Preparing Comprehensive Bank Reconciliation with Theft and Internal Control Deficiencies

Question 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. Preparing Comprehensive Bank Reconciliation with Theft and Internal Control Deficiencies.

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. Preparing Comprehensive Bank Reconciliation with Theft and Internal Control Deficiencies.

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 undeposited 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 receipts3,795.51
Unadjusted balance per bank, October 3118,565.00
Less: Bank credit memorandum185.00
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: Preparing Comprehensive Bank Reconciliation with Theft and Internal Control Deficiencies

  • 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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