AUDIPRA

Substantive Test of CASH

Audit Objectives

Assertion Account Balance Audit Objectives

Existence All cash on the SFP at given date is held by the entity or by others for the entity

Completeness All cash owned by the entity at the reporting date is included on the SFP

Valuation and Cash, including bank balances, is stated at realizable value and agrees with supporting
Allocation schedules

Rights and The entity owns, or has a legal right to, and has unrestricted use on all the cash on the
Obligations SFP at the reporting date.

Presentation and Cash, including bank balances, is properly classified, described, and disclosed in the
Disclosure financial statements, including notes, in accordance with PFRS. Lines of credit, loan
guarantees, compensating balance agreement, and other restrictions (liens) on cash
balance are appropriately identified and disclosed.

Audit Procedures for Cash

The auditor’s primary substantive procedures for cash balances and transactions will typically include the following:
1. Sending confirmation to banks or financial institutions; (E,V,R&O,P&D)
2. Conducting surprise cash counts; (E,V,R)
3. Obtaining and testing bank reconciliation and if appropriate preparing proof of cash; (E,V,C,R)
4. Obtaining bank cut-off statement and tracing bank transfers; (E,C,R)
5. Performing cash cut-off tests; (E,R,C)
6. Checking the appropriate valuation of cash; and (V,P&D)
7. Performing analytical procedures to assess the reasonableness of reported cash

Special Audit Consideration – (KITING, LAPPING, WINDOW DRESSING)

Illustration 1: Cash Composition

On December 31, 2016, WorldCom Co’s cash and cash equivalents account balance per ledger of P5,700,000
includes;

Manager’s check P70,000

Traveler’s check 100,000
Treasury note 50,000
Treasury shares, purchased on 12/1/2016, to be reissued on 3/1/2017 150,000
Escrow deposit 200,000
Bank Drafts 20,000
Postal money orders 20,000
Demand deposits 100,000
Treasury bills, purchased December 16, 2016 due March 15, 2017 50,000
160-day treasury bill 30,000
Time deposit – PCIB, one-year, due March 31, 2017 180,000
Time deposit – PNB – 90 days 170,000
Time deposit – BPI – 120 days 45,000
Money market instrument-due date 2/28/2017 40,000
Money market instrument-due date 6/1/2017 70,000
Cash in bank – Metrobank, which includes a compensating balance
Of P50,000 for short term borrowing arrangement. The compensating
balance is not legally restricted as to withdrawal 1,050,000
Cash in bank – Metrobank (100,000)
Cash in bank – Firstbank which includes a compensating balance of
P50,000 for long term borrowing arrangement. The compensating balance
is legally restricted as to withdrawal 450,000

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Cash in bank – Second bank (60,000)
Cash in bank – Seatacbank, which includes a compensating balance
of P40,000 for short term borrowing arrangement. The compensating
balance is legally restricted as to withdrawal 150,000
Cash in bank – Seabank, which includes a compensating balance of
P40,000 for short term borrowing arrangement. 250,000
Petty cash fund, which includes an unreplenished voucher for P4,000 10,000
Payroll fund 100,000
Travel fund 20,000
Interest fund 40,000
Tax fund 30,000
Sinking fund 420,000
Preferred redemption fund 100,000
Contingent fund 200,000
Insurance fund 500,000
Fund for acquisition of PPE expected to be disbursed in 2017 800,000
IOU from officers 20,000
Customers post-dated checks 70,000
Customers checks returned by bank marked “NSF” 20,000
Redeemable preferred shares – acquired 3 months to maturity date 15,000
Unused credit line 200,000
Revolving fund 100,000
Visa Card-credit limit 20,000
Total P5,700,000

Required: Compute for the cash and cash equivalent that should be shown in the SFP.

Illustration 2. Cash Composition

On December 31, 2016, Gold Company cash and cash equivalents account balance per ledger of P4,000,000
includes:
Demand deposit P2,200,000
Undeposited collection 300,000
Time-deposit – 30 days 500,000
NSF check of customer 20,000
35-day money market placement due 1/28/2017 300,000
45 day commercial papers due 2/4/2017 80,000
Savings deposit in closed bank 50,000
IOU from an employee 150,000
Preferred redemption fund 400,000
Total P4,000,000

Additional information:
a. Included in the demand deposit of P2,200,000 was a customer check amounting to P50,000 dated January 25,
2017.
b. Also included in the demand deposit is a customer check amounting to P90,000 dated December 31, 2014. Gold
neglected to encash the check. On December 31, 2016, the customer was informed and he was willing to replace
this with a new one. New check is yet to be received from the customer.
c. Check of P60,000 dated January 31, 2017 in payment of accounts payable was recorded and mailed December
31, 2016.
d. Check of P70,000 in payment of accounts payable was recorded on December 31, 2016 but mailed to creditors on
January 15, 2017.
e. The company uses the calendar year. The cash receipts journal was held open until January 15, 2017, during
which time P80,000 was collected and recorded on December 31, 2016.

Required:
1. Prepare adjusting entries to correct the cash account
2. Compute the cash and cash equivalents to be shown on December 31, 2016 SFP.

Illustration 3. Petty cash fund

Your firm has been engaged to examine the financial statements of the Perlita Company for the year ended
December 31, 2016. In connection with this audit, you have been assigned to audit the Petty cash fund. You

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conducted your audit at 9:15am on January 4, 2017 in the presence of Mr Rodel E. Ocon, the cashier and at the
same time the petty cash custodian. A count of the petty cash fund under the custody of Rodel showed the
composition as follows:

Currencies:
Denomination Quantity
Bills: P1,000 3
500 7
100 6
50 4
20 5
Coins: 10 48
5 20
1 20

Checks:
Maker Date Payee Particulars Amount
Rodel Ocon 03/01/15 Client Payment for cash advances drawn from
The PCF 1/1/16 P9,600
Merilou- Employee 12/02/15 Client Payment for cash advances drawn from the
PCF but was returned by the bank for
insufficiency P1,000
Debora- President 12/20/15 Client Payment for cash advances drawn from
PCF December 1, 2016 P3,000
Perlita Company 12/28/15 Petty cash Replenishment of PCF P16,000
custodian

Vouchers:
Particulars Date Amount
Taxi fare – OR No. 155 12/15/16 2,400
Gasoline – OR No. 688 12/16/16 1,600
Office supplies 12/22/16 2,000
OR # 64794 – Post office 12/23/16 1,200
IOU signed by JIGO – company
messenger 12/24/16 4,800

Others:
1. Unused stamps, P400
2. The general ledger shows an imprest petty cash fund balance of P50,000

Required:
1. Prepare the working paper for PCF
2. Compute for any petty cash shortage or overage
3. Compute for the adjusted PCF
4. Prepare the adjusting journal entries

Illustration 4. One month bank reconciliation

You have gathered the following data in the preparation of bank reconciliation on December 31, 2016 for Armelia
Company:
a.) Balance per bank statement, P2,000,000
b.) Balance per book, P1,350,000
c.) Bank service charge, P5,000
d.). Outstanding checks, P300,000
e.) Deposit in transit, P237,500
f.) Proceeds of bank loan, December 1, discounted for 6 months at 12% not recorded on Armelia Company’s books,
P470,000
g.) Customer’s check charged back by bank for lack of counter signature, P25,000.

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h.) Check of Joy Company charged by the bank against Armelia account, P75,000
i.) Customer note collected by bank in favour of Armelia Company
Face amount P200,000; Interest P20,000; Service charge P2,500
i.) Deposit of P50,000 incorrectly recorded by bank as, P5,000.
k.) Erroneous debit memo of December 28, to charge Armelia account with settlement of bank loan, P100,000
l.) Deposit of Joy Company credited to Armelia account, P150,000

Required:
1. Prepare bank reconciliation as of December 31, 2016.
2. Prepare adjusting journal entries except amortization of discount on loans payable.

Illustration 5. Computation of Deposit in Transit

The following data are available for the cash in bank of Ellen Company for February of the current year:
A. Deposit made by the company this February, P120,000
B. Deposit in transit, January 31, P200,000
C. Customer’s check representing receipts in January amounting to P21,000 was erroneously recorded by the
company as P12,000.
D. Check of the company in January amounting to P2,000 was erroneously recorded by the company as P20,000.
E. Deposit acknowledge by the bank in February, P150,000.
F. Erroneous bank charge in January 31, P13,000.
G. Erroneous bank credit in February 28, P14,000.
H. Customer’s note collected, January 31, P10,000.
I. Customer’s note collected, February 28, P12,000.

Required: Compute for the following

1. Deposit in transit in February 28.
2. Unadjusted book receipts in February.
3. Unadjusted bank receipts in February.

Illustration 6. Outstanding Checks

In the examination of the cash account of the Prudylyn Inc. the following information, relative to the credits per
books and debits per bank, were disclosed by the records of the company and its bank statement with BPI:

Credits per books in February P200,000

Debits per bank statement in February 150,000
Check from customer in January amounting to P2,000 but
was taken up in the books as 20,000
Check issued to supplier in January amounting to P10,000 but
was taken up in the books as 1,000
Checks issued to supplier in February amounting to P12,000 but
was taken up in the books as 21,000
Check of the company recorded in the bank in January as P10,000
when the correct amount is 15,000
Amortization of PAGIBIG housing loan automatically debited by the
bank on January 31, as per automatic debit agreement, but taken
up in the books of the depositor in February 15,000
Amortization of PAGIBIG housing loan automatically debited by the
bank on February 28, as per automatic debit agreement, but taken
up in the books of the depositor in March 15,000
Erroneous bank credit-January 18,000
Erroneous bank charge-February 10,000
Deposits in January properly recorded by the company as P15,000
but was recorded in the bank as 51,000
Outstanding checks, January 31 15,000
Bank service charge for January 1,000
Bank service charge for February 2,000

Required: Compute for the outstanding checks at the end of February.

Illustration 7. Proof of cash

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Data concerning the cash records of Lyndon Company for the months of September and October 2016 follows:

a. Unadjusted book balance on September 30 amounted to P2,258,000.

b. Total receipts per book in October, P1,400,000.
c. Total disbursement per books in October, P2,400,000.
d. Unadjusted bank balance on September 30, amounted to P2,100,000.
e. Total credits per bank in October amounted to P1,200,000.
f. Total debits per bank in October amounted to P2,500,000.
g. NSF checks on September 30 amounted to P60,000 while on October 31 amounted to P40,000.
h. Collection of accounts receivable not recorded by the company on September 30, P30,000 and P50,000 on
October 31.
i. Erroneous bank charge on September 30, P10,000 and P18,000 on October 31.
j. Erroneous bank credit on September 30, P7,000 and P9,000 on October 31.
k. Understatement of check in payment of rent payable on September 30, P90,000 and P120,000 on October 31.
l. Deposit in transit on September 30, P130,000.
m. Outstanding checks on October 31, P30,000

Required: Based on the above data, answer the following questions:

1. How much is the DIT in October 31?
2. How much is the OC in September 30?
3. How much is the adjusted cash in bank balance in September 30?
4. How much is the adjusted cash receipts during October?
5. How much is the adjusted cash in bank in October 31?
6. Provide the adjusting JE.

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