Week5 Internal Controls and Cash II

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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
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.


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