Preparing Comprehensive Bank Reconciliation with Theft and Internal Control Deficiencies

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Ze.Haxabja

Business Finance

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. 863226.80
No. 864165.28482.79
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?

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Explanation & Answer

Here you go....

Bank Reconciliation Report

1

Name
Bank Reconciliation Report
ACC 290
Date
Instructor

Bank Reconciliation Report

2
Bank Reconciliation Report

Daisey Company had a few mistakes in their bank reconciliation report. In general, there
are five steps to approving a bank reconciliation. In the first step, you must have the bank
statement for the corresponding month, reconciliation report for the corresponding month, and
the balance sheet or trial balance for the corresponding month (Torres, 2017). In the second step,
you take all three documents previously mentioned and make sure that the balances all agree
(Torres, 2017). In the third step, you must look for the following section in the reconciliation
report: cleared checks and payments, cleared deposits and other credits, uncleared checks and
payments, uncleared deposits and other credits (Torres, 2017). In the fourth step, you follow up
on the checks that are over 3 months old, deposits over one-month-old or any other unusual or
questionable item (Torres, 2017). In the fifth and final step, one needs to keep records of your
review by annotating the inquiries and questions on the document itself along with saving every
provided support, response, and correspondence (Torres, 2017).
Bret attempted to conceal by not recording check number’s 62, 183, and 284. The total
amount in the reconciliation statement was $574. Bret listed the incorrect total of outstanding
checks. The actual amount should have been $582.79. However, Bret only recorded $482.79.
This is how you can tell that Bret deliberately hid the $100. Bret deducted the bank credit
memorandum of $185 instead of adding it to conceal the theft of $370. From all of the facts
gathered in the report, it shows that Bret stole $1,044.
Internal controls are procedures ...


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