Apple Blossom Cologne Company

ASSIGNMENT 2

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 monthly bank reconciliations for both bank accounts. You obtained from Don McKenna a copy of the reconciliations for each bank for the month of December, 2011. You also obtain from Don selected portions of the cash receipts and cash disbursements journals. You have received from the banks the confirmations and cut-off bank statements that were requested January 3, 2012. The cut-off bank statements cover the period from January 1 to January 14, 2012.

On December 31, 2011, you were on the client’s premises for the purpose of counting any undeposited cash receipts and the petty cash fund at year-end. The cashier, Pam Lewis, has charge of the petty cash fund. You obtain control of it, counted it, recorded your count, and returned it to Pam, obtaining a receipt for its return. Pam also prepares the company bank deposits. However, on December 31, 2011, she did not prepare a deposit, so you obtained from her the undeposited cash receipts, listed your count, and returned them to her, obtaining a receipt for their return. Working papers for these counts are included in the working paper schedule provided.

The cut-off bank statement, along with items clearing the cutoff period, which you requested from Big City National Bank, are shown in Exhibit 1. 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

Instructions:

Write down the audit program to detect the following potential error or irregularities involving cash receipts, disbursements, and balances:

Cash Receipts:

Cash receipts may have been deposited but not recorded in the cash receipts journal.
Cash receipts may have been recorded but not deposited in the bank.
Cash receipts may have been credited to the wrong account.
The amount of cash receipts may have been incorrectly recorded.
Cash receipts may have been recorded in the wrong accounting period.
Transfer of cash among bank accounts may have been incorrectly recorded.

Cash Disbursements:

Unauthorized disbursements may have occurred.
Disbursements may have been recorded but the check not mailed.
Disbursements may have been made but not recorded in the cash disbursements journal.
The disbursement may have been debited to the wrong account.
Disbursements may have been recorded in the wrong accounting period.
Disbursements related to interbank transfers may have been incorrectly recorded.

Cash Balances:

The bank reconciliation may have been purposefully misfooted to cover a defalcation.
The reconciliation may include fictitious deposits in transit.
Outstanding checks may have been omitted from the reconciliation to conceal a cash shortage.

Begin with the list of assertions below and add others as you think appropriate, then write your audit program to test those assertions.
The amount of cash is not materially more than the amount shown on the balance sheet.
All cash has been recorded.
Cash is correctly shown as a current asset.
No cash is restricted to a noncurrent use.
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 observations to perform your audit work in the cash area. Prepare schedule A-5 in order to analyze the propriety of interbank transfers.

See current year’s working paper, index A-1 – Bank Reconciliation – Big City National (General)

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STANDARD BANK CONFIRMATION INQUIRY

Date, January 3, 2012

Return to:Anderson, Olds, and Watershed

Certified Public Accountants

615 Big City Bank Building

Chicago, Illinois

Report:Big City National Bank

FromMain at Michigan Avenue

BankChicago, Illinois

Bank customer should check here if confirmation of bank balances only (item 1) is desired.

At the close of business on December 31, 2011our records showed the following balance (s) to the credit of the above named customer. In the event that we could readily ascertain whether there were any balances to the credit of the customer not designated in this request, the appropriate information is given below:

Amount / Account Name / Account No. / Subject to withdrawal by check / Remarks
/ Interest bearing give rate
243,620 / Apple Blossom Cologne Company General Account / 146-2013 / X / No

The customer was directly liable to us in respect of loans, acceptances, etc., at the close of business on that date in the total amount of $ none as follows:

Amount / Date / Interest / Description of Liability, Collateral, Security Interests, Liens, Endorsers, etc.
Loan/Discount / Due / Rate / Paid to
- / - / - / - / - / -

The customer was contingently liable as endorser of notes discounted and/or as guarantor at the close of business on that date in the total amount of $ noneas follows:

Amount / Name of Maker / Date / Remarks
Note / Due
- / - / - / - / -

Other direct or contingent liabilities, open letters of credit, and relative collateral. Were:

None

Security agreements under the Uniform Commercial Code or any other agreements providing for restrictions, not noted above, were as follows (if officially recorded, indicate date and office in which filed):

None

Date January 7, 2012

Your truly (bank) Big City National Bank

By Buford Chunehill(Cashier)

Authorized Signature Bank

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STANDARD BANK CONFIRMATION INQUIRY

Date, January 3, 2012

Return to:Anderson, Olds, and Watershed

Certified Public Accountants

615 Big City Bank Building

Chicago, Illinois

Report:Second National Bank

From615 Lakeway Road

BankChicago, Illinois

Bank customer should check here if confirmation of bank balances only (item 1) is desired.

At the close of business on December 31, 2011our records showed the following balance (s) to the credit of the above named customer. In the event that we could readily ascertain whether there were any balances to the credit of the customer not designated in this request, the appropriate information is given below:

Amount / Account Name / Account No. / Subject to withdrawal by check / Remarks
/ Interest bearing give rate
5,791 / Apple Blossom Cologne Company General Account / 36-118-402 / X / No

The customer was directly liable to us in respect of loans, acceptances, etc., at the close of business on that date in the total amount of $ none as follows:

Amount / Date / Interest / Description of Liability, Collateral, Security Interests, Liens, Endorsers, etc.
Loan/Discount / Due / Rate / Paid to
- / - / - / - / - / -

The customer was contingently liable as endorser of notes discounted and/or as guarantor at the close of business on that date in the total amount of $ noneas follows:

Amount / Name of Maker / Date / Remarks
Note / Due
- / - / - / - / -

Other direct or contingent liabilities, open letters of credit, and relative collateral. Were:

None

Security agreements under the Uniform Commercial Code or any other agreements providing for restrictions, not noted above, were as follows (if officially recorded, indicate date and office in which filed):

None

Date January 6, 2012

Your truly (bank) Second National Bank

By Wesley Hart(Cashier)

Authorized Signature Bank

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Apple Blossom Cologne Company

Undeposited Cash Receipts – Big City National

12-31-2011

The above checks were examined in my presence and returned to me intact on this date, 12-31-2011, 3.45 pm

Pam Lewis

Cashier

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Apple Blossom Cologne Company

Petty Cash

12-31-2011

The above fund was examined I my presence and returned to me intact on this date, 12-31-2011, 4.30 pm

Pam Lewis

Cashier

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EXHIBIT 1

BIG CITY NATIONAL BANK – CUTOFF BANK STATEMENT AND CLEARINGS

BIG CITY NATIONAL BANK – Main at Michigan Avenue, Chicago, Illinois

Statement of Account #146-2013

Apple Blossom Cologne Company

Date / Checks / Deposits / Balance
12-31-2011 / Balance forward / 243,582
1-3-2012 / 135, 176 / 53,250 / 296,521
1-4-2012 / 10,000 / 14,670, 111,200 / 412,391
1-6-2012 / 1,450, 36,000 / 18,000 / 392,941
1-7-2012 / 146,880 / 11,200 / 257,261
1-10-2012 / 25,355, 150 / 1,850 / 233,606
1-13-2012 / 214, 140, 874, 9,600 / 30,900 / 253,678
1-14-2012 / 468, 2,950, 565, 10,200, 420, 37,680 / 6,000 / 207,395

Deposit slips that agree with the above statement were received with the cutoff bank statement. The following is a list of paid checks that were received with the cutoff bank statement.

Check Number / Date of Check / Cleared Bank / Payee / Amount
1446 / 12-27 / 1-03 / Longhorn Garbage Disposal / 135
1449 / 12-27 / 1-03 / Bertram Hardware / 176
1451 / 12-30 / 1-03 / Second National Bank / 10,000
1452 / 12-31 / 1-06 / Second National Bank / 36,000
1445 / 12-27 / 1-06 / Office Decorators / 1,450
1453 / 1-03 / 1-07 / Fruit Juicy Perfume Co. / 146,880
1454 / 1-03 / 1-10 / Hammel, Hammel, & Johnson / 25,355
1458 / 1-06 / 1-10 / Midtown Office Supply / 150
1467 / 1-10 / 1-13 / Dr. Edwar Abel / 214
1444 / 12-27 / 1-13 / Lawn Clippers / 140
1450 / 12-30 / 1-13 / Quick-Print Printers / 874
1460 / 1-07 / 1-13 / Apple Valley Security / 9,600
1462 / 1-07 / 1-14 / William F. Reimann / 468
1461 / 1-07 / 1-14 / Alex McBane / 2,950
1466 / 1-10 / 1-14 / Fulton Paper Co. / 565
1457 / 1-03 / 1-14 / Edwards, Overstreet & Gilley / 10,200
1456 / 1-03 / 1-14 / Norton Exterminators / 420
1463 / 1-07 / 1-14 / Roberts and Underwood / 37,680

EXHIBIT 2

SECOND NATIONAL BANK – CUTOFF BANK STATEMENT AND CLEARINGS

SECOND NATIONAL BANK – 615 Lakeway Road, Chicago, Illinois

Statement of Account #36-118-402

Apple Blossom Cologne Company

Date / Checks / Deposits / Balance
12-31-11 / Balance forward / 5,791
1-3-2012 / 2,342, / 10,000 / 13,449
1-4-2012 / 3,134 / 36,000 / 46,315
1-6-2012 / 15,442 / 30,873
1-7-2012 / 14,386 / 16,487
1-10-2012 / 2,742, 10,120 / 3,625
1-11-2012 / 1,545 / 2,080
1-12-2012 / 1,227 / 853

Deposit slips that agree with the above statement were received with the cutoff bank statement. The following is a list of paid checks that were received with the cutoff bank statement.

Check Number / Date of Check / Cleared Bank / Payee / Amount
6890,6895,6896,6897,6901,6902 / 12-31 / 1-03 / 6 hourly employee (see cash disbursement journal for names) / 2,342
6889,6891,6892,6893,6894,6898,6899,6900 / 12-31 / 1-04 / 8 hourly employee (see cash disbursement journal for names) / 3,134
6904,6906,6907,6910,6911,6913,6914,6916,6919,6925 / 1-03 / 1-06 / 10 salaried employees / 15,442
6903,6905,6908,6909,6912,6915,6917,6926 / 1-03 / 1-07 / 8 salaried employees / 14,386
6918,6920,6921,6922,6923,6924 / 1-03 / 1-10 / 8 salaried employees / 10,120
6927,6929,6931,6932,6936,6939,6940 / 1-07 / 1-10 / 7 hourly employees / 2,742
6930, 6933, 6937, 6938 / 1-07 / 1-11 / 4 hourly employees / 1,545
6928, 6934, 6935 / 1-07 / 1-12 / 3 hourly employees / 1,227

EXHIBIT 3

CASH RECEIPTS JOURNAL (Selected Portion)

CASH DEBIT / DATE / SOURCE / CREDIT
163,093 / 12-24-11 / Total brought forward / 163,093
25,800 / 12-24 / Various A/R – Listed / 25,800
53,250 / 12-27 / Various A/R – Listed / 53,250
10,000 / 12-30 / Big City National Bank / 10,000*
36,000 / 12-31 / Big City National Bank / 36,000**
14,670 / 12-31 / Various A/R – Listed / 14,670
256,813 / 46,000 / 12-31-11 / December totals / 256,813 / 46,000
0 / 0 / 1-01-12 / Beginning balance / 0 / 0
111,200 / 1-03 / Various A/R – Listed / 111,200
18,000 / 1-04 / Young and Beautiful / 18,000
11,200 / 1-07 / Various A/R – Listed / 11,200
140,400 / 0 / 1-07-12 / Totals forward to next page / 140,400 / 0

* Cash credit is to Miscellaneous Income, account #950

** Cash credit is to Big City National Bank, account #101

EXHIBIT 4

CASH DISBURSEMENTS JOURNAL (Selected Portion)

DATE / CHECK NUMBER / PAYEE / DEBIT ACCOUNT NUMBER / CASH CREDIT
BIG CITY NAT. / SECOND NAT.
12-24-11 / Totals brought forward / 212,000 / 8,735
12-27 / 1444 / Lawn Clippers / 301 / 140
12-27 / 1445 / Office Decorators / 301 / 1,450
12-27 / 1446 / Longhorn Garbage Disposal / 301 / 135
12-27 / 1447 / Gulf States Oil Supply / 830 / 80
12-27 / 1448 / United Fund / 832 / 25
12-27 / 1449 / Bertram Hardware / 301 / 176
12-30 / 1450 / Quick-Print Printers / 301 / 874
12-30 / 1451 / Second National Bank / See cash receipts journal
12-31 / 6889 / Bert Campo / 303 / 416
12-31 / 6890 / Karl Marker / 303 / 401
12-31 / 6891 / Earnest Jones / 303 / 435
12-31 / 6892 / Patricia Sanders / 303 / 401
12-31 / 6893 / Bruce Jones / 303 / 342
12-31 / 6894 / Robert Smith / 303 / 353
12-31 / 6895 / Milton Schaefer / 303 / 403
12-31 / 6896 / Antonio Salvadore / 303 / 384
12-31 / 6897 / Susan Billingsley / 303 / 384
12-31 / 6898 / Robin Botner / 303 / 393
12-31 / 6899 / Raymond Arthur / 303 / 380
12-31 / 6900 / Bill Potet / 303 / 414
12-31 / 6901 / David Johnson / 303 / 365
12-31 / 6902 / Elizabeth Robertson / 303 / 405
12-31 / 1452 / Second National Bank / See cash receipts journal
12-31-11 / December totals / 214,880 / 14,211
1-03-12 / 1453 / Fruit Juicy Perfume Co. / 301 / 146,880
1-03 / 1454 / Hammel, Hammel, & Johnson / 301 / 25,355
1-03 / 6903-26 / Salaried employees, Dec. Payroll / 303 / 39,948
1-03 / 1455 / Mid-town Office Supply / 112 / 3,800
1-03 / 1456 / Norton Exterminators / 301 / 420
1-03 / 1457 / Edwards, Overstreet, and Gilley / 301 / 10,200
1-06 / 1458 / Mid-town Office Supply / 112 / 150
1-07 / 1459 / Fruit Scents, Inc. / 301 / 7,757
1-07 / 1460 / Apple Valley Security / 301 / 9,600
1-07 / 1461 / Alex McBane / 301 / 2,950
1-07 / 1462 / William F. Reimann / 301 / 468
1-07 / 1463 / Roberts and Underwood / 115 / 37,680
1-07 / 1464 / Fruit Juicy Perfuem Co. / 301 / 5,184
1-07 / 6927-40 / Hourly employees’ weekly payroll / 303 / 5,514
1-10 / 1465 / Hoffmann Supply Co. / 301 / 240
1-10 / 1466 / Fulton Paper Co. / 301 / 565
1-10 / 1467 / Dr. Edward Abel / 301 / 214
1-10 / 1468 / Flash Freight Co. / 301 / 404
1-10-12 / Totals carried forward / 251,867 / 45,462

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PRIOR YEAR’S WORKING PAPERS

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STANDARD BANK CONFIRMATION INQUIRY

Date, December, 2011

Return to:Anderson, Olds, and Watershed

Certified Public Accountants

615 Big City Bank Building

Chicago, Illinois

Report:Big City National Bank

FromMain at Michigan Avenue

BankChicago, Illinois

Bank customer should check here if confirmation of bank balances only (item 1) is desired.

At the close of business on December 31, 2010our records showed the following balance (s) to the credit of the above named customer. In the event that we could readily ascertain whether there were any balances to the credit of the customer not designated in this request, the appropriate information is given below:

Amount / Account Name / Account No. / Subject to withdrawal by check / Remarks
/ Interest bearing give rate
483,440 / Apple Blossom Cologne Company General Account / 146-2013 / X / No

The customer was directly liable to us in respect of loans, acceptances, etc., at the close of business on that date in the total amount of $ 125,000 as follows:

Amount / Date / Interest / Description of Liability, Collateral, Security Interests, Liens, Endorsers, etc.
Loan/Discount / Due / Rate / Paid to
125,000 / 4-30-2010 / 4-30-2011 / 12 ¾% / 4-30-2010 / Unsecured

The customer was contingently liable as endorser of notes discounted and/or as guarantor at the close of business on that date in the total amount of $ noneas follows:

Amount / Name of Maker / Date / Remarks
Note / Due
- / - / - / - / -

Other direct or contingent liabilities, open letters of credit, and relative collateral. Were:

None

Security agreements under the Uniform Commercial Code or any other agreements providing for restrictions, not noted above, were as follows (if officially recorded, indicate date and office in which filed):

None

Date January 7, 2011

Your truly (bank) Big City National Bank

By Buford Chunehill(Cashier)

Authorized Signature Bank

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STANDARD BANK CONFIRMATION INQUIRY

Date, December, 2011

Return to:Anderson, Olds, and Watershed

Certified Public Accountants

615 Big City Bank Building

Chicago, Illinois

Report:Second National Bank

FromMain at Michigan Avenue

BankChicago, Illinois

Bank customer should check here if confirmation of bank balances only (item 1) is desired.

At the close of business on December 31, 2010our records showed the following balance (s) to the credit of the above named customer. In the event that we could readily ascertain whether there were any balances to the credit of the customer not designated in this request, the appropriate information is given below:

Amount / Account Name / Account No. / Subject to withdrawal by check / Remarks
/ Interest bearing give rate
6,421 / Apple Blossom Cologne Company General Account / 36-118-402 / X / No

The customer was directly liable to us in respect of loans, acceptances, etc., at the close of business on that date in the total amount of $ none as follows:

Amount / Date / Interest / Description of Liability, Collateral, Security Interests, Liens, Endorsers, etc.
Loan/Discount / Due / Rate / Paid to
- / - / - / - / - / -

The customer was contingently liable as endorser of notes discounted and/or as guarantor at the close of business on that date in the total amount of $ noneas follows:

Amount / Name of Maker / Date / Remarks
Note / Due
- / - / - / - / -

Other direct or contingent liabilities, open letters of credit, and relative collateral. Were:

None

Security agreements under the Uniform Commercial Code or any other agreements providing for restrictions, not noted above, were as follows (if officially recorded, indicate date and office in which filed):

None

Date January 7, 2011

Your truly (bank) Big City National Bank

By Wesley Hart(Cashier)

Authorized Signature Bank

Apple Blossom Cologne Company

Petty Cash

12-31-2010

The above fund was examined and counted I my presence and returned to me intact on this date, 12-31-2010 4.30 p.m.

Pam Lewis

Cashier

Note:

AJE #3 for unreimbursed voucher on 12-31-2010

Miscellaneous Expense 80

Petty Cash Fund80

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