4 - Proof of Cash - Problems

PROOF OF CASH – EXERCISE
Problem 1:
In connection with your examination, the Hornet Company presented to you the following information regarding
its Cash in Bank account for the month of December 2020:
a. Balances per bank statements: November 30, P107,800, and December 31, P115,200.
b. Balances of cash in bank account in the company’s books: November 30, P82,725, and December 31, P113,400.
c. Total receipts per books were P1,110,950 of which P6,050 was paid in cash to a creditor on December 24.
d. Total charges in the bank statement during December were P1,094,850.
e. Undeposited receipts were: November 30, P45, 300 and December 31, P50,600.
f. Outstanding checks were: November 30, P13,375, and December 31, P9,650, of which a check for P2,500 was
certified by the bank on December 26.
g. NSF checks returned, recorded as reduction of cash receipts, were:
 Returned by the bank on December, recorded also in December, P5,200.
 Returned by the bank on December, but recorded in January 2021, P4,300.
h. Collections by bank not recorded by Company were P60,750 in November and P58,200 in December.
i. Bank service charges not entered in the company’s records were: November 30, P3,750 and December 31,
P2,100.
j. A check for P4,750 of Magic Company was charged to Hornet Company in error.
k. A check drawn for P4,200 was erroneously entered in the books as P2,400.
QUESTIONS:
Based on the above and the results of your audit, answer the following:
1. How much is the adjusted cash balance as of November 30, 2020?
2. How much is the adjusted book receipts for December 2020?
3. How much is the adjusted book disbursements for December 2020?
4. How much is the adjusted cash balance as of December 31, 2020?
5. How much is the cash shortage of December 31, 2020?
Problem 2:
Your audit senior instructed you to prepare a four-column proof of cash receipts and disbursements for the month
of August 2020.
The bank reconciliation prepared by Celtics Company at July 31 is reproduced below: (All book adjustments were
recorded in August.)
Bank Balance P52,000 Book Balance P40,000

Add: Deposit in transit, July 31 900 Add: Proceeds of note receivable collected 8,000
by bank in July
Deposit made in bank on July 31 not 1,000
recorded in books until August
Less: outstanding checks: Less: Bank service charge 100
# 436 200
# 450 1,800
# 451 1,400
# 454 600
Adjusted balance P48,900 Adjusted balance P48,900
Upon inquiry about the client’s August 31 bank reconciliation, you were informed that it has been lost and that the
client is too busy this time to prepare another. Your senior told you to get the August bank statement and paid
checks and to prepare the August 31 reconciliation so that you may complete the August proof of cash work paper.
The August bank statement is reproduced below:

Heart Bank
Account Name: Celtics Company
Date Debits Credits
July 31
August 1 1,800 900
August 6 1,400
August 9 600 10,000
August 12 140 DM 140
August 15 1,000
August 20 700 14,000
August 27 1,440
August 29 100 EC 100 EC
August 31 440 SV
August 31 300 DM
1,820
SV – Service Charge; DM – Debit Memo; EC – Error Corrected; CM – Credit Memo
The paid checks accompanying this bank statement (all clearing August) were (checks listed in order of payment by
bank):
# 450 P1,800 # 455 P1,000 # 458 P1,440
451 1,400 456 700 459 1,820
454 600
The check register revealed that the last check issued in August was No. 460 for P1,000 and that check no. 457 was
for P2,400.
Cash received for the period August 21 through 31 of P9,400 was deposited in the bank on September 1.
The debit memo on August 12 and 31 were customer NSF checks returned by the bank. The check on August 12
was immediately redeposited without entry. The check returned August 31 was redeposited by the client in the
bank on September 1 without entry.
QUESTIONS:
Based on the application of the necessary audit procedures and appreciation of the above data, you are to provide
the answers to the following:
1. How much is the unadjusted book receipts for August?
2. How much is the unadjusted book disbursements for August?
3. How much is the adjusted book receipts for August?
4. How much is the adjusted book disbursements for August?
5. How much is the adjusted cash balance as of August 31, 2020?

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PROOF OF CASH – EXERCISE

Bank Balance P52,000 Book Balance P40,000

The August bank statement is reproduced below:

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