 Page 2 of 4 | AP Physical Handout 04

D. ASUNCION, CPA, MBA & R. PARAGAS, CPA

AUDIT OF CASH

Preferred redemption fund 100,000

Contingent fund 200,000
Insurance fund 500,000
Fund for acquisition of Property, plant & Equipment 1,000,000
IOU officers 18,000
Customer’s post-dated checks 92,000
Customer’s checks returned by bank marked NSF 80,000
Redeemable preferred shares-acquired 3 months before maturity 40,000
Visa Card-credit limit 20,000
Total ₱ 5,320,000

Required:
Compute the cash and cash equivalents that should be shown in the balance sheet.

PROBLEM NO. 2
The books of MARJORIE Company show a cash in bank balance of P79,440 as of July 31. MARJORIE’s bank statement
shows a cash balance for the company of P51,800. Additional information that might be useful reconciling the disparity
between the two balances follows:

a. A deposit of P16,000 was recorded by the bank on July 5, but it should have been recorded for Mark Company rather
than MARJORIE Company.
b. Petty cash of P8,500 was included in the cash balance.
c. Check No. 6152 in payment of electric bill for P5,700 was correctly recorded by the bank but was recorded in the cash
disbursements journal of MARJORIE as P7,500.
d. The bank statement does not show receipts of P12,600 that were deposited on July 31.
e. The bank statement indicated a service charge of P3,000
f. A check of P7,440 was returned marked NSF. The check had been included in the July 23 deposit. As of July 31, the
check had not been redeposited.
g. Proceeds from cash sales of P30,600 for July 18 were stolen. The Company expects to recover this amount from the
insurance company. The cash receipts were recorded in the books, but no entry was made for the loss.
h. Interest of P2,400 accrued on funds the bank had invested for MARJORIE for month of July.
i. Outstanding checks totaled P28,400 as of July 31.
j. The July 21 deposit included a check for P14,100 that had been returned on July 15 marked NSF. MARJORIE had
made no entry upon return of the check. The redeposit of the check on July 21 was recorded in the cash receipts journal
of MARJORIE as a collection on account.

REQUIRED:
1. Prepare a bank reconciliation as of July 31.
2. Make the necessary adjusting journal entries.

PROBLEM NO. 3 (PROOF OF CASH)

Your client, Melody Company, presented you with the following data:

Bank balances
November 30 P2,500,000
December 31 3,100,000
Bank receipts in December 2,300,000
Book balances
November 30 P2,390,000

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

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 Page 3 of 4 | AP Physical Handout 04

D. ASUNCION, CPA, MBA & R. PARAGAS, CPA

AUDIT OF CASH

December 31 3,047,000
Book receipts in December 2,206,000
Deposits in transit
November 30 58,000
December 31 47,000
Outstanding checks
November 30 97,000
December 31 46,000
NSF checks returned by bank (recorded
by client in the month following the return)
November 30 15,000
December 31 25,000
Bank service charges recorded by client in
the month following the month the charge)
November 10,000
December 18,000
Note collected by bank (recorded by the
client in the following month)
November 76,000
December 84,000
Erroneous bank charges (corrected by the
bank in the following month)
November 30 25,000
December 31 37,000
Erroneous bank credits (corrected by the
bank in the following month)
November 45,000
December 50,000
Required:
1. Prepare a proof of cash for the month of December using the adjusted balances method.
2. Prepare the adjusting entries as at December 31, of the current year.

PROBLEM NO. 4 (PROOF OF CASH)

HEADACHE Company has a current account in Metrobank. Your audit of the company’s cash account reveals the following:
a. Balances taken from the company’s general ledger:
Cash balance, November 30, 2022 P637,860
Cash balance, December 31, 2022 576,420
Receipts, December 1-31, 2022 306,220
b. Outstanding checks, November 30, 2022
(P26,140 was paid by bank in December) 64,140
c. Checks written and recorded in December; not included in the checks returned with the
December bank statement 36,080
d. Deposit in transit, November 30, 2022 15,260
e. Deposit in transit, December 31, 2022 16,140
f. A bank credit memo was issued in December to correct an erroneous charge made in
November 1,500
g. Note collected by bank in December (company was not informed of the collection) 2,060
h. A check for P2,020 (payable to a supplier) was recorded in the Check Register in
December as P3,000 980
i. A check for P2,240 was charged by the bank as P2,420 in December 180

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D. ASUNCION, CPA, MBA & R. PARAGAS, CPA

AUDIT OF CASH

j. HEADACHE Company issued a stop payment order to the bank in December. This pertains
to a check written in December which was not received by the payee. A new check was
written and recorded in the Check Register in December. The old check was written off
by a journal entry, also in December 780
k. Bank service charge, November 30, 2022 60
1. The total outstanding checks on December 31, 2022, should be:
a. P38,000 b. P74,080 c. P36,080 d. P62,220
2 What is the bank statement balance on November 30, 2022?
a. P684,400 b. P587,420 c. P685,180 d. P688,180
3. What is the bank statement balance on December 31, 2022?
a. P636,440 b. P637,220 c. P637,580 d. P637,160
4. The total bank receipts for the month of December should be:
a. P309,680 b. P304,000 c. P308,900 d. P308,120
5. The total bank disbursements for the month of December is:
a. P356,080 b. P356,860 c. P357,640 d. P356,200

--- END OF HANDOUT ---

REO CPA REVIEW PHILIPPINES Effectiveness. Efficiency. Convenience

www.reocpareview.ph REAL EXCELLENCE ONLINE CPA REVIEW
(074) 665 6774 0919 093 8620 [email protected] MAY 2023 CPA REVIEW SEASON