AUDIT CASH BALANCE
APPLE BLOSSOM COLOGNE COMPANY
The Apple Blossom Cologne Company has two bank checking accounts. The general account (account number 101) is with the Big City National Bank, Main at Michigan Avenue, Chicago, Illinois. It is used for ordinary cash receipts and disbursements transactions. The payroll account (102) is with the Second National Bank, 615 Lakeway Road, Chicago, Illinois. The payroll account is not an imprest account, and transfers between it and the general account occur frequently. All transfers are journalized through the cash receipts journal.
SUBSTANTIVE AUDIT PROCEDURES FOR CASH BALANCE
Lillian Stockton, the treasurer, prepares ...view middle of the document...
The cutoff statement and the clearings for the Second National Bank are shown in Exhibit 2. A selected portion of the cash receipts journal is shown in Exhibit 3, while a selected portion of the cash disbursements journal is shown in Exhibit 4.
The following is a listing, by working paper index, of the working papers (a) prepared for you by the client, (b) obtained directly from the banks, and (c) prepared by you when counting petty cash and undeposited receipts. They are included for your use in this assignment.
Bank reconciliation – Big City National Bank A-1
Standard bank confirmation – Big City National Bank A-2
Bank reconciliation – Second National Bank A-3
Standard bank confirmation – Second National Bank A-4
Undeposited cash receipts – Big City National Bank A-6
Petty cash fund A-7
1. Write down the audit program to detect the following potential error or irregularities involving cash receipts, disbursements, and balances:
1. Cash receipts may have been deposited but not recorded in the cash receipts journal.
2. Cash receipts may have been recorded but not deposited in the bank.
3. Cash receipts may have been credited to the wrong account.
4. The amount of cash receipts may have been incorrectly recorded.
5. Cash receipts may have been recorded in the wrong accounting period.
6. Transfer of cash among bank accounts may have been incorrectly recorded.
1. Unauthorized disbursements may have occurred.
2. Disbursements may have been recorded but the check not mailed.
3. Disbursements may have been made but not recorded in the cash disbursements journal.
4. The disbursement may have been debited to the wrong account.
5. Disbursements may have been recorded in the wrong accounting period.
6. Disbursements related to interbank transfers may have been incorrectly recorded.
1. The bank reconciliation may have been purposefully misfooted to cover a defalcation.
2. The reconciliation may include fictitious deposits in transit.
3. Outstanding checks may have been omitted from the reconciliation to conceal a cash shortage.
2. Begin with the list of assertions below and add others as you think appropriate, then write your audit program to test those assertions.
7. The amount of cash is not materially more than the amount shown on the balance sheet.
8. All cash has been recorded.
9. Cash is correctly shown as a current asset.
10. No cash is restricted to a noncurrent use.
3. Study the prior year’s working papers, paying attention to the use of tick marks to indicate your audit procedures and the system of cross-referencing among working papers. Gather evidence as necessary from the exhibits, the direct bank mailings, the client-prepared schedules, and your own...