Description
Purpose of Assignment
Reconciling bank accounts is a good way to help maintain internal controls over cash. With time lags and posting errors it is easy for cash transactions to be omitted, recorded in a different accounting period, or reflect incorrect amounts. This assignment with give you practical experience in reconciling the cash balance as noted on the company books to the bank's records.
Assignment Steps
Resources: Financial Accounting: Tools for Business Decision Making
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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Comprehensive bank reconciliation
Daisey bank reconciliation
Name of Student
Name of Professor
Course Title
Date Submitted
Comprehensive bank reconciliation
The books of Daisey Company indicates that there is a regular movement of cash inflow
and outflow in the business and all these transactions need to be recorded on a day to day basis to
ensure appropriate audit trail is maintained. The bank’s daily records of the movement of cash
should reconcile with the cashbook daily activities. Accurate bank reconciliation entries ensure
that the daily activities documented in the cash book are a reflection of the bank records. The
balances of the two accounts should be the same always and any discrepancies investigated. It is
the responsibility of the individuals accountable for reconciliation to ensure that the cashbook
entries correspond with the bank balances. The bank statement for Daisey Company is up to date
and it is the duty of the company’s account clerk to keep reviewing daily to ensure the
reconciliation records is up to date. The correct reconciliation format should be like below.
Daisey Company
Bank
reconciliation
31-Oct
$
18,380
3795.51
22,175.51
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
140.75
180
253.25
190.71
226.8
165.28
1156.79
21,018.72
21,877.72
185
...
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