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    Auditing Problems - 001

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    Geoff Macarate
    Alex, the cashier-bookkeeper of a small business, misappropriated cash receipts totaling P30,555 by removing excess cash on hand and preparing a fraudulent bank reconciliation that understated the actual cash balance by that amount. The correct cash balance that should have been on hand as of March 31, 2018 was P157,856, but Alex reported only P127,301 to conceal the theft. Proper segregation of financial duties among multiple employees is needed to prevent future fraud.

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    Auditing Problems - 001

    Uploaded by

    Geoff Macarate
    119 views2 pages
    Alex, the cashier-bookkeeper of a small business, misappropriated cash receipts totaling P30,555 by removing excess cash on hand and preparing a fraudulent bank reconciliation that understated the actual cash balance by that amount. The correct cash balance that should have been on hand as of March 31, 2018 was P157,856, but Alex reported only P127,301 to conceal the theft. Proper segregation of financial duties among multiple employees is needed to prevent future fraud.

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    Alex, the cashier-bookkeeper of a small business, misappropriated cash receipts totaling P30,555 by removing excess cash on hand and preparing a fraudulent bank reconciliation that understated the actual cash balance by that amount. The correct cash balance that should have been on hand as of March 31, 2018 was P157,856, but Alex reported only P127,301 to conceal the theft. Proper segregation of financial duties among multiple employees is needed to prevent future fraud.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    119 views2 pages

    Auditing Problems - 001

    Uploaded by

    Geoff Macarate
    Alex, the cashier-bookkeeper of a small business, misappropriated cash receipts totaling P30,555 by removing excess cash on hand and preparing a fraudulent bank reconciliation that understated the actual cash balance by that amount. The correct cash balance that should have been on hand as of March 31, 2018 was P157,856, but Alex reported only P127,301 to conceal the theft. Proper segregation of financial duties among multiple employees is needed to prevent future fraud.

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    © All Rights Reserved
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    Auditing Problems # 001

    Audit of Cash and Cash Equivalents

    Problem

    Your client, a successful small business, has never given much attention to a sound internal control. In
    its employ is Alex Coopit, the company’s cashier bookkeeper. Alex handles cash receipts, makes small
    disbursements from the cash receipts, maintains accounting records, and prepares the monthly bank
    reconciliation.

    The bank statement for the month ended March 31, 2018 shows a cash balance of P590,000. The
    following checks are outstanding as of March 31:

    No. 7163 P18,623


    No. 7284 P17,320
    No. 7285 P10,612
    No. 8722 P16,322
    No. 8724 P12,280
    No. 8733 P16,200

    The company’s general ledger shows a cash balance of P696,499 on March 31, 2018.

    Realizing that being the cashier-accountant of the company he can easily misappropriate collections
    and conceal it, Alex removed all the cash on hand in excess of P127,301, and then prepared the following
    reconciliation in an effort to conceal this theft.

    Bank Reconciliation
    Balance per accounting records P696,499
    Add: Outstanding checks
    No. 8722 P16,322
    No. 8724 P12,280
    No. 8733 P16,200 P620,802
    Total P717,301
    Deduct: Cash on hand P127,301
    Balance per bank statement, March 31 P590,000

    1. How much was taken by the cashier-accountant?

    a. P030,355
    b. P157,856
    c. P004,000
    d. P026,555

    2. What is the amount of cash that should be on hand at November 15, 2018?

    a. P127,301
    b. P131,301
    c. P157,856
    d. P030,555

    1
    Auditing Problems # 001
    Solution

    Book Bank
    Unadjusted balance P696,499.00 P590,000.00)
    Deposit in transit 157,856.00)
    Outstanding checks (8,623.00)
    (7,320.00)
    (10,612.00)
    (6,322.00)
    (12,280.00)
    (6,200.00)
    Adjusted balance P696,499.00 P696,499.00)

    1. Expected deposit in transit or cash on hand P(157,856


    Cash on hand reported P(127,301)
    Cash shortage P(030,555

    2. Cash that should be on hand P(157,856

    Further Analysis

    The problem was solved by using recalculation which one of the procedures in obtaining audit evidence.
    It can be noted that there are no book reconciling items given on the problem and that is why the unadjusted
    book balance is deemed equal to the adjusted balance – P696,499. The same balance is treated as the adjusted
    balance for the bank side. From there, the correct deposit in transit should there be no misappropriation of
    assets was computed (squeezed). This “should be” amount was then compared to the reported amount to
    compute the cash shortage.

    Putting an emphasis on segregation of duties, the following responsibilities or functions should be


    assigned to different persons:
    a. Authorization
    b. Recording
    c. Custody
    d. Reconciliation
    Conversely, Alex Coopit was in charge of the handling of cash receipts (custody), making of small
    disbursements (authorization and custody), maintenance of accounting records (recording) and the
    preparation of monthly bank reconciliation.

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