Question

Class Discussion Assignment

Patricia Company had poor internal control over its cash transactions. Facts about its cash position at November 30, 2022, were as follows:

The cash ledger showed a balance of $18,901.62, which included undeposited receipts which were on hand at November 30. A credit of $100 on the bank's records did not appear on the books of the company. The balance per bank statement was $15,550. Outstanding checks were #62 for $116.25, #183 for $150, #284 for $253.25, #8621 for $190.71, #8623 for $206.80, and #8632 for $145.28.

The cashier subtracted undeposited receipts of $3,794.41 and prepared the following reconciliation:

Balance per books, November 30, 2022 $18,901.62 

Add: Outstanding checks   

8621 $190.71

8623 206.80

8632   145.28     442.79 

19,344.41 

Less: Undeposited receipts   (3,794.41)

Balance per bank, November 30, 2022 15,500.00 

Deducted: Unrecorded credit      100.00 

True cash, November 30, 2022 $15,450.00 

Required:

a. Prepare a working paper showing how much the cashier embezzled.

b. How did the cashier attempt to conceal this theft?

c. Using only the information given, name two specific features of internal control that were apparently lacking.

a)

Answer 1

Answer :

a.

Patricia Company Computation of Amount Stolen by Cashier November 30, 2022 $18,901.62 100.00 $19,001.62 $15,550.00 Cash balance, per books November 30, 2022 Add: Credit by bank Adjusted cash balance (Cash plus bank credit) Less adjusted bank balance: Bank balance, November 30, 2022 Less outstanding checks: #62 $116.25 #182 150.00 #284 253.25 #8621 190.71 #8623 206.80 #8632 145.28 Cash which should be on hand Cash reported Amount of theft 1,062.29 14,487.71 $4,513.91 3,794.41 $ 719.50

b.

The cashier removed $719.50. The cashier attempted to conceal his theft by:

• Not listing all outstanding checks,
• Under footing outstanding checks shown on the reconciliation and
• Subtracting an item from the bank balance that should be added to book balance.
  

c.

Two controls lacking are:

• Someone other than the cashier should trace cash receipts to deposits in the bank,
• Someone other than the cashier should be responsible for preparing the bank reconciliation.