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.
Resources: Financial Accounting: Tools for Business Decision MakingÂ
Scenario: Daisey Company is a very profitable small business. It has not, however given much consideration to internal control.Â 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.Â
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 $21,877.72Add: Outstanding checks No. 862$190.71Â No. 863 226.80Â No. 864 165.28 482.79 22,360.51Less: Undeposited receiptsÂ 3,795.51Unadjusted balance per bank, October 31Â 18,565.00Less: Bank credit memorandumÂ 185.00Cash 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:Â
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?Â
Show all work in the ExcelÂ®Â spreadsheet andÂ submitÂ with the reconciliation report
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