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.
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