Preparing Comprehensive Bank Reconciliation with Theft and Internal Control Deficiencies
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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 attached Excel® spreadsheet and submit with the reconciliation report.
