Chapter 3 CASH EXPECTED LEARNING OUTCOMES After reading this chapter, you should be able to: (a) state the auditor’s principal objectives in auditing cash balances; (b) identify internal control procedures to safeguard cash and ensure reliability of recorded cash transactions; (c) apply audit procedures to establish management's assertions on cash balances; (d) prepare cash count sheet, based on actual cash count; (e) reconcile bank balances; (f) formulate audit adjustments to bring cash to correct balances; and (g) __ evaluate the appropriateness of the presentation of cash balance in the statement of financial position; and CHEER SSSI ESOS BO ODS O DEES COREE SOS GSCI E IEE IE For financial statement purposes, the account title “Cash” refers only to cash items that are unrestricted and immediately available for use in current operations. In a properly classified statement of financial position , “Cash” is normally presented as the first item in the current assets section. Although cash may not represent a significant amount compared to total assets in the statement of financial position, more audit time is devoted to the examination of cash balances because cash has a high degree of inherent risk. It is highly prone to misappropriation, misapplication and other forms of frauds. Furthermore, most financial statement items flow through the cash account, such that a misstatement in cash balance means misstatement of some other accounts. Audit Objectives In the audit of cash, the auditor's principal objectives are to: obtain an understanding of internal control procedures adopted by the company to safeguard cash; ° establish the existence of the recorded amount of cash; ° establish the completeness of recorded cash; 67 Scanned with CamScannerChapte . determine that the client has rights to recorded cash; and e establish that the presentation and disclosure of Cash is appropriate Internal Control Over Cash The auditor should consider control over cash transactions to determine the extent of audit procedures to be performed. One of the most important aspects of cash control is the segregation of the custodian function from the record keeping function. Segregation of incompatible duties minimizes fraud, because the act of misappropriation would involve at least two persons, and under normal circumstances it is unlikely that one will seek the help of another in committing a wrongful act, Segregation of duties also may help detect unintentional errors because at least two persons handle different aspects of the same transaction. However, the number of individuals involved in cash transactions must be controlled, the individual responsibilities for cash handling must be fixed and the individual duties must be limited to minimize if not eliminate fraudulent activities involving cash. Control over cash receipts should provide assurance that cash which should have been received was in fact received, recorded correctly and deposited promptly. The basic principle is that no one person should be allowed to collect, handle or transport and deposit cash without additional control feature to ensure that all funds are accounted for. Internal control procedures over cash receipts include the following: (a) No one person should be assigned the function of cash handling and record keeping. (b) Official receipts must be pre-numbered and sequentially used. (©) Each day’s cash receipts must be deposited intact. (4) Deposits should be matched with official receipts. The perso” reconciling the official receipts with the deposits made should be on other than the person making the deposit. (e) Cash sales should be recorded at the point of sale (point of sa system or POS). (f) Cash register totals and credit card machines should be balanced daily. Any resulting cash shortage or overage should be monitored: Control over cash disbursements should provide assurance te disbursements are made only for authorized business purposes and are prope'Y recorded. Internal control procedures for cash disbursements include the followin9’ Scanned with CamScannerChaptei Cash (a) All disbursements must be properly authorized and adequately documented. The adoption of the voucher system, which requires review of supporting documents as support for disbursements, is highly recommended. (b) Payments must be made by checks, electronic fund transfer, or from petty cash fund. \ (c) Issued checks must be sequentially numbered. (d) Checks should be signed by at least two persons to prevent fictitious disbursements. (e) Check signatories shall be persons in appropriate high levels in the organization. (fp Checks issued must be payable to specific entities (company or person) and must not be made payable to “Cash”. (g) Periodic bank reconciliations must be made by a person independent of the authorization, check signing function and cash receipts function. The reconciliation must be made at least once a month to ensure that all deposits and disbursements are properly made and recorded both by the entity and the bank. . Audit Procedures Auditing cash and cash equivalents involves identifying the risks of material misstatements for cash and gathering audit evidence to reduce these risks to an acceptable level. The common risks of material misstatements associated with cash includes non-recording of cash transactions, non-existence of cash balances and recording cash transactions in inappropriate reporting period. The auditor has to trace the opening balance of cash to prior year’s financial statements, or for repeat engagement, prior year’s working papers. Schedule showing the composition of the cash items must be reconciled with the opening balance in the year under audit. Auditing Cash on Hand To validate existence of cash on hand, the auditor shall conduct a cash count. The count must be conducted in the presence of the cash custodian. The custodian must be present throughout the count. The auditor must obtain the signature of the custodian certifying that the fund was returned intact. The count of the cash on Scanned with CamScannerChapter 3 — Cash liquid instruments must be mag, hand balances and the count of other highly temporarily conceal cash shortage simultaneously to avoid any transfer of funds to compared with the In conducting the cash count, the items ae Se a . ith the cashier's accountability. The items counted may inc! xX Currency and coins P Checks we Checks representing collections (dated and post-dated) Checks for disbursements (entrusted to the custodian | ba! Properly approved petty cash vouchers evidencing payments bed 10Us with no supporting vouchers x Total per count Pxx The cashier's accountability includes all items entrusted to the cashier fo; which he or she is accountable to the entity or another party. The cash custodisn may be accountable for the following: Imprest balance of the cash fund Pxx Checks or money items for payment to another (Meralco, PLDT, etc.) "xx Collections temporarily handled by the custodian for remittance to the general cashier xx Other collections handled by the custodian x Cashier's accountability Pxx Ideally, the total items counted must equal the cashier's total accountability Otherwise, the discrepancy is a cash shortage or a cash overage. If the cashiers accountability exceeds the items counted, the difference is cash shortage. Any unaccounted cash shortage requires reclassification either as a receivable from the cashier or part of miscellaneous expenses. In Making the reclassification, the audio” has to consider the policy adopted by the company for such shortages. if the total amount of items counted exceeds the cashier's accountability, th? excess is a cash overage, which must also be reclassified. Ideally, the cash ite” representing cash overage must be taken out of the cash fund and deposited tot? general cash in bank account of the company. An unaccounted cash overage © generally reclassified as miscellaneous income. The auditor has to bring the cash fund balance equal to the actual cash item’ (currency and coins) that are appropriately composing the undisbursed cash furé All non-cash items must be properly reclassified. Any other cash items belonging © the entity not forming part of the cash fund, such as miscellaneous collectio" handled by the cashier shall be properly recorded and deposited, Scanned with CamScannerChapter 3 - Cash The auditor should seek an explanation from an official as to the existence of 1OUs as part of the items counted. Borrowing by the employees from the petty cash fund may be against the entity’s policy and defeats the purpose for which the petty cash fund is held by the entity. In any case, the Petty Cash Fund balance after adjustment should represent only actual cash items counted properly forming part of the undisbursed cash in the petty cash fund. Illustrative Problem — Cash Count The following were found in the petty cash box upon conducting a cash count of the petty cash fund at 9:00 am on January 4, 2019: Bills and coins Denomination Number of pieces P1,000.00 5 500.00 2 100.00 4 20.00 3 5.00 2 1.00 8 Checks: Date Drawer Amount 12/20/2018 Jose, employee 1,200 12/29/2018 X Company, customer 8,000 12/29/2018 Juan, employee 2,000 01/15/2019 Jose, employee, cashed Dec. 12, 2018 4,800 IOU representing loans to A. Bautista, an employee 3,000 Vouchers: Date Voucher no. Particulars 12/15/2018 8B Office supplies 4,050 12/18/2018 89 Transportation 2,065 12/27/2018 90 Freight on merchandise sold 2,250 01/03/2019 91 Transportation ‘450 01/04/2019 «92 Representation 670 Unused office supplies, estimated at 1,200 Sison, an employee Unsigned pay envelope payable to Dante Si “8 on leave, previously recorded as disbursed (opened with no money inside) 2,000 n Scanned with CamScannerChapter 3 — Cash The check from X Company represents an unrecorded collection on account, It was turned over by Cristina Sanchez, the petty cashier, to the general cashier 9, January 6, 2018. The petty cash fund has an imprest balance of P25,000. Required: (A) Prepare a cash count sheet for ABC Company as of January 4, 2019, (8) Prepare all the necessary audit adjusting entries as a result of the foregoing Scanned with CamScannerChapter 3— Cash Solutions: ‘ABC Company Cash Count Sheet January 4, 2019 Bills and Coins: Denomination Number of pieces Amount P1,000.00 5 5,000.00 500.00 2 1,000.00 100.00 4 400.00 20.00 3 60.00 5.00 2 10.00 1.00 8 8.00 P6,478.00 Checks: Date Drawer Amount 12/20/2018 Jose, employee P 1,200 12/29/2018 —_X Company, customer 8,000 12/29/2018 Juan, employee 2,000 01/15/2019 Jose, employee, cashed December 12, 2018 4,800 16,000.00 IOU representing loans to A. Bautista, an employee 3,000.00 Paid Petty Cash Vouchers: Date Voucher no. _ Particulars Amount 12/15/2018 88 Office supplies P4,050.00 12/18/2018 89 Transportation 2,065.00 12/27/2018 90 Freight on goods sold 2,250.00 01/03/2019 91 Transportation 450.00 01/04/2019 92 Representation 670.00 9,485.00 Unused office supplies, estimated at 1,200.00 Total per count P36,163.00 Cashier’s accountability Petty cash fund P 25,000.00 Collections on account, X Company 8,000.00 Unused office supplies 1,200.00 Unreleased payroll —2,000.00 36,200.00 Cash Shortage -P_.37.00 Thereby certify that the above funds in the amount of thirty six thousand one hundred Sixty three pesos were counted in my presence by (name of audit staff), representative of (name of accounting firm) and were returned to me intact. There are no other funds for which I am accountable to ABC Company, except as noted above, Signed Cristina Sanchez 3 Scanned with CamScanner‘Audit Adjusting Entries: 7,800 (a) Miscellaneous Receivables ~ Employees 41050 Office Supplies Expense 21065 Transportation Expense 2/250 Freight Out 37 Cash Shortage 16.200 Petty Cash Fund 1,200 (b) Unused Supplies on Supplies Expense (©) Cash in Bank 8,000 cna Accounts Receivable , (d) Cash in Bank 2,000 200 Salaries Payable ,000 Important Notes: © _The cash count must be conducted all throughout in the presence of the cash custodian. ‘The auditor has to obtain certification from the custodian that the funds were counted in his/her presence and they were returned to him/her intact, © Items listed as counted shall consist of (a) bills and coins representing Undisbursed funds or other funds and collections received (b) checks representing disbursements from petty cash funds for which no vouchers were approved and signed by the payees; (c) checks representing other funds handled by the cashier, Such as collections from customers; (d) paid petty cash vouchers with appropriate invoices evidencing payment out of the petty cash fund; (5) 1OUs with no supporting approved petty cash vouchers and (5) any unconsumed items for which payments were evidenced by petty cash vouchers, 2, included in the cashier's accountability are (a) petty cash fund (at the imprest balance); (b) other funds for whi F which the cashier is accountable; and (c) any Unused items, payment of which is evidenced by counted petty cash vouchers. The unused supplies are included in th Prepaid expenses. As such, unused supplies are also included in the cashiers accountability, to offset its double Serna cess Of items counted over the cashier's accountability is cash overage. Any deficiency is cash shortage. The cash shortage is reclastheg either as 2 receivable from the custodia , depending on the client’ Practice or policy. Any unaccounted cash overage is Preferably, the bills and coi taken out of the fund. The 14 Scanned with CamScannerChapter ht disbursed items to the imprest balance in the petty cash fund and will provide a basis for documenting the cash overage. © All non-cash items in the petty cash fund are reclassified and charged to appropriate expense or receivable accounts. Examples are IOUs and postdated checks from customers, which are reclassified as receivables, and paid petty cash vouchers, which are charged to the appropriate expense and other accounts. Paid petty cash vouchers that are dated subsequent to the end of the reporting period are cash items as of the balance sheet date, as disbursements are made subsequent to the balance sheet date, © Any unrecorded collections require adjustments to reflect the collections in the year under audit (entry c). Likewise, any unreleased payment, for which entries were previously made, shall be reverted to the cash balance (entry d). In the foregoing illustration, the correct Petty Cash Fund at December 31, 2018 is P8,798 (which is P25,000 minus P16,202). This balance is composed of the following cash items counted: Bills and coins as of January 4 P6,478 Checks dated December 2018 11,200 Petty cash vouchers dated January 2019 (undisbursed as of December 31) 1,120 Total cash items P18,798 Collections from customers (for deposit) (8,000) Unreleased salaries (must be returned to payroll envelope (2,000) Petty cash fund, per audit, P8798 Auditing Cash in Bank The auditor's tests of controls of cash receipts help determine that cash payment intended for the company are received, are properly and promptly recorded, and are promptly and properly deposited in the company’s bank account. Tests of controls related to cash receipts include (a) footing cash receipts records; (b) __ testing the postings of cash receipts to ledgers; (©) comparing recorded receipts with bank statements; (d) comparing deposit slips with recorded receipts; and (e) comparing recorded receipts with the details in the official receipts. 5 Scanned with CamScannercustomers must be Details in the official receipts for cash gers Such details matched with the credit postings to the customers’ SU! ary ion of collections fom tracing may uncover lapping, a fraud referring to a debaaleoet Collections to the customers, delaying its recording and poet payment (Example: Collection account of the customer who previously made the payment, TCE, cor is misappropriated by the ‘ ea ale eae to ceaaner ‘A, and part or full cl for ieee mr iS ie credited to the account of Customer B, and so on.) Lapping is mes erie aca when an employee receiving collections from customers receivable records. The auditor's tests of controls related to cash disbursements help ne a determine that all cash disbursements are properly aut ne made only for goods and services that are actually received. These tests include: (a) proving the footings of cash disbursements journal or check register; (b) tracing the totals to the general ledger; (c)__ comparing checks returned with the entries in the cash disbursements journal or check register; and (d) reconciling recorded disbursements with bank statements. Ledger postings of cash receipts and cash disbursements must be reviewed to spot unusual entries that may require special investigation. ‘The auditor must request confirmation of bank balance for each bank account maintained by the client. The bank confirmation provides evidence in respect of existence, ownership, and accuracy of cash balances. The bank confirmation request must be on the auditor's letterhead and must be sent to all banks where the client has dealings. The request should be clear and concise. The request must include confirmation of demand deposits, savings deposits, certificates of deposits and information on compensating balances. The following types of information may also be sought from the confirmation: bank balances with corresponding account numbers, description of currency, loans from the bank, collateral provided on loans, maturity and interest rate on loans, terms and tepayment conditions of loans, contingent liabilities such as guarantees and endorsements, Copies of the bank Confirmations must be retained in the working papers. The auditor when requesting bank confirmations should send the banks self-addressed Prepaid envelopes, so that bank replies are sent directly to the auditor. Sometimes, it may be necessary to send @ second request, specifically so wh i paeze! > first confirmation request, ¥ 'en the financing institution failed to reply in the In instances when the amount i by the bank does not agree with the iedger baa a a aneianes 2,obaied fromthe francing institution, the ator ot eet No-responses 'e auditor shall obtain copies of the bank red by the client. A bank reconciliation is an audit evidence to ial statement assertio, r tence or occurrence, cut-off, tenes reated to Cash in Bank. For first time audit, the auditor fe bank reconciliations at the close of the prior year. accuracy and compl may need to obtain Scanned with CamScannerChapter 3 - Cash Reconciling items listed should be traced to bank statements for the subsequent months. The auditor has to test the clerical accuracy of the reconciliation and the details of the supporting schedules. The extent and nature of the reconciling items must be reviewed for reasonableness. Reconciling items listed in the bank reconciliation must be verified by obtaining cutoff bank statements. Deposits in transit and outstanding checks must be traced in the cutoff bank statement noting reasonableness of the time period between book recording and bank recording. Canceled checks returned with the cutoff bank statement must be traced to the list of outstanding checks. Large or unusual outstanding checks must be investigated. Appropriate audit evidence should be obtained for significant or unusual reconciling items. ‘The auditor shall consider preparing a proof of cash when there is reason to believe that a client's employee or officer perpetrates misappropriation. A proof of cash is @ reconciliation of the beginning and ending balances of cash, cash receipts and cash disbursements during a specific period. The purpose is to obtain an understanding of how the client and the bank recorded the transactions affecting cash balance during the period. If the client maintains cash accounts with at least two separate banks, a bank transfer schedule shall be prepared showing transfers of cash balances from one bank to another, specially towards the end of the reporting period. Manipulation causing an amount of cash to be included simultaneously in the balance of two or more bank accounts is referred to as kiting. Kiting is an attempt to temporarily conceal a cash shortage at month end by issuing a check from one bank and depositing it to another. The deposit is reflected in the latter account, but the withdrawal may not be reflected yet in the first bank account due to clearing cutoff. For example, a fund transfer to Bank B at December 31 should be reflected as @ withdrawal from say, Bank A on the same date. A fund transfer posted as a deposit to Bank B, without reflecting it as a disbursement from Bank A may indicate that kiting may have occurred. 77 Scanned with CamScannerChapt ‘ash Sample of Bank Confirmation Request | (Auditor's Letterhead) (Standard Request for Audit Purposes) | January 31, 2019 The Manager Dear Sir: | (Standard Request for Audit Purposes) | Name of Customer For the Year Ended December 31, 2018 In accordance with your above-named customer’s instructions given above, pleas: send us, as auditors of your client for the purpose of our audit, the following information relating to their affairs at your branch as at the close of business on December 31, 2018 and during the period up to the date of your reply. | The request from us, as auditors of your client, nor the branch response will net create any contractual relationship with us. We enclose an additional copy of this letter, and it would be particularly helpful | your reply could be given on the copy letter in the space provided (supported by additional schedules stamped and signed by your bank where space is insufficient you find it necessary to provide the information in another form, please return | copy letter with your reply. tis understood that any replies given by you will be treated with by us with strc confidence. Very truly yours, Disclosure Authorize? Scanned with CamScannerChapter 3 - Cash (Sample of Bank Confirmation Request) Please fill up all applicable information requested: INFORMATION REQUESTED (1) Account Balance | In respect of all accounts maintained with your branch by the above-named | customer, please give full details of the account balances thereon, including NIL balances, stating whether the balances are maintained in Philippine pesos or in some other currency. | Reply : | Aacount Name Account No. Type of Account Account Balance Remarks | \ | | Note: Please indicate in the “Remarks” column above: | | (i) The separate amounts accrued but not charged or credited at the above date, | | of: a. provisional charges (including commitment fees); and b. interest | (i) The amount of interest charged or credited during the period if not specified | Separately in the bank statement or other documents. (ii) In the case of overdrafts, loan and other facilities, please state the amount of agreed facilities and repayment terms (e.g. monthly/ quarterly / fixed date) (iv) Where the account is subject to any restrictions, this information should be. Stated, (v) ‘Where the authority upon which you are providing this information does not cover any of the accounts listed above, please indicate as appropriate. 719 Scanned with CamScannerdates of closure of all accounts closed during the | (2) Please give full tiles and period. 3) Client's other transactions With regard to all other transactions with your client, please give details of:- (a) total of trade bills outstanding for your client; (b) date, name of beneficiary and amount of any outstanding guarantees, bonds of indemnities given by you, on your customer's behalf stating whether there are recourse arrangements; (©) total of bankers’ acceptances outstanding; (a) equivalent of total outstanding forward foreign exchange contracts in pesos; (e) total outstanding liabilities under documentary credits, letters of credit, trust receipts and other instruments of similar nature; (f) total negotiable certificates of deposits outstanding and other instruments of similar nature; (g) obligations under repurchase agreements; (4) Assets held as security Please give details (in summary form, if numerous) of any assets charged to the Bank/Finance Company for facilities given to your client, Give details of the security as follows. If a security is limited in amount or to @ specific borrowing, please indicate. (a) Land title — title deed number; nature of charge; amount charged; registered owner. (b) Shares - name of company; share certificate number; number of shares; registered owner. (Sample of Bank Confirmation ~ Continued) 4 80 Scanned with CamScanner *Chapter 3— Cash | (c) Debenture-certificate number; date created; description; amount. (a) Fixed deposit-certificate number; amount; maturity date; name of depositor. (e) Guarantee- nature; amount; beneficiary; obligator; tenor. | | | | | | For any other security not mentioned above, please give similar details (8) Customer's other assets held under safe custody | (Please give details (in summary form, if numerous) of the customer's other | assets held under safe custody by your branch including share certificates, | documents of title and any other items listed in your registers, maintained for the | purpose recording assets held. | | To the best of our knowledge and belief the information set out above is complete | and must be treated as strictly private and confidential and is furnished without responsibility on the part of the Bank/Finance Company or its officers. (official stamp of Bank) (Bank's Authorized Signatory) (Based on sample provided by Malaysian Institute of Accountants with website httpyjwnrw mio ora-my/new/psp_auditandassurance_knowledgebase_sample.2sp) at Scanned with CamScannerChapter sh Illustrative Problem — Proof of Cash the follo roof of cash, assume in ths of November and December 2015 Volume 1 by Robles, Empleo 204¢ To illustrate the preparation of the information for Pepe Corporation for the man (example taken from Intermediate Accounting, edition): Balance per company's ledger > 520,000 November 30 70000 December 31 , Total debits to cash per company’s books (recorded receipts) 2,500,009 during December A area Total credits to cash per company’s books (recorde Ae disbursements) during December 320,000 Bank balance November 30 537,400 December 31 kd 678,200 pts recorded by bank durin oe Necembe ee 2,474,400 December disbursements recorded by bank during December 2,333,600 Deposits in transit November 30 160,000 December 31 225,000 Outstanding checks November 30 143,000 December 31 118,000 Bank service charges (recorded by the depositor in the month following the month of charge November 1,200 December 800 Bank credit memo for customer's note collected by bank in November (face value P60,000 plus interest of P600), recorded by the company only in December. 60,600 Bank credit memo for proceeds of bank loan granted by the bank on December 31. 100,000 Customer's DAIF check returned by the bank (recorded by the company in the following month) Returned in November 25,000 Returned in December 14,000 Scanned with CamScannerChapter 3 — Cash Solution — Proof of Cash Pepe Corporation Proof of Cash November 30 - December 31, 2018 December Nov. 30 |” Receipts Disburse- Dec. 31 ments Unadjusted bank balance | P537,400 | P2,474,400 | __P2,333,600 | _P678,200 Deposits in transit November 30. 160,000 (160,000) December 31 225,000 Outstanding checks 225,000 | November 30 (143,000) (143,000) | December 31 118,000 (118,000) Adjusted balances, per bank P554,400 2,539,400. P2,308,600 P785,200 Unadjusted book 520,000 balances 2,500,000 2,320,000 P700,000 Bank service charges ” November (1,200) (4,200) December 800 (800) | Lu Bank credit memo in November for customer's note collected by bank 60,600 (60,600) Bank credit memo in December for proceeds of bank loan granted on Dec. 31 100,000 100,000 Customers’ DAIF checks returned by bank: November (25,000) (25,000) | December 14,000 (14,000) Adjusted balances, Per books P554,400 2,539,400, 2,308,600 | __P785,200 Notice the following in the proof of cash: Deposits in transit at November 30 understate the November 30 bank balance. The bank recorded the same as receipts in December, so the December receipts were overstated. As such, November 30 deposits in transit are added to November 30 bank balance and deducted from December bank receipts. 83 Scanned with CamScannerpreparing the adjusting entries in Bank account of Pepe Corporatic The bank has not yet taken up deposits in transit at December 31, so th, December recorded receipts and December 31 bank balance were both, understated. To reconcile, these December 31 deposits 0 transit must b. added to December receipts and to December 31 bank balance. ‘The bank recorded outstanding checks at November 30 only in December, overstating the November 30 balance and the December disbursements These November 30 outstanding checks should, therefore, be deducted from both November 30 bank balance and December disbursements per bank, The bank has not yet recorded outstanding checks at December 31, so the December disbursements were understated and the December 31 balance was overstated. Therefore, in the proof of cash, December 31 outstanding checks must be added to December bank disbursements and deducted from December 31 bank balance. ‘The company recorded bank service charge in November and the customers’ DAIF checks returned by the bank in November as disbursements in December, overstating both the November 39 balance and the December disbursements per books. Both are, therefore, deducted from both November 30 book balance and December book disbursements. The service charge in December and the customers’ DAIF checks returned in December have not yet been taken up by the company as of December 31, understating the book disbursements in December and overstating the December 31 book balance. Both should be added to the December book disbursements and deducted from the December 31 balance. Bank credit memo in November was recorded by the company as a debit to cash account only in December, so it was a recorded December receipt, although the collection was actually made by the bank in November. This makes the November 30 balance per books understated and the December receipts overstated. Thus, the November 30 bank credit memo should be added to the November 30 book balance and should be deducted from the December receipts per books. The bank credit memo on December 31 has not in th c yet been taken up in the company’s books as of December 31, as the company may not have bee" informed by the bank until later. The recorded receipts per company's books and the December 31 book balance are both understated. To reflect the correct transaction and December 31 balance, thi jit , this December bank cred! memo should be added both to the December receipts per books and tothe December 31 book balance. The last column in the lon to its correct balance: Scanned with CamScannerMiscellaneous Expenses (or Bank Charges) 800 Cash in Bank 800 December bank service charge Cash in Bank 100,000 Notes Payable - Bank 100,000 Bank loan granted by the bank Accounts Receivable 14,000 Cash in Bank 14,000 Customers’ DAIF checks returned in December. The auditor has to determine whether cash balances are appropriately presented on the face of the financial statements and all other relevant information relating to cash is disclosed in the notes to the financial statements. Any liens on cash balances, restrictions as to withdrawal and required compensating balances must be considered in determining whether the presentation of cash in the financial statements and the disclosures in the notes are appropriate. Scanned with CamScanner