Question

Constance Hermaine manages Springfield Manufacturing. Hermaine fears that a trusted employee has been stealing from the company. This employee receives cash from clients and also prepares the monthly bank reconciliation. To check up on the​ employee, Hermaine prepares her own bank​ reconciliation, as​ follows:

Bank reconciliation Springfield Manufacturing Bank Reconciliation May 31, 2018 Books $ 4,200 Balance, May 31 Bank $ 4,120 Balance, May 31 Add: Deposits in transit Add: 700 Bank collections 1,200 Interest revenue Less: (860) Outstanding checks (40) Less: Service charge Adjusted book balance balance $ 4.040 $ 5,290 Adjusted bank balance Print Done

Does it appear that the employee has stolen from the​ company? If​ so, how​ much? Explain your answer. Which side of the bank reconciliation shows the​ company's true cash​ balance?

It appears the employee has _________ (not stolen) / (stolen $1250) / (stolen $1150) / (stolen $1450). The adjusted_____________ (bank/book) balance is the company's true cash balance, and the _________________________ (bank balance shows more) / (company's books show less) / (company's books show more) cash on hand. Therefore, the books must be _____________ (correct) / (incorrect).

Hi, my pearson lab says at least one of the answers is incorrect. I would like to know which one and why is incorrect?

Answer 1

Yes, it appears that the employee has stolen from the company.
Amount stolen: $1250 [being $5290 - $4040]
Explanation: The bank balance of $4,200 is the amount actually in the bank. But there are deposits in transit to the tune of $700, and outstanding checks of $890. Hence the balance will be $4,040. However, as per the books, the balance is $4,120 to which bank collections not recorded in books amounts to $1,200, and interest revenue of $10 and bank charges of $40 working out to the adjusted balance of $5,290. This could mean that an employee has stolen. Possible means of stealing: A check received by the company was not presented (but the employee presented it to his own bank - must be a bearer check); or he made payment from the bank, but did not record it in the books. Alternative view is that the employee did not steal, but failed to present a check received by the company, or forgot to enter a transaction in the books.

So, the true cash balance is the one in the bank - provided the company treats the amount stolen or not recorded as written off. Anyway the balance that will be left with the company will be the adjusted balance in the bank.

It appears the employee has stolen $1250. The adjusted bank balance is the company's true cash balance, and the company's books show more cash on hand. Therefore, the books must be incorrect.

Note: If you take the alternative view, then the first answer will be wrong (based on the assumption that they are omissions and not stolen), while all other answers still hold good.

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