Question

1. Chase Conor, CPA is on the audit team that is performing the audit of Vaden, Inc. He has obtained the bank reconciliation for December 31, 2019 from the client and has been instructed to test the reconciliation. He found the following items on the reconciliation

1. Balance per bank at 12/31/19 was $28,375.
2. Two deposits in transit – 12/29/19 for $4,500 and 12/30/19 for $1,525.
3. Outstanding Checks:

Check #	Date of Check	Dollar Amount
988	8/30/2019	$2,200
1281	12/26/2019	$675
1285	12/27/2019	$850
1289	12/29/2019	$2,500
1292	12/30/2019	$7,225

4. Customer note collected by bank: $3,000
5. Balance per books at 12/31/19 was $17,950

In addition, you have a cutoff bank statement dated 1/7/20 that you received directly from the bank.

Required:

For each of the items a – e, describe any procedure(s) that Chase most likely would perform to gather evidence in support of that item.

Answer 1

Solution :-

Basic audit procedures that should be performed in gathering evidence in support of each of the items (a) through (e) by the Chase :-

a) Balance as per bank at 12/31/19 was $28,375

• Confirmation by direct written communication with bank.
• Inspect a January cut off bank statement obtained directly from the bank.

b) Two deposits in transit

• Verify that the deposit was listed in the January cutoff statement on a timely basis.
• Trace to the cash receipts journal.
• Inspect the vaden Inc ( refer as auditee) copy of the deposit slip for the date of deposit.

c) Outstanding Checks

• Examine checks accompanying the January cutoff statement and trace all checks to the outstanding checks list.
• Trace outstanding checks to the cash disbursements journal.
• Eaxmine all supporting documents for those outstanding cheques that were not returned with the cutoff bank statement.
• Ascertain why check number 988 has been outstanding for so long.

d) Customer note collected by bank

• Examine the bank credit memo.
• Trace to accounting records.

e) Balance as per books at 12/31/19 was $17,950

• Foot the bank reconciliation to this total and compare with the general ledger balance.