Concept explainers
a.
Introduction: Kiting is a process under which one writes a check for the amount which is more than the available balance in one account and then writes a check from any other bank account in other bank which also does not have enough balance, with the intention that the second check will cover the insufficient balance available in the first account.
The check which indicates the kiting.
b.
Introduction: The deposit-in-transit is referred to the amount of money which is recorded in the records of the company and is sent to the bank but is not recorded by the bank on the same date. It creates a difference in the balance of company’s records and bank records.
The check which illustrates the deposit in transit on December 31, 2018.
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Auditing: A Risk Based-Approach (MindTap Course List)
- On receiving the bank cutoff statement, the auditor should trace: a. Deposits in transit on the year-end bank reconciliation to deposits in the cash receipts journal. b. Checks dated prior to year end to the outstanding checks listed on the year-end bank reconciliation. c. Deposits listed on the cutoff statement to deposits in the cash receipts journal. d. Checks dated subsequent to year end to the outstanding checks listed on the year-end bank reconciliation.arrow_forwardIn the course of your audit of the financial statements of Apayao Corp. for the period ended December 31, 2021, you gathered the following information regarding the entitiy’s current account in BPI: Balances taken from the company’s general ledger: Cash balance, November 30, 2021 P629,860 Cash balance, December 31, 2021 576,420 Receipts, December 1 – 31, 2021 306,220 Balances taken from the December bank statement: Bank balance, November 30, 2021 P685,180 Bank balance, December 31, 2021 637,220 Disbursements (debit) 356,080 Outstanding checks, November 30, 2021 (P26,140 was paid by the bank in December), P72,140. Deposit in transit, November 30, 2021, P15,260. A bank credit memo was issued in December to correct an erroneous charge made in November, P1,500. Note collected by bank in December (company was not informed of the collection), P2,060. A check for P2,020 (payable to a supplier) was recorded in the Check Register in…arrow_forwardRequired: 1.Complete the bank reconciliation at December 31, 2019. 2. Prepare the adjusting journal entries required to make the Cash in Bank account in the general ledger agree with the adjusted cash balance on the December 31 bank reconciliation. Include descriptions. Please show work.arrow_forward
- In the course of your audit of the financial statements of Apayao Corp. for the period ended December 31, 2021, you gathered the following information regarding the entitiy’s current account in BPI: Balances taken from the company’s general ledger: Cash balance, November 30, 2021 P629,860 Cash balance, December 31, 2021 576,420 Receipts, December 1 – 31, 2021 306,220 Balances taken from the December bank statement: Bank balance, November 30, 2021 P685,180 Bank balance, December 31, 2021 637,220 Disbursements (debit) 356,080 Outstanding checks, November 30, 2021 (P26,140 was paid by the bank in December), P72,140. Deposit in transit, November 30, 2021, P15,260. A bank credit memo was issued in December to correct an erroneous charge made in November, P1,500. Note collected by bank in December (company was not informed of the collection), P2,060. A check for P2,020 (payable to a supplier) was recorded in the Check Register in…arrow_forwardIn the course of your audit of the financial statements of Apayao Corp. for the period ended December 31, 2021, you gathered the following information regarding the entitiy’s current account in BPI: Balances taken from the company’s general ledger: Cash balance, November 30, 2021 P629,860 Cash balance, December 31, 2021 576,420 Receipts, December 1 – 31, 2021 306,220 Balances taken from the December bank statement: Bank balance, November 30, 2021 P685,180 Bank balance, December 31, 2021 637,220 Disbursements (debit) 356,080 Outstanding checks, November 30, 2021 (P26,140 was paid by the bank in December), P72,140. Deposit in transit, November 30, 2021, P15,260. A bank credit memo was issued in December to correct an erroneous charge made in November, P1,500. Note collected by bank in December (company was not informed of the collection), P2,060. A check for P2,020 (payable to a supplier) was recorded in the Check Register in…arrow_forwardThe following information was obtained in connection with the audit of XXX Corporation's cash account as of December 31, 2021: Outstanding checks, November 30, 2021 - P16,250; Outstanding checks, December 31, 2021 - P12,500; Deposit in transit, November 30, 2021 – P12,500; Cash balance per books, December 31, 2021 – P 37,500; Actual company collections from its customers during December – P152,500; Company checks paid by bank in December – P130,000; Bank service charges recorded on company books in December – P2,500; Bank service charges per December bank statement - November bank service charges recorded on company books in December - P1,500. The cash receipts book of December is underfooted by P2,500. The bank erroneously charged the company's account for P3,750 check of another depositor. This bank error was corrected in January 2022. P3,250; Deposits credited by bank during December - P145,000; REQUIRED: Prepare a proof of cash using book to bank method.arrow_forward
- In the course of your audit of the financial statements of Apayao Corp. for the period ended December 31, 2021, you gathered the following information regarding the entitiy's current account in BPI: • Balances taken from the company's general ledger: Cash balance, November 30, 2021 P629,860 Cash balance, December 31, 2021 576,420 Receipts, December 1 31, 2021 306,220 o Balances taken from the December bank statement: Bank balance, November 30, 2021 P685,180 Bank balance, December 31, 2021 637,220 Disbursements (debit) 356,080 Outstanding checks, November 30, 2021 (P26,140 was paid by the bank in December), P72,140. o Deposit in transit, November 30, 2021, P15,260. o A bank credit memo was issued in December to correct an erroneous charge made in November, P1,500. o Note collected by bank in December (company was not informed of the collection), P2,060. • A check for P2,020 (payable to a supplier) was recorded in the Check Register in December as P3,000. • A check for P2,240 was charged…arrow_forwardIn reconciling a bank statement, when a check from the previous month appears on the bank statement (but not the cash balance due to timing), how would you state it on the reconciliation? The note that was given: The difference in the beginning balances in the company’s records and the bank statement relates to checks #469 and #470, which are outstanding as of April 30, 2021 (prior month). Attached is an image of my current progress.arrow_forwardThe bank reconciliation for ABC Inc. at its year-end, December 31, 2022 includes the following: Outstanding checks $761,342.55. Identify all the following procedures that are applicable to the audit of outstanding checks. Check All That Apply Inspect bank credit memos Trace items on the bank reconciliation to the cutoff bank statement. Trace items to cash receipts journal Ascertain reason for unusual delay, if any. Trace items to cash disbursements journal. Inspect bank debit memos.arrow_forward
- The information below was taken from the bank transfer schedule prepared during the audit of Fox Co.'s financial statements for the year ended December 31, 2001. Assume all checks are dated and issued on December 30, 2001. Disbursement date Per books Bank Accounts Check # From 101 202 303 404 National County Federal State To C. #101 and #404 D. #202 and #303 Federal State American Republic Dec. 30 Jan. 3 Dec. 31 Jan. 2 Per bank Jan. 4 Jan. 2 Jan. 3 Jan. 2 18. Which of the following checks might indicate kiting? A. #101 and # 303. B. #202 and #404 Receipt date Per books Dec. 30 Dec. 30 Jan. 2 Jan. 2 Per bank Jan. 3 Dec. 31 Jan. 2 Dec. 31arrow_forwardThe following information was obtained in connection with the audit of XXX Corporation’s cash account as of December 31, 2021: Outstanding checks, November 30, 2021 – P16,250; Outstanding checks, December 31, 2021 – P12,500; Deposit in transit, November 30, 2021 – P12,500; Cash balance per books, December 31, 2021 – P 37,500; Actual company collections from its customers during December – P152,500; Company checks paid by bank in December – P130,000; Bank service charges recorded on company books in December – P2,500; Bank service charges per December bank statement – P3,250; Deposits credited by bank during December – P145,000; November bank service charges recorded on company books in December – P1,500. The cash receipts book of December is underfooted by P2,500. The bank erroneously charged the company’s account for P3,750 check of another depositor. This bank error was corrected in January 2022. REQUIRED: Prepare a proof of cash using book to bank method.arrow_forwardRequired: A. Prepare a working paper comparing (1) the total of all checks returned by the bank or still outstanding with (2) the total per clients records of checks outstanding at December 31 plus checks issued from January 1-14. B. Suggest a four possible explanations for the situation disclosed in the working paper. State what action you would take in each case, including any adjustments entry would you propose.arrow_forward
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