Question

Cullumber 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 bookkeeper. 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 $19,923.00. Outstanding checks were No. 62 for $144.00, No. 183 for $173.00, No. 284 for $300.00, No. 862 for $199.00, No. 863 for $264.00, and No. 864 for $211.00. Included with the statement was a credit memorandum of $190.00 indicating the collection of a note receivable for Cullumber Company by the bank on October 25. This memorandum has not been recorded by Cullumber.

The company’s ledger showed one Cash account with a balance of $23,748.00. 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 $4,149.00. He then prepared the following bank reconciliation in an effort to conceal his theft of cash.

Cash balance per books, October 31				$23,748.00
Add: Outstanding checks
No. 862		$199.00
No. 863		264.00
No. 864		211.00		514.00
				24,262.00
Less: Undeposited receipts				4,149.00
Unadjusted balance per bank, October 31				20,113.00
Less: Bank credit memorandum				190.00
Cash balance per bank statement, October 31				$19,923.00

(a) Prepare a correct bank reconciliation. (Hint: Deduct the amount of the theft from the adjusted balance per books.) (List items that increase balance as per bank & books first.)

Answer 1

	Bank reconciliation			No. 62	144
	Bank balance	19923		No. 183	173
Add	Deposit in transit	4149		No. 284	300
Add	Error by bank	0		No. 862	199
	Total	24072		No. 863	264
Less	Outstanding checks	1291		No. 864	211
	Adjusted bank balance	22781		Total	1291

	Cash balance		23748
Add
	Notes receivable	190
			190
Less	Service charges
	Cash theft	1157
			1157
	Adjusted cash balance		22781