CASH AND CASH EQUIVALENT

Problem 1
In connection with the general examination of the accounts of Nelson Trading Company at
December 31, 2006, you obtained the information and data as shown below relative to your
verification of Cash.

The record kept by the accountant showed the following:

(a) Balances at the end of the month:

December 1, 2006 December 31, 2006

Per Bank Statement P 54,000 P101,100

Per Books 50,400 70,215

Undeposited collections 3,300 7,200

Outstanding checks 6,900 * 12,000 *

* Composed of the following #6515 510 #6552 P 1,800

6517 2,250 6553 5,700

6518 2,400 6554 2,550

6519 1,740 6555 1,950

(b) Totals for the month of December, 2006:

Cash Book:

Receipts P 425,550

Disbursement 405,735

Bank Statement

Receipts P 444,225

Disbursement 397,125

After application of the necessary auditing procedures, the following were noted:
 a. Footing of disbursement should be P 404,235, instead of P 405,735.
b. Bank service charge of P15 for December has not been booked.
c. Cancelled checks (returned together with the December bank statement) include the
following which were charged in the statement:
1. Check #6530 dated December 15, 2006 for P2,400 - this was issued as
replacement of check # 6518 which was returned by the payee because of
certain erasures. No entry has been made to record the cancellation of check
#6518.
2. Check #6517 for P225 - this was erroneously recorded on the books as P2,250.
3. Check of Neil Trading for P900 - this was charged by bank in error.
d. Proceeds from sale of stocks amounting to P23,250 (cost is P18,000) transmitted
directly by the broker to the bank and credited on December 31, 2006. No entry has
been made on the books to record this sale of stock investment.
e. The company failed to record disbursement for payment of accounts payable at
December 31, 2006 for P1,500.

Questions

1. The adjusted cash receipts per ledger of NELSON TRADING COMPANY at December 31,
2006 is:
a. P 448,800 b. P 448,125 c. P 444,225 d. P 425,550

2. The adjusted cash disbursement per bank of NELSON TRADING COMPANY at December
31, 2006 is:
a. P 401,325 b. P 402,000 c. P 405,735 d. P 406,125

3. The adjusted cash ledger balance of NELSON TRADING COMPANY at December 31, 2006
is:
a. P 91,350 b. P 95,400 c. P 97,200 d. P 97,500

4. The adjusted cash in bank balance of NELSON TRADING COMPANY at December 31, 2006
is:
a. P 91,350 b. P 95,400 c. P 97,200 d. P 97,500

5. The cash shortage of NELSON TRADING COMPANY at December 31, 2006 is:
a. P 765 b. P 675 c. P 575 d. P 390
Problem 2
In connection with an audit, you are given the following bank reconciliation.

BANK RECONCILIATION
December 31, 2006
Balance per ledger, 12/31/03 P 34,349.72
Add: Collections received on the last day of
December and charged to Cash in Bank
on books but not deposited 5,324.50
Debit memo for customers checks returned
unpaid (check is on hand but no entry has been
made on the books) 4,000.00
Debit memo for bank service charge for December 1,000.00
P 46,674.22
Deduct:
Outstanding checks P 18,625
(see details 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 8,000
Check for an account payable entered on books
as P12,625 but drawn and paid by bank as
16,225 3,600 32,225.00
Computed balance P 14,449.22
Unlocated difference 36,601.00
Balance per bank (check to confirmation) P 51,050.22

LIST OF OUTSTANDING CHECKS

December 31, 2006
Check No. Amount
14344 P 5,820
14358 1,295
14367 3,543
14399 2,001
14401 4,892
14407 5,074
P 18,625

Questions:

1. The adjusted cash balance at December 31, 2006 is:

a. P 33,749.72 b. P 34,949.72 c. P 37,749.72 d.P40,949.72

2. The outstanding checks at December 31, 2006 is:

a. P 15,025 b. P 18,625 c. P 19,025 d. P 22,625

3. The cash balance of the company per record at December 31, 2006 is:
a. Overstated by P600 c. Understated by P 3,400
b. Overstated by P1,200 d. Overstated by P 6,600
CORRECTION OF ERRORS