Description
Scenario: Daisey Company is a very profitable small business. It has not, however given much consideration to internal control. For example, in an attempt to keep clerical and office expenses to a minimum, the company has combined the jobs of cashier and book-keeper. As a result, Bret Turrin handles all cash receipts, keeps the accounting records, and prepares the monthly bank reconciliations. The balance per the bank statement on October 31, 2017, was $18,380. Outstanding checks were No. 62 for $140.75, No. 183 for $180, No. 284 for $253.25, No. 862 for $190.71, No. 863 for $226.80, and No. 864 for $165.28. Included with the statement was a credit memorandum of $185 indicating the collection of a note receivable for Daisey Company by the bank on October 25. This memorandum has not been recorded by Daisey. The company's ledger showed one Cash account with a balance of $21,877.72. The balance included undepositied cash on hand. Because of the lack of internal controls, Bret took for personal use all of the undeposited receipts in excess of $3,795.51. He then prepared the following bank reconciliation in an effort to conceal his theft of cash: Cash balance per books, October 31 $21,877.72 Add: Outstanding checks No. 862 $190.71 No. 863 226.80 No. 864 165.28 482.79 22,360.51 Less: Undeposited receipts 3,795.51 Unadjusted balance per bank, October 31 18,565.00 Less: Bank credit memorandum 185.00 Cash balance per bank statement, October 31 $18,380.00 Prepare a 1,050-word bank reconciliation report (hint: deduct the amount of the theft from the adjusted balance per books) including the following: Indicate the three ways that Bret attempted to conceal the theft and the dollar amount involved in each method. What principles of internal control were violated in this case? Show all work in the Excel® spreadsheet and submit with the reconciliation report.
Explanation & Answer
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Daisey Company
Bank reconciliation
31-Oct
$
Balance per bank statement
Plus: Undeposited receipts
Less: Outstanding checks
No
62
183
284
862
863
864
Adjusted balance per bank
Cash balance per books
Add: Bank credit memorandum
Adjusted balance per books (before theft)
Less: Theft ($22,062.72 – $21,018.72)
Adjusted balance per books
18.380
3795,51
22.175,51
140,75
180
253,25
190,71
226,8
165,28
1156,79
21.018,72
21.877,72
185
22.062,72
1044
21.018,72
A. Bank reconciliation
In the books of Daisey Company money received and paid out are recorded in the bank columns
of the cashbook. The same time the bank will be recording the flow of cash in and out of the
business account. If all transactions entered in the cash book are the same with those records kept
by the bank the balances of cashbook and business bank account would be the same. This is not a
normal situation since sometimes items are paid through the current account and not recorded in
the cashbook. To confirm whether books of accounts have reconciled Bret Turrin should
compare the cashbook entries and balances held by the bank. The bank regularly sends a bank
statement and as the accounts clerk he should keep up to date reconciliation statement. For
proper monthly reconciliation, Bret Turrin should keep updated records and follow the...
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