Ap1 Comprehensive Problem

AUDITING PROBLEMS 1
COMPREHENSIVE PROBLEM
SRV & Co. CPAs accepted a new client, Global Home Depot, Inc., on November 2014. Your Senior
Auditor assigned you as the Audit Clerk for the new engagement for the calendar year 2014. On the
same month, you visited their principal address to obtain an understanding of the nature of their
business.
Global Home Depot, Inc. was incorporated in the Philippines and registered with the Philippine Securities and
Exchange Commission (SEC) on March 12, 2010. The Company is primarily engaged in the business of
retailing, merchandising, buying, selling, marketing, trading, or otherwise dealing household and builder
hardware.
Merchandising industry makes products in retail outlets available to customers, primarily by stocking shelves
and displays. Household and builder hardware product merchandisers occupy an intermediate market between
the manufacturers and the end users. The manufacturers typically focus on producing high volumes of their
product. The merchandisers purchase these finished products from the manufacturers. They distribute these
products through retail. This is very common because it somehow eliminates the manufacturers burden to
further market their product.
The Companys main line of business is purchasing and selling household and builder hardware like keys,
locks, hinges, chains, tools, machine parts, doors, windows, bathrooms, etc. These are used by homeowners
and builders for residential and commercial purposes. The entity has several suppliers for the merchandise
within and outside Cebu and they are normally sold to walk-in customers, to the City Government of Cebu and
Mandaue, and to regular customers who are usually construction companies.
The registered business address of the Company is Ground Floor, The Columbia Tower, A.S. Fortuna Street
Mandaue City, Cebu (see attachment 1). The Company is situated near the national road which is very
accessible to the public. The Company location is also accessible to trucks and public utility vehicles. The
Company is under a lease agreement with The Columbia Tower Real Estate, Inc. for the space used by the
Company.
The Company is controlled by Ms. Cynthia D. Chungunco, who owns 78.21% of the Companys outstanding
shares. The remaining 21.79% of the shares are publicly held. The Company has its primary listing on the
Philippine Stock Exchange. As of December 31, 2012 and 2013, the Company has 24 and 26 equity holders,
respectively (see attachment 2 for the organizational structure).
The Company has an internally-generated accounting system but manually processes pre-numbered source
documents. According to a survey, companies that do better than industry averages tend to use and
understand specialized computer software tools to manage specific aspects of merchandising. It has identified
forecasting as the most important tool. The system helps predict what goods customers might want and
stocking patterns to satisfy customer demand while minimizing the amount of capital invested in excess
inventory. Seventy-five percent of the retailers surveyed said that retail forecasting is extremely important to
financial success. In the past, forecasting systems were largely seen as supply chain management tools,
where the focus was on reducing operational costs. Now such systems and techniques have become
important to expand sales opportunities, moving from a strictly bottom-line focus to a top-line one. Almost
equally as important as demand forecasting is customer analytics. One cannot create a good demand forecast
without understanding the customers and what they might want.
The Company approximately has 43 regular customers, an average of 300 walk-in customers per day, and the
City Government of Cebu and Mandaue. The Company negotiates sales orders with the majority of their
customers. The Company does not have any long-term contract with any customer. Because of the nature the
Companys products and the short lead time order cycle, backlog is not a significant factor of the business. The
Company believes that substantially all of the orders existing as of December 31 will be shipped prior to the
end of the first quarter of the next year. In general, the Company competes in the home and builder hardware
products with the other companies in within Cebu and Mandaue City. A few of the Companys competitors may
be larger, have greater financial resources or have less financial leverage than the Company does. As a result,
the competitors may be better positioned to respond to any downward pricing pressure or other adverse
economic or industry conditions or to identify and acquire companies or product lines compatible with their
business.
The primary goal of the company is to sustain itself in the long run of competition and to increase its market
share in the future. The management continuously gives good service to its customers by availing quality
products from its suppliers. It hopes that by putting up branches on strategic locations, it will be able to
increase profitability and at the same time satisfying the needs of the customers. It is currently advertising on
media, specifically on radio stations and print, to make the business known to the public. As a corporate social
responsibility, it actively participates on the preservation of the natural environment. The management says
that their strategies do not contribute much to the overall success of the Company and they admit that they are
not that aggressive in terms of promotion.
The Company sees itself as a growing entity. The management believes that it will be able to expand its
operations especially because they are yet starting. Ms. Chungunco is pressuring the management to expand
sooner in order to also get fully the market share for the City Government of Cebu and because the opportunity
revenue is high.
As of the date, the company has no investments in associate, subsidiary or joint venture. For now, the
management has no plans of entering into acquisition of companies under its name or disposing its equity
interest. However, the company has planned initially in 2013 to open a branch in Cebu City in order to get a
wider share in the market. The Company has also planned to obtain loans from the bank to finance its
expansion plans.
The preparation of the financial statements in conformity with accounting principles generally accepted in the
Philippines requires the management of the Company to make decisions based upon estimates, assumptions,
and factors it considers relevant to the circumstances. Such decisions include the selection of applicable
principles and the use of judgment in their application, the results of which could differ from those anticipated.
The Company has considered the following as their most critical accounting policies:
1. Accounts receivable valuation
2. Inventory Valuation
3. Revenue recognition
The management reviews the estimates on a regular basis but believes that these estimates are reasonable,
but actual results could differ from these estimates.
Valuation of accounts receivable

The accounts receivable of the Company represent those amounts that have been billed to the Companys
regular customers and to the City Government of Cebu and Mandaue but not yet collected. The Company
records an allowance for doubtful accounts based on the portion of those accounts receivable that the
Company believes are potentially uncollectible based on various factors, including historical experience and
creditworthiness of customers. If the financial condition of customers were to deteriorate, resulting in
impairment of their ability to make payments, additional allowances may be required. Changes in judgments on
these factors could impact the timing of costs recognized.
Valuation of inventories
The company states their inventories at the lower of cost or market. The Company determines the cost basis
their inventory on a first-in-first-out basis using actual costs. Changes in product demand and their customer
base may affect the value of inventory on hand, which may require provisions for obsolescence.
Revenue recognition
The Company recognizes revenue at the point of sale. The Company treats sales returns and allowances as
reductions to sales.
ORGANIZATIONAL CHART
BOARD OF DIRECTORS
CYNTHIA D. CHUNGUNCO
President
JOHN F. GO
General Manager
MANOLO F. CHUA
Purchaser
GERRY S. VELORA
Inventory Clerk
MIMI L. GARCIA
Sales Manager
CHRISTINE D. LAPINID
Cashier
CHARLOTE R. AGUILAR
Chief Accountant
MARLON S. YU
Accountant 1
ARMANDO G. SUICO
Support Head
ANNIE T. DALON
Accountant 2
GEOGRAPHICAL LOCATION
Prior to the end of November 2014, you went back to the Global Home Depot, Inc. to examine their
control manual in order for you to document your understanding of the design of the internal control
and assess the control risk.
Purchasing / Disbursement Cycle

Whenever a certain inventory level goes below the reorder point, the Inventory Clerk will report to the
Purchaser for requisitioning. The Purchaser will determine the supplier and will send copy of the purchase
order to the supplier (via e-mail or by fax), to the Accounting Office and to the one who will receive the goods
(a copy with no details as to the quantity). Upon receipt of the goods, the one who receives will count them and
will notify the Accounting Office of such receipt by providing a receiving report. The Accounting Office will
compare the receiving report with the purchase order and the suppliers invoice, and will record the related
liability. The Accounting Office will send the necessary documents for payment to the President. The President
will review the accuracy and authenticity of the documents prior to the approval of the vouchers for payment.
Then the check will be prepared and mailed to the supplier and the source documents will be stamped PAID.
The Accounting Office will then update the Accounts Payable general and subsidiary ledger.
Revenue / Receipts Cycle

Credit will never be granted to walk-in customers. For regular customers and the City Government of Cebu and
Mandaue, the approval of the Sales Manager must be obtained before credit sales will be granted. Copies of
the approved sales order will be sent to the warehouse (c/o the Inventory Clerk) and to the Accounting Office.
The Inventory Clerk will move out the inventory to be shipped from the warehouse and will update the
perpetual inventory records. The goods will be sent to the carrier and shall be evidenced by a bill of lading. The
Accounting Office will compare the bill of lading with the sales order and will prepare the invoice to be sent to
the customer. All collections shall be made by means of check. One accounting staff shall receive the check
and will immediately send such to the President for the necessary endorsement. The cashier will prepare the
deposit slip of the collections for the day. Another accounting staff will update the general and subsidiary
ledger of Accounts Receivable. The President will be the approving officer for any write-off of receivables.
On the first week of December 2014, you went back to the Global Home Depot, Inc. after documenting
your understanding of the design of the internal control and assessing the control risk. For two weeks,
you performed a test on the following controls:
A. Disbursement Cycle
a. Purchase orders were properly authorized.
b. Goods were received and reconciled to the purchase order.
c. The amounts appearing on the checks made are the same with the suppliers invoice.
d. Checks were signed by authorized persons.
e. Supporting documents are cancelled.

B. Receipts Cycle
a. Sales were properly authorized.
b. Sales invoice amounts are the same with the approved sales order.
c. Collection receipt amounts are the same with the billings per sales invoice.
d. Collections for the day were deposited to the bank on the same day.
You randomly selected 5 purchase transactions for nine-month period ending September 30, 2014 and
performed a walkthrough on these transactions. You asked the client to provide you all the source documents
for these transactions and any cancelled checks made as payments to the suppliers (see attachments).
You also randomly selected 5 sales transactions for nine-month period ending September 30, 2014 and asked
the client to provide you the source documents to substantiate the sales (see attachments).
You obtained a sample of a deposit slip to ascertain that collections are deposited on the same day they are
received.
DISBURSEMENTS TEST OF CONTROLS
GLOBAL HOME DEPOT, INC.

PURCHASE REQUISITION
Ground Fl oor, The Col umbi a Tower,
No. 000-2-45986
A.S. Fortuna Street, Mandaue Ci ty, Cebu
VENDOR
SHIP TO
HJR Builders
Requisition Date
Global Home Depot
Required by Date
Instructions
Budget Code
02/15/14
Item No.
Quantity
300
200
Description
Angle Iron
Abrasive blades
G.L. Account No. Unit Price

165.00
85.00
Amount
49,500.00
17,000.00
TOTAL AMOUNT
66,500.00
SPECIAL INSTRUCTIONS
GERRY S. VELORA
Requested by
Date
MANOLO F. CHUA
Approved by
Date

RECEIVING REPORT
Purchase Order No. :
00-2-134
From: UNIVERSAL HOME BUILDERS

QUANTITY
300
200
DESCRIPTION
Angle Iron
Abrasive blades
Freight Charge:
TOTALS:
RECEIVED
By:
GERRY S. VELORA
PRICE
165.00
85.00
AMOUNT
49,500.00
17,000.00
66,500.00
Date Received: 02/18/14
02/15/14
02/15/14

PURCHASE ORDER
Ground Fl oor, The Columbia Tower,
NO. 00-2-134
A.S. Fortuna Street, Mandaue City, Cebu
VENDOR
SHIP TO
HJR Builders
Date of Order
Global Home Depot
Required by Date Requisition Date Terms
02/16/14
F.O.B.
Budget Code
02/15/14
Description
Item No. Quantity
300
Angle Iron
200
Abrasive blades
Unit Price
165.00
85.00
TOTAL AMOUNT
Amount
49,500.00
17,000.00
66,500.00
OTHER INSTRUCTIONS
MANOLO F. CHUA
Purchasing Officer
Date:
02/16/14
HJR BUILDERS
INVOICE
Osmena Blvd., Cebu City

(032) 567-7890
INVOICE NO. 454589-54445

DATE:02/18/2014
Ship To:
Bill To:
Ground Floor, The Columbia Tower,
SALESPERSON P.O. NUMBER DATE SHIPPED

00-2-134
Quantity
300
200
Description
Angle Iron
Abrasive blades
SHIPPED VIA
F.O.B. POINT
TERMS
Unit Price
165.00
85.00
Amount
49,500.00
17,000.00
SUB TOTAL
TAX
59,375.00
7,125.00
TOTAL DUE
66,500.00

No. 000-4-87236
VENDOR
SHIP TO
SOUTH HOME DEPOT
Requisition Date Required by Date
Global Home Depot
Instructions
Budget Code
04/26/14
Item No.
Quantity
Description
100
Float Pans
300
Rebar Clutter
20
Plastic high chair

30.00
25.00
1,500.00
Amount
3,000.00
7,500.00
30,000.00
TOTAL AMOUNT
40,500.00
GERRY S. VELORA
Requested by
Date
04/26/14
MANOLO F. CHUA
Approved by
Date
04/26/14

PURCHASE ORDER
NO. 00-4-134
VENDOR
SHIP TO
SOUTH HOME DEPOT
Global Home Depot
Date of Order Required by Date Requisition Date Terms

04/27/14
F.O.B.
Budget Code
04/26/14
Description
Item No. Quantity
100
Float Pans
300
Rebar Clutter
20
Plastic high chair
Unit Price
30.00
25.00
1500.00
Amount
3,000.00
7,500.00
30,000.00
TOTAL AMOUNT
OTHER INSTRUCTIONS
MANOLO F. CHUA
Purchasing Officer
Date:
04/27/14

RECEIVING REPORT
00-4-134

QUANTITY
100
300
20
DESCRIPTION
Float Pans
Rebar Clutter
Plastic high chair
Freight Charge:
TOTALS:
RECEIVED
By:
GERRY S. VELORA
PRICE
30.00
25.00
1500.00
AMOUNT
3,000.00
7,500.00
30,000.00
40,500.00
40,500.00
SOUTH HOME DEPOT
INVOICE
Poblacion, Talisay, Cebu

(032) 431-5609
INVOICE NO. 3457-441952

DATE:04/30/2014
Ship To:
Bill To:
SALESPERSON P.O. NUMBER DATE SHIPPED SHIPPED VIA

00-4-134
Quantity
100
300
20
Description
Float Pans
Rebar Clutter
Plastic high chair
F.O.B. POINT
Unit Price
30.00
25.00
1,500.00
TERMS
Amount
3,000.00
7,500.00
30,000.00
SUB TOTAL 36,160.71

TAX 4,339.29
TOTAL DUE
40,500.00

No. 000-5-97236
VENDOR
SHIP TO
UNIVERSAL HOME BUILDERS
Global Home Depot
Instructions
Budget Code
05/10/14
Quantity
Description
200
Felker Diamond Blades
300
Abrasive Blades
50
Cup Stones
Item No.

60.00
40.00
50.00
Amount
12,000.00
12,000.00
2,500.00
TOTAL AMOUNT
26,500.00
GERRY S. VELORA
Requested by
Date
MANOLO F. CHUA
Approved by
Date
05/10/14
05/10/14

PURCHASE ORDER
NO. 00-5-131
VENDOR
SHIP TO
Global Home Depot

05/11/14
F.O.B.
Budget Code
05/10/14
Description
Item No. Quantity
200
300
Abrasive Blades
50
Cup Stones
Unit Price
60.00
40.00
50.00
TOTAL AMOUNT
OTHER INSTRUCTIONS
MANOLO F. CHUA
Purchasing Officer
Date:
05/11/14
Amount
12,000.00
12,000.00
2,500.00
26,500.00

RECEIVING REPORT
00-5-131

QUANTITY
200
300
50
DESCRIPTION
Abrasive Blades
Cup Stones
Freight Charge:
TOTALS:
RECEIVED
By:
PRICE
AMOUNT
60.00
40.00
50.00
12,000.00
12,000.00
2,500.00
26,500.00
GERRY S. VELORA
INVOICE
Borromeo St., Cebu City

(032) 555-5555
INVOICE NO. 852122-12455

DATE:05/15/2014
Ship To:
Bill To:

00-5-131
Quantity
200
300
50
Description
Abrasive Blades
Cup Stones
SHIPPED VIA
F.O.B. POINT
Unit Price
60.00
40.00
50.00
SUB TOTAL
TAX
TOTAL DUE
TERMS
Amount
12,000.00
12,000.00
2,500.00
23,660.71
2,839.29
26,500.00

No. 000-8-97136
VENDOR
SHIP TO
SOUTH HOME DEPOT
Global Home Depot
Instructions
Budget Code
08/03/14
Item No.
Quantity
Description
150
Float Pans
250
Rebar Clutter
45
Plastic high chair

30.00
25.00
1,500.00
Amount
4,500.00
6,250.00
67,500.00
TOTAL AMOUNT
78,250.00
GERRY S. VELORA
Requested by
08/03/14
Date
MANOLO F. CHUA
Approved by
Date
08/03/14

PURCHASE ORDER
NO. 00-8-831
VENDOR
SHIP TO
SOUTH HOME DEPOT
Global Home Depot

08/04/14
F.O.B.
Budget Code
08/03/14
Description
Item No. Quantity
150
Float Pans
250
Rebar Clutter
45
Plastic high chair
Unit Price
30.00
25.00
1500.00
Amount
4,500.00
6,250.00
67,500.00
TOTAL AMOUNT
OTHER INSTRUCTIONS
MANOLO F. CHUA
Purchasing Officer
Date:
08/04/14

RECEIVING REPORT
00-8-831

QUANTITY
150
250
45
DESCRIPTION
Float Pans
Rebar Clutter
Plastic high chair
Freight Charge:
TOTALS:
RECEIVED
By:
GERRY S. VELORA
PRICE
30.00
25.00
1500.00
AMOUNT
4,500.00
6,250.00
67,500.00
78,250.00
78,250.00
SOUTH HOME DEPOT
INVOICE
Poblacion, Talisay, Cebu

(032) 431-5609
INVOICE NO. 852122-12411

DATE:09/09/2014
Ship To:
Bill To:
SALESPERSON P.O. NUMBER DATE SHIPPED SHIPPED VIA

00-8-831
Quantity
150
250
45
Description
Float Pans
Rebar Clutter
Plastic high chair
F.O.B. POINT
Unit Price
30.00
25.00
1,500.00
SUB TOTAL
TAX
TOTAL DUE
TERMS
Amount
4,500.00
6,250.00
67,500.00
69,866.07
8,383.93
78,250.00

No. 000-9-24134
VENDOR
SHIP TO
HJR BUILDERS
Global Home Depot
Instructions
Budget Code
09/24/14
Item No.
Quantity
Description
100
Angle Iron
200
Abrasive blades

165.00
85.00
Amount
16,500.00
17,000.00
TOTAL AMOUNT
33,500.00
GERRY S. VELORA
Requested by
Date
MANOLO F. CHUA
Approved by
Date
09/24/14
09/24/14

PURCHASE ORDER
NO. 00-9-241
VENDOR
SHIP TO
HJR BUILDERS
Global Home Depot

09/25/14
F.O.B.
Budget Code
09/24/14
Description
Item No. Quantity
100
Angle Iron
200
Abrasive blades
Unit Price
165.00
85.00
TOTAL AMOUNT
OTHER INSTRUCTIONS
MANOLO F. CHUA
Purchasing Officer
Date:
09/25/14
Amount
16,500.00
17,000.00
33,500.00

RECEIVING REPORT
00-9-241

QUANTITY
100
200
DESCRIPTION
Angle Iron
Abrasive blades
Freight Charge:
TOTALS:
RECEIVED
By:
PRICE
AMOUNT
165.00
85.00
16,500.00
17,000.00
33,500.00
GERRY S. VELORA
HJR BUILDERS
INVOICE
Osmena Blvd., Cebu City

(032) 567-7890
INVOICE NO. 454589-54434

DATE:09/09/2014
Ship To:
Bill To:

00-9-241
Quantity
100
200
Description
Angle Iron
Abrasive blades
SHIPPED VIA
F.O.B. POINT
Unit Price
165.00
85.00
SUB TOTAL
TAX
TOTAL DUE
TERMS
Amount
16,500.00
17,000.00
29,910.71
3,589.29
33,500.00
RECEIPTS TEST OF CONTROLS
Sales Order
Customer Name
Address
City
Ship to Address
City
Special Instructions
Item Number
Cebu City Government
Date 05/26/14 Phone
State
ZIP
State
ZIP
Description
Tissue Holder
Bathroom Sink
Quantity
200
215
Unit Price
45.00
27.91
Gross Total
Tax
Shipping
Labor
Total Due
Extended Price
9,000.00
6,000.00
13,392.86
1,607.14
15,000.00
Order Taken by
Bill of Lading

No. 00005284
Name
Date
Dept
Number
of
Packages
FROM
05/28/14
Acct
Kind of Package
Description of Articles
Special Marks, and Exceptions
Tissue Holder
Bathroom Sink
Name
Company
Street
City, State
Zip Code
Weight
(Subject
to Change)
TO
Serial Numbers
INVOICE
No. 10005284

Sold To:
Bill To:
Customer

Date
03/21/14
Quantity
200 Tissue Holder
215 Bathroom Sink
In payment of Invoice(s)
Amount
No.
10005284
P
15,000.00
Terms
Description
P.O. Number
Unit Price
45.00
27.91
Amount
9,000.00
6,000.00
SUB TOTAL
TAX
13,392.86
1,607.14
TOTAL DUE
15,000.00

TIN - 020-156-885-736 NV
OFFICIAL RECEIPT
TOTAL
P
CASH
BANK/CHECK NO
15,000.00
15,000.00
13,392.86
1,607.14
15,000.00
042-114
04/21/14
Received from
Address
the sum of Fifteen thousand pesos only
(P 15,000.00 ) in full/partial of
merchandise ordered.
50 Bklts. 001.2,500
SUB-TOTAL P
TAX
TOTAL DUE P
NO.
Date
Permit No. RD2-02-093 NV 2-3-99

Printed by: Lacosta Printing Press
Tagudin, Cebu City
Christine D. Lapinid
Signature
Sales Order
Customer Name
Address
City
Ship to Address
City
Item Number
Mandaue City
Date 01/15/14 Phone

State
ZIP
State
ZIP
Description
Angle Iron (Rolled Angles)
Angle Iron (Flat Angles)
Quantity
300
250
Unit Price
20.00
16.00
Gross Total
Tax
Shipping
Labor
Total Due
Extended Price
6,000.00
4,000.00
8,928.57
1,071.43
10,000.00
Order Taken by
Bill of Lading

No. 00001291
Name
Date
Dept
Number
of
Packages
FROM
01/17/14
Acct
Kind of Package
Angle Iron (Flat Angles)
Name
Company
Street
City, State
Zip Code
Weight
(Subject
to Change)
TO
Mandaue City
Serial Numbers
Sold To:
Bill To:
Customer
Mandaue City
Date
01/19/14
Terms
Description
Quantity
300 Angle Iron (Rolled Angles)
250 Angle Iron (Flat Angles)
Amount
No.
10001291
P
10,000.00
P.O. Number
Unit Price
20.00
16.00
Amount
6,000.00
4,000.00
SUB TOTAL
TAX
8,928.57
1,071.43
TOTAL DUE
10,000.00

TIN - 020-156-885-736 NV
OFFICIAL RECEIPT
TOTAL
P
CASH
BANK/CHECK NO
10,000.00
10,000.00
SUB-TOTAL P
TAX
TOTAL DUE P
8,928.57
1,071.43
10,000.00
NO.
Date
021-914
02/19/14
Received from
Mandaue City
Address
the sum of Ten thousand pesos only
50 Bklts. 001.2,500
Permit No. RD2-02-093 NV 2-3-99

Tagudin, Cebu City
Signature
Sales Order
Customer Name
Address
City
Ship to Address
City
Item Number
Global Holidays
Date 06/03/14 Phone

State
ZIP
State
ZIP
Description
Backer Rod - Poli Void
Backer Rod - Denver Foam
Quantity
193
209
Unit Price
77.72
47.85
Gross Total
Tax
Shipping
Labor
Total Due
Extended Price
15,000.00
10,000.00
22,321.43
2,678.57
25,000.00
Order Taken by
Bill of Lading

No. 00006054
Name
Date
Dept
Number
of
Packages
FROM
06/05/14
Acct
Kind of Package
Backer Rod - Denver Foam
Name
Company
Street
City, State
Zip Code
Weight
(Subject
to Change)
TO
Global Holidays
Serial Numbers
INVOICE
No. 10006054

Sold To:
Bill To:
Customer
Global Holidays
Date
06/07/14
Terms
Description
Quantity
193 Backer Rod - Poli Void
209 Backer Rod - Denver Foam
Amount
No.
10006054
P
25,000.00
P.O. Number
Unit Price
77.72
47.85
Amount
15,000.00
10,000.00
SUB TOTAL
TAX
22,321.43
2,678.57
TOTAL DUE
25,000.00

TIN - 020-156-885-736 NV
OFFICIAL RECEIPT
TOTAL
P
CASH
BANK/CHECK NO
25,000.00
25,000.00
22,321.43
2,678.57
25,000.00
070-714
07/07/14
Received from
Global Holidays
Address
the sum of Twenty thousand pesos only
50 Bklts. 001.2,500
SUB-TOTAL P
TAX
TOTAL DUE P
NO.
Date
Permit No. RD2-02-093 NV 2-3-99

Tagudin, Cebu City
Signature
Sales Order
Customer Name
Address
City
Ship to Address
City
Item Number
Edana Costruction
Date 08/13/14 Phone
State
ZIP
State
ZIP
Description
Cup Stones
Penn Sand (White)
Quantity
213
321
Unit Price
56.34
24.92
Gross Total
Tax
Shipping
Labor
Total Due
Extended Price
12,000.00
8,000.00
17,857.14
2,142.86
20,000.00
Order Taken by
Bill of Lading

No. 00008154
Name
Date
Dept
Number
of
Packages
FROM
08/15/14
Acct
Kind of Package
Cup Stones
Penn Sand (White)
Name
Company
Street
City, State
Zip Code
Weight
(Subject
to Change)
TO
Edana Costruction
Serial Numbers
INVOICE
No. 10008154

Sold To:
Bill To:
Customer
Edana Costruction
Date
08/17/14
Terms
Description
Quantity
213 Cup Stones
321 Penn Sand (White)
Amount
No.
10008154
P
20,000.00
P.O. Number
Unit Price
56.34
24.92
Amount
12,000.00
8,000.00
SUB TOTAL
TAX
17,857.14
2,142.86
TOTAL DUE
20,000.00

TIN - 020-156-885-736 NV
OFFICIAL RECEIPT
TOTAL
P
CASH
BANK/CHECK NO
20,000.00
20,000.00
17,857.14
2,142.86
20,000.00
091-714
09/17/14
Received from
Edana Costruction
Address
the sum of Twenty thousand pesos only
50 Bklts. 001.2,500
SUB-TOTAL P
TAX
TOTAL DUE P
NO.
Date
Permit No. RD2-02-093 NV 2-3-99

Tagudin, Cebu City
Signature
Sales Order
Customer Name
Address
City
Ship to Address
City
Item Number
AST Builders
Date 03/17/14 Phone

State
ZIP
State
ZIP
Description
Stainless Hinge (Ruby)
Stainless Hinge (Gold)
Quantity
225
200
Unit Price
80.00
60.00
Gross Total
Tax
Shipping
Labor
Total Due
Extended Price
18,000.00
12,000.00
26,785.71
3,214.29
30,000.00
Order Taken by
Bill of Lading

No. 00003194
Name
Date
Dept
Number
of
Packages
FROM
03/19/14
Acct
Kind of Package
Stainless Hinge (Ruby)
Stainless Hinge (Gold)
Name
Company
Street
City, State
Zip Code
Weight
(Subject
to Change)
TO
AST Builders
Serial Numbers
INVOICE
No. 10003194

Sold To:
Bill To:
Customer
AST Builders
Date
03/21/14
Terms
Description
Quantity
225 Stainless Hinge (Ruby)
200 Stainless Hinge (Gold)
Amount
No.
10006054
P
30,000.00
P.O. Number
Unit Price
80.00
60.00
Amount
18,000.00
12,000.00
SUB TOTAL
TAX
26,785.71
3,214.29
TOTAL DUE
30,000.00

TIN - 020-156-885-736 NV
OFFICIAL RECEIPT
TOTAL
P
CASH
BANK/CHECK NO
30,000.00
30,000.00
26,785.71
3,214.29
30,000.00
042-114
04/21/14
Received from
AST Builders
Address
the sum of Thirty thousand pesos only
50 Bklts. 001.2,500
SUB-TOTAL P
TAX
TOTAL DUE P
NO.
Date
Permit No. RD2-02-093 NV 2-3-99

Tagudin, Cebu City
Signature
DEPOSIT SLIP
DEPOSIT SLIP
BPI
(Bank's Copy)
PLEASE CHECK THE APPROPRIATE BOXES
DATE:
____X__ DEPOSIT ______ PAYMENT

_______ SAVINGS
_______ CURRENT
ACCOUNT NUMBER
DEPOSITOR'S NAME
April 21, 2014
CURRENCY
__X_ PESO ___ US DOLLAR
2
___ OTHERS
4
TYPE OF DEPOSIT
AMOUNTS
CASH
CHECK (S)
TOTAL DEPOSITS
1
1
5
5
0
0
0
0
0
0
0
0
0
0
TELLER'S VALIDATION
Angie C. Bucos
VALIDATED:
TELLER 1
DEPOSIT SLIP
BPI
(Bank's Copy)
PLEASE CHECK THE APPROPRIATE BOXES
DATE:
___X___ DEPOSIT ______ PAYMENT

_______ SAVINGS
_______ CURRENT
ACCOUNT NUMBER
DEPOSITOR'S NAME
March 21, 1014
CURRENCY
_X__ PESO ___ US DOLLAR
2
___ OTHERS
4
TYPE OF DEPOSIT
AMOUNTS
CASH
CHECK (S)
TOTAL DEPOSITS
3
3
TELLER'S VALIDATION
VALIDATED:
Angel M. Gio
Teller 3
0
0
0
0
0
0
0
0
0
0
0
0
The clients provided you with s unadjusted trial balance for the year ended December 31, 2014.
Global Home Depot, Inc.

Trial Balance
December 31, 2014
Cash in Bank
Petty Cash Fund
Change Fund
BSP Treasury Bills
BDO Time Deposit
Trading Securities
Accounts Receivable
Allowance for Doubtful Accounts
Advances to Suppliers
Advances to Employees
Inventory
Prepaid Taxes
Office Furnitures and Fixtures
Accumulated Depreciation - Office Furnitures and
Fixtures
Office Equipment
Accumulated Depreciation - Office Equipment
Delivery Truck
Accumulated Depreciation - Delivery Truck
Leasehold Improvements
Accumulated Depreciation - Leasehold Improvements
Bond Sinking Fund
Building Construction Fund
Accounts Payable - South Home Depot
Accounts Payable - HJR Builders
Accounts Payable - Universal Home Builders
Accrued Expenses
SSS Contributions Payable
Pag-IBIG Contributions Payable
Income Tax Payable
PHIC Contributions Payable
Loans Payable
Bonds Payable
Paid-up Capital
Accumulated Earnings
Sales
Sales Return
Purchases
Purchase Returns
Interest Income
Miscellaneous Income
Debit
885,670.75
20,000.00
10,000.00
50,000.00
65,000.00
10,000.00
650,723.75
Credit
25,504.00
43,458.50
6,200.00
544,279.75
1,248.50
145,752.00
35,426.50
231,489.75
56,478.25
350,248.00
89,652.25
15,426.00
5,764.00
120,000.00
150,000.00
132,625.75
102,745.50
161,431.75
105,482.50
9,963.25
5,000.00
12,548.00
10,489.50
85,465.50
150,000.00
2,500,000.00
125,438.50
6,428,655.25
15,623.50
5,654,328.25
12,548.50
8,245.50
23,615.00
SSS Contributions
Pag-IBIG Contributions Payable
PHIC Contributions
Rent Expense
Interest Expense
Salaries and Wages
Advertising
Depreciation
13th Month Pay
Doubtful Accounts Expense
Taxes and Licenses
Supplies Expense
Christmas Party
Representations
Meetings/Seminars
Utilities
Transportation
Repairs and Maintenance
Insurance
Communications
Income Tax Expense
Audit Fees
Miscellaneous Expenses
119,559.00
60,000.00
125,874.00
120,000.00
30,200.75
260,525.50
13,652.50
15,863.50
30,043.75
3,856.25
11,105.50
15,569.00
32,402.00
5,500.00
75,642.50
26,580.75
18,245.25
25,258.50
24,548.75
16,569.25
36,598.75
24,245.50
25,789.75
10,087,079.50
10,087,079.50
You started your substantive testing with the following accounts:

CASH AND CASH EQUIVALENTS
The following are composition of cash and cash equivalent:

Cash in bank Metrobank Account #1508-9456-15
256,389.50
Cash in bank BPI Account # 1647-9845-12
489,622.00
Cash in Bank BPI Account # 1572-1896-14
14,659.25
Savings Account BDO Account # 1896-7589-24
125,000
Petty Cash Fund
20,000
Change Fund
10,000
Total
915,670.75
As your part of your audit procedure, you sent confirmation letters requesting the banks for the
balances of the cash account of the client. Attached below are the replies of the bank. You have obtained the
following information upon performing necessary procedure.
1. Metrobank per confirmation reply discloses the following balances:

Account No. 1508-9456-15
Account No. 1508-9456-16
272,169.50
100,000.00
Per audit, account # 1508-9456-16 pertains to a note collected by the bank, proceeds of which per company
instruction is deposited under 90-day time deposit.
2. Bank of the Philippine Islands did not reply to the confirmation letter. As a part of your alternative audit
procedure you have obtained the bank statement.
3. BDO, per confirmation, disclosed the balance of the savings account amounting to P 125,000.00. However,
you have inquired with the client regarding the Savings Account in BDO and you found out that this account
was set aside for the future acquisition of land for building construction.
Metrobank
Account # 1508-9456-15 (Global Home Depot, Inc.)
Bank Statement
December 31, 2014
Date
Charges
Deposits
Nov. 30
Dec.
Balances
162,839.50
1
2
20,000
182,839.50
10,240
520 (BSC)
11
1,550 (BE)
15
150 (DM)
172,079.50
65,000
235,529.50
235,379.50
18
16,000
19,300
238,679.50
24
21,560
60,000
277,119.50
25
2,870
10,000
284,249.50
28
8,450
275,799.50
31
3,630 (DM)
272,169.50
NSF checks:
BE- Bank Error
#634- P 1,000
BSC-Bank Service Charge
#636- P 1,500
DM- Debit Memo
A deposit of P 20,000 on December 1, 2014 is a collection from other Company credited in the
Companys account.
A charge of P 1,550 on December 11, 2014 is a payment of account for other company charged in the
companys account.
The only reconciling item for November 2014 is the note collected in November amounting to P1,630.
BPI
Account # 1647-9845-12 (Global Home Depot, Inc.)
Bank Statement
December 31, 2014
Date
Dec.
Deposit
1
Withdrawal
Amount
218,000
218,000.00
2,000
216,000.00
1,378
217,378.00
32,250
249,628.00
253.75
BSC
249,374.25
10
21,000
270,374.25
13
9,000
279,347.25
15
18
5,246.25
100,000
20
NSF
274,128.00
374,128.00
2,500
371,628.00
25
50,000
421,628.00
28
50,000
471,628.00
BPI
Account #1572-1896-24 (Global Home Depot, Inc.)
Bank Statement
December 31, 2014
Date
Deposits
Nov.
30
Dec.
Charges
15,259.25
1,340.75
16,600.00
8,231.00
15
3,500.00
24
1,500.00
543.50
2,456.50
29
600.00
3,000.00
8,369.00
BSC
11,325.50
12,825.50
26
31
Balances
DM
10,369.00
BSC
9,769.00
12,769.00
The following are receipts and disbursement recorded by the client during for the month of December 2014.
Metrobank Account #1508-9456-15
Cash Receipts Book

Date
Amount
November 31
164,469.50
December 11
65,000.00
18
19,300.00
24
60,000.00
25
10,000.00
Cash Disbursements Book

Date
Check No.
Amount
Dec 2
634
1,000.00
635
10,240.00
14
636
1,500.00
18
637
16,000.00
18
638
21,560.00
28
639
8,450.00
31
640
3,630.00
BPI Account #1647-9845-12
CASH RECEIPTS AND DISBURSEMENTS JOURNAL

Date
Dec.
Receipts
1
Disbursement
218,000.00
Balances
218,000
2,000.00
216,000
5,156.00
221,156
32,250.00
253,406
25,000.00
278,406
10
21,000.00
299,406
11
18
8,500.00
290,906
100,000.00
390,906
50,000.00
440,906
50,000.00
490,906
1,284.00
489,622
BPI Account # 1572-1896-14

BOOK RECEIPTS AND DISBURSEMENT
Date
Receipts
Disbursement
Balances
Nov.
30
15,259.25
Dec.
3,000.00
12,259.25
5,000.00
7,259.25
15
3,500.00
10,759.25
24
1,500.00
12,259.25
29
31
600.00 BSC
3,000.00
11,659.25
14,659.25
CASH EQUIVALENT
Date Acquired
Maturity Date
Amount
BSP Treasury Bill 1
12/10/14
01/10/15
25,000
BSP Treasury Bill 2
11/21/14
05/21/15
15,000
BSP Treasury Bill 3
12/31/14
03/31/15
10,000
Total
50,000
BDO Time Deposit
12/31/14
03/31/15
65,000
You also conducted a surprise count on the cash on hand of the client. The client was represented by its
custodian, Angelica Tampos. The custodian made available to you the bills, coins, checks, advances and
unreplenished petty cash vouchers. The following were found in the petty cash box upon conducting a cash
count of the petty cash fund at 10:00am on January 17, 2015.
BILLS:
15 hundreds, 20 fifties
COINS:
P
0.25
50 rolls and 16 loose (12 pieces to a roll) 154
0.50
10
CHECKS:
Maker
Date
Amount
AST Builders
12-24-14
1,970.00
Cebu Bionic Builders
12-22-14
5,000.00
John F. Go, Manager
12-21-14
3,500.00
Global Holidays
12-20-14
1,350.00
UNUSED STAMPS:
50 three-peso stamps
UNREPLENISHED PETTY CASH VOUCHER
December
11
#110 Freight bill on merchandise purchased
1,500.00
29
#111 Miscellaneous expense
500.00
31
#112 Advances to employees
2,000.00
Further investigation also disclosed that the cash sales of January 2, 2015 amounted to 1,180 as shown by the
sales records while the Cash Receipts Books and the Bank Deposit Slip showed only 980 was deposited in the
bank of January 3, 2015. The petty cash fund has an imprest balance of 20,000. You also found that the pay
envelopes of the following were marked Unclaimed, opened and empty.
A. Del Rosario
500.00
B. Lozano
1,500.00
The company has also established a change fund amounting to P 10,000.00.
BANK CONFIRMATION LETTER AND BANK REPLY
January 21, 2015
Reply:
Account Number
Type of Account
Account Balance
1896-7589-24
Savings Account
P 125,000.00
Remarks
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 or its officers.
_________________
The Manager
Banco de Oro
Jakosalem St., Cebu City
January 22, 2015
Reply:
Account Number
Type of Account
Account Balance
1508-9456-15
Checking Account
P 272,169.50
1508-9456-16
Checking Account
P 100,000.00
Remarks
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 or its officers.
_________________
The Manager
Metrobank
Magallanes St., Cebu City
ACCOUNTS RECEIVABLE
The Accounts Receivable subsidiary ledger of Global Home Depot, Inc. shows the beginning balances with the
total debits and credits for the year ended December 31, 2014.
Mandaue City
Debit
Beginning Balance
Credit Sales
Payments
Credit
140,000.00
Balance
112,022.00
347,249.50
207,249.50
65,000.00
65,668.00
101,418.00
36,418.00
100,000.00
84,220.00
206,694.50
106,694.50
110,000.00
31,596.00
278,539.25
168,539.25
100,000.00
44,038.00
156,261.50
56,261.50
30,000.00
38,049.00
105,561.00
75,561.00
235,227.50

Beginning Balance
Credit Sales
Payments
35,750.00
AST Builders
Beginning Balance
Credit Sales
Payments
122,474.50
Cebu Bionic Builders

Beginning Balance
Credit Sales
Payments
246,943.25
Edana Construction
Beginning Balance
Credit Sales
Payments
112,223.50
Global Holidays
Beginning Balance
Credit Sales
Payments
67,512.00
You sent confirmation letters to the following customers: Mandaue City Government, AST Builders, Cebu
Bionic Builders and Global Holidays.
Audit Findings:
1. Merchandise ordered by Mandaue City Government amounting to P 8,000.00 was shipped on December 27,
2014 and received on January 6, 2015. The term is FOB Shipping Point.
2. AST Builders did not reply on the confirmation letter sent.
3. Global Holidays returned merchandise amounted to P 5,500.00 on December 31, 2014 because it was not
the item ordered. The client failed to record the returned merchandise.
In order to ascertain the existence of the receivable from AST Builders, you vouched the subsequent payments
made by AST Builders early in 2015. You have gathered the official receipt and the source documents for
these transactions (shown on the next page).
A provision of 5% of the adjusted Accounts Receivable balance is to be made at year-end.
Amount
No.
001-500-06
P
6,035.85

TIN - 020-156-885-736 NV
OFFICIAL RECEIPT
TOTAL
P
CASH
P
BANK/CHECK NO
6,035.85
6,035.85
NO.
5673
Date
8/14/2014
Received from
AST Builders
Address
the sum of
Six thousand thirty-five and 85/100 pesos
the merchandise ordered
50 Bklts. 001.2,500
Permit No. RD2-02-093 NV 2-3-99
SUB-TOTAL P
TAX
TOTAL DUE P
6,035.85
724.30
6,760.15
Signature
Tagudin, Cebu City
No.
Amount
001-500-15
P
21,547.50
TIN - 020-156-885-736 NV
OFFICIAL RECEIPT
TOTAL
P
CASH
P
BANK/CHECK NO
NO.
Date
5678
10/25/2014
Received from
AST Builders
Address
the
Twenty-four
sum of one hundred thirty-three
21,547.50
and 20/100 pesos
21,547.50 merchandise ordered.
50 Bklts. 001.2,500
Permit No. RD2-02-093 NV 2-3-99
SUB-TOTAL P
TAX
TOTAL DUE P
21,547.50
2,585.70
24,133.20
Amount
No.
001-500-25
P
17,575.62
Signature
Tagudin, Cebu City

TIN - 020-156-885-736 NV
OFFICIAL RECEIPT
TOTAL
P
CASH
BANK/CHECK NO
BPI 000568
P
17,575.62
17,575.62
NO.
5670
Date
11/1/2014
Received from
AST Builders
Address
the sum of
Nineteen thousand six hundred eighty-four
and 69/100
50 Bklts. 001.2,500
Permit No. RD2-02-093 NV 2-3-99

SUB-TOTAL P
TAX
TOTAL DUE P
17,575.62
2,109.07
19,684.69
Tagudin, Cebu City
Signature
Sales Order Form

Customer Name
AST Builders
Address
City
Cebu City
State
Ship to Address
City
Cebu City
State
Date 6/14/2014 Phone

Magallanes St.
ZIP
Magallanes St.
ZIP
Item Number
100010
Quantity
15
Description
Hinges
(032)253-7902
6000
6000
Unit Price
402.39
Extended Price
6,035.85
Gross Total
Tax
Shipping
Labor
Total Due
6,035.85
724.30
6,760.15
Order Taken by
Sales Order Form

Customer Name
AST Builders
Address
City
Cebu City
State
Ship to Address
City
Cebu City
State
Item Number
100015
100001
Description
Rebar Cutter
Plastic High Chair

Magallanes St.
ZIP
Magallanes St.
ZIP
Quantity
125
60
(032)253-7902
6000
6000
Unit Price
172.38
146.92
Gross Total
Tax
Shipping
Labor
Total Due
Extended Price
21,547.50
8,815.20
30,362.70
3,643.52
34,006.22
Order Taken by
Sales Order Form

Customer Name
AST Builders
Address
City
Cebu City
State
Ship to Address
City
Cebu City
State
Item Number Description

100009
Angle Iron
100021
Backer Rod-Poli Void
Order Taken by

Magallanes St.
ZIP
Magallanes St.
ZIP
Quantity
1
3
(032)253-7902
Unit Price
7,811.38
5858.54
Gross Total
Tax
Shipping
Labor
Total Due
6000
6000
Extended Price
7,811.38
17,575.62
25,387.00
3,046.44
28,433.44
Bill of Lading

No. 70001
Name
Date
Dept
Number
of
Packages
15
FROM
7/14/2014
Acct
Kind of Package
Hinges
Company
Street
City, State
Zip Code
Weight
(Subject
to Change)
TO
AST Builders
Magallanes St.
Cebu City
6000
Serial Numbers
Bill of Lading

No. 90001
Name
Date
Dept
Number
of
Packages
125
60
FROM
9/25/2014
Acct
Kind of Package
Rebar Cutter
Plastic High Chair
Company
Street
City, State
Zip Code
Weight
(Subject
to Change)
TO
AST Builders
Magallanes St.
Cebu City
6000
Serial Numbers
Bill of Lading

No. 90025
Name
Date
Dept
Number
of
Packages
1
3
FROM
9/25/2014
Acct
Kind of Package
Angle Iron
Backer Rod-Poli Void
Company
Street
City, State
Zip Code
Weight
(Subject
to Change)
TO
AST Builders
Magallanes St.
Cebu City
6000
Serial Numbers
INVOICE
No. 001-500-06

Sold To:
Bill To:
AST Builders
AST Builders
Date
7/14/2014
Quantity
15
Hinges
Description
Terms
SP
P.O. Number
Unit Price
402.39
Amount
6,035.85
SUB TOTAL
TAX
6,035.85
724.30
TOTAL DUE
6,760.15
INVOICE
No. 001-500-15

Sold To:
Bill To:
AST Builders
AST Builders
Date
9/25/2014
Quantity
Description
125
Rebar Cutter
60
Plastic High Chair
Terms
SP
P.O. Number
Unit Price
172.38
146.92
Amount
21,547.50
8,815.20
SUB TOTAL
TAX
30,362.70
3,643.52
TOTAL DUE
34,006.22
INVOICE
No. 001-500-25

Sold To:
Bill To:
AST Builders
AST Builders
Date
9/25/2014
Quantity
Description
1
Angle Iron
3
Terms
SP
P.O. Number
Unit Price
7,811.38
5,858.54
Amount
7,811.38
17,575.62
SUB TOTAL
TAX
25,387.00
3,046.44
TOTAL DUE
28,433.44
CONFIRMATION LETTER REPLY
January 15, 2015

To
Pili, CPA
SRV & Co. CPAs
The amount payable to Global Home Depot, Inc. per our records as of December 31, 2014 amounted
to P 199,249.50.
Name: Lindcy Erasan
Position: Treasurer
Company: Mandaue City Government
January 17, 2015

To
Pili, CPA
SRV & Co. CPAs
The amount due to Global Home Depot, Inc. shown above, P 168,539.25, as of December 31, 2014 is
correct.
Name: Victor Rama
Position: A/P Supervisor
Company: Cebu Bionic Builders
January 18, 2015

To
Pili, CPA
SRV & Co. CPAs
Global Home Depot, Inc.s amount receivable from us per our records as of December 31, 2014 is P
70,061.00.
Name: Marcelo Ramirez
Position: A/P Supervisor
Company: Global Holdings
INVENTORIES
INVENTORY COUNT PROCEDURES

Ascertain
that
receiving
and
OBSERVATIONS
shipping It was ascertained that the receiving and
departments are informed about appropriate shipping department are informed with the
cutoff procedures.
appropriate cutoff procedures.
Observe and note the clients practices and Obsolete inventories found at the warehouse
procedures
regarding
segregation
and department are properly set aside from the
identification of slow-moving, damaged, or count and was properly valued.

obsolete inventory.
Observe count teams and determine whether The inventory count was strictly observed and
the clients instructions and procedures are it was also ascertained that the clients
being properly followed.
instructions and procedures are being properly

followed.
Tour the shipping and receiving areas and The inventories that are still at the shipping
obtain
information
about
inventory
items department on hold upon the request of the
therein. Determine whether they should be customer are properly excluded as inventory
counted in or excluded from the inventory.
for the period.
As part of your audit procedure, in search for possible unrecorded and misstated amounts for any accounts
affected by transactions involving inventories, you conducted a cut-off test. In the course of your audit, you
noted the following unresolved issues as they may lead to additional adjustments to any possible accounts that
they may affect.
DECEMBER
Purchases
DECEMBER
Sales
FOB
D
D
S
S
FOB
D
D
S
S
COST
1,000.00
8,209.00
9,000.00
30,070.75
AMOUNT
25,769.00
4,000.00
7,100
40,000
DATE SHIPPED
12/23/2014
12/29/2014
12/25/2014
01/01/2015
DATE SHIPPED
12/22/2014
12/31/2014
12/25/2014
01/01/2015
Note: Gross profit is 20% based on sale
DATE RECEIVED
12/19/14 (11:02 AM)
01/02/15 (1:25 PM)
01/01/15 (7:20 AM)
01/05/15 (5:00 PM)
DATE RECEIVED
12/30/14 (10:35 AM)
01/03/15 (2:30 PM)
01/02/15 (9:45 AM)
01/03/2015(4:00 PM)
VENDOR
South Home Depot, Inc.
HJR Builders
Universal Home Builders
HJR Builders
CUSTOMER
Edana Construction
Global Holidays
AST Builders
Global Holidays
A surprise and thorough inspection was conducted and revealed the following information. These were not yet
taken into account.
Inventories costing P 102, 980.25 were found outside the warehouse of Global Home Depot. These
were included in the physical count, but excluded in the books. These inventories were subjected to
weather changes, making them unfit for sale.
Five boxes containing 50 pieces of inventories per box were found in the locker of an employee. These
were not counted during the previous physical count. A unit of inventory costs P 80.00.
Inventories costing P 480,007.00 where on its way to Edana Construction. They were shipped on
December 30, 2014 on FOB Shipping Point Terms. The sale was recorded and inventories were
excluded per books.
The audit team observed the inventory count on January 5, 2015, the result of the test count is as follows:
ITEM NAME
UNITS PER COUNT
UNIT COST
UNIT PER INVENTORY

LIST 12/31/14
Float Plans
72
270.00
93
Plastic High Chair
74
455.00
82
Rebar Clutter
95
200.00
95
Angle Iron (Cut to Size)
55
1,550.00
47
73
520.00
61
You have gathered these source documents to reconcile the difference:

HJR BUILDERS
INVOICE
Os mena Bl vd., Cebu Ci ty

(032) 567-7890
INVOICE NO. 11-24961-3

DATE: 02/14/14
Ship To:
Bill To:
Quantity
8
12
Description
Angle Iron (Cut to Size)
SHIPPED VIA
F.O.B. POINT
Unit Price
1,550.00
520.00
TERMS
Amount
12,400.00
6,240.00
SUB TOTAL
TAX
16,642.86
1,997.14
TOTAL DUE
18,640.00

INVOICE
No.
Sold To:
Bill To:
North Home Depot, Inc.
North Home Depot, Inc.

Date
Quantity
Description
21
Float Plans
8
Plastic High Chair
Terms
P.O. Number
Unit Price
270.00
455.00
Amount
5,670.00
3,640.00
SUB TOTAL
TAX
8,312.50
997.50
TOTAL DUE
9,310.00
Damaged glass bricks that are considered obsolete are valued at P 2,355.00 per December 31, 2014 were
discovered during the physical count. These items are still included in the inventory list but were omitted from
the physical count pending their write off.
Furthermore, the client prepared the summary presented below and gave it for verification.
ITEM NAME
QUANTITY
COST PER UNIT
NRV
Rebar Clutter
Plastic High Chair
160
55
7,890.00
70
59
3,950.00
Angle Iron
90
40
2,550.00
ACCRUALS
You examined the disbursements journal for any payments made by the company in early 2015 for possible
unrecorded liabilities for the year ended December 31, 2014. You have gathered the following vouchers paid
(shown on the next page).
CHECK VOUCHER
No.
Payee
Date
Amount
: VECO, INC.
: January 05, 2015
:
12,876.75
Description
001-0009
Payment of electric bill for the month of December 2014.
Journal entry :
Utilities expense
Cash in bank
12,876.75
12,876.75
CHECK VOUCHER
No.
Payee
Date
Amount
: GHJ Custodial Services

: January 03, 2015
:
850.00
Description
001-0008
Payment for one-time custodial service in Novermber 2014.
Journal entry :
Accrued expenses
Cash in bank
850.00
850.00
CHECK VOUCHER
No.
001-0012
Payee
Date
Amount
: South Pharmacy
: January 08, 2015
:
1,200.00
Description
:
Payment for purchases of medicines on January 3, 2015.
Journal entry :
Miscellaneous expense
Cash in bank
1,200.00
1,200.00
CHECK VOUCHER
No.
Payee
Date
Amount
: Ocampo and Cabrera Properties

: January 11, 2015
:
10,000.00
Description
001-0014
Payment for rental of chairs used in the Christmas party for 2014.
Journal entry :
Christmas party
10,000.00
Cash in bank
10,000.00
CHECK VOUCHER
No.
Payee
: June J. Agusto Enterprises
Date
: January 15, 2015
Amount
001-0016
125.00
.
Description
Payment for stubs.
Journal entry :
125.00
Cash in bank
125.00
CHECK VOUCHER
No.
001-0010
Payee
Date
Amount
:
:
:
Description
Largo and Co. Lawyers

January 6,2015
5,478.00
Payment for legal services in 2014.
Journal entry
:
Legal expenses
Cash in bank
5,478.00
5,478.00
CHECK VOUCHER
No.
001-0011
Payee
Date
Amount
:
:
:
Description
CVB Travel and Tours

January 07, 2015
2,310.50
Payment for travel expenses on January 5, 2015.
Journal entry
:
Travel Expenses
Cash in bank
2,310.50
2,310.50
CHECK VOUCHER
No.
001-0013
Payee
Date
Amount
:
:
:
Description
7-Eleven
January 09, 2015
2,150.00
Payment for snacks.
Journal entry
:
Cash in bank
2,150.00
2,150.00
CHECK VOUCHER
No.
001-0015
Payee
Date
Amount
:
:
:
Description
Condrado Valiks
January 12, 2015
250.25
Payment for purchases of cleaning materials in December 2014.
Journal entry
:
Utilities expense
Cash in bank
250.25
250.25
CHECK VOUCHER
No.
Payee
: Victory Supplies
Date
: January 25, 2015
Amount
001-0022
50.00
.
Description
Payment for pencils purchased.
Journal entry :
Cash in bank
50.00
50.00

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AUDITING PROBLEMS 1

Valuation of accounts receivable

Purchasing / Disbursement Cycle

Revenue / Receipts Cycle

e. Supporting documents are cancelled.

DISBURSEMENTS TEST OF CONTROLS

GLOBAL HOME DEPOT, INC.

Ground Fl oor, The Col umbi a Tower,

A.S. Fortuna Street, Mandaue Ci ty, Cebu

Global Home Depot

G.L. Account No. Unit Price

GLOBAL HOME DEPOT, INC.

From: UNIVERSAL HOME BUILDERS

Date Received: 02/18/14

GLOBAL HOME DEPOT, INC.

Ground Fl oor, The Columbia Tower,

A.S. Fortuna Street, Mandaue City, Cebu

Global Home Depot

Required by Date Requisition Date Terms

Osmena Blvd., Cebu City

INVOICE NO. 454589-54445

Ground Floor, The Columbia Tower,

Ground Floor, The Columbia Tower,

A.S. Fortuna Street, Mandaue City, Cebu

A.S. Fortuna Street, Mandaue City, Cebu

SALESPERSON P.O. NUMBER DATE SHIPPED

GLOBAL HOME DEPOT, INC.

Ground Floor, The Columbia Tower,

A.S. Fortuna Street, Mandaue City, Cebu

SOUTH HOME DEPOT

Requisition Date Required by Date

Global Home Depot

G.L. Account No. Unit Price

GLOBAL HOME DEPOT, INC.

Ground Floor, The Columbia Tower,

A.S. Fortuna Street, Mandaue City, Cebu

SOUTH HOME DEPOT

Global Home Depot

Date of Order Required by Date Requisition Date Terms

GLOBAL HOME DEPOT, INC.

From: UNIVERSAL HOME BUILDERS

Date Received: 04/28/14

SOUTH HOME DEPOT

Poblacion, Talisay, Cebu

INVOICE NO. 3457-441952

Ground Floor, The Columbia Tower,

Ground Floor, The Columbia Tower,

A.S. Fortuna Street, Mandaue City, Cebu

A.S. Fortuna Street, Mandaue City, Cebu

SALESPERSON P.O. NUMBER DATE SHIPPED SHIPPED VIA

SUB TOTAL 36,160.71

GLOBAL HOME DEPOT, INC.

Ground Floor, The Columbia Tower,

A.S. Fortuna Street, Mandaue City, Cebu

UNIVERSAL HOME BUILDERS

Global Home Depot

Requisition Date Required by Date

G.L. Account No. Unit Price

GLOBAL HOME DEPOT, INC.

Ground Floor, The Columbia Tower,

A.S. Fortuna Street, Mandaue City, Cebu

UNIVERSAL HOME BUILDERS

Global Home Depot

Date of Order Required by Date Requisition Date Terms