Question

The records of Parker Company indicate a July 31, 2016 cash balance of $10,400, which includes undeposited receipts for July 30 and 31. The cash balance on the bank statement as of July 31 is $10, 575. This balance inlcudes a note of $2,250 plus $150 interest collected by the bank but not recorded in the journal. Checks outstanding on July 31 were as follows: Check No. Amount 2670 $1,050 3679 $675 3690 $1,650 5148 $225 5149 $750 5151 $800 On July 25, the cashier resigned, effective at the end of the month. Before leaving on July 31, the cashier prepared the following bank reconciliation: Cash balance per books, July 31 $10,400 Add outstanding checks: No. 5148 $225 5149 750 5151 800 1,675 12,075 Less undeposited receipts 1,500 Cash balance per bank, July 31 10,575 Deduct unrecorded note with interest 2,400 True cash, July 31 $8,175 Calculator Tape of Outstanding Checks: 0* 225+ 750+ 800+ 1,675* Subsequently, the owner of Parker Company discovered that the cashier had stolen an unknown amount of undeposited receipts, leaving only $1,500 to be deposited on July 31. The owner, a close family friend, has asked your help in determining the amount that the former cashier has stolen.

(1) Determine the amount the cashier stole from Parker Company. Show your computations in good form.

(2) How did the cashier attempt to conceal the theft?

(3) a. Identify two major weaknesses in internal controls that allowed the cashier to steal the undeposited cash receipts? b.

Recommend improvements in internal controls so that similar types of thefts of undeposited cash receipts can be prevented.

Answer 1

Ans : Money stolen by cashier

Bank Reconciliation
Particulars		Amount($)
Cash balance as per books		$10,400
Add;
Check collected but not deposited
Outstanding checks
Check number	Amount
2670	$1,050
3679	$675
3690	$1,650
5148	$225
5149	$750
5151	$800
		$5,150
Note collected by bank along with interest not entered in the journals		$2,400
less
Balance in the bank as per bank statement		$10,575
Money to be in hand		$7,375
Money in actually in hand		$1,500
Money stolen by cashier		$5,875

2) Cashier conceal the check in the following manner

a) Stole the outstanding check number

Check number	Amount
2670	$1,050
3679	$675
3690	$1,650

b) Stole the amount available in the cash of $ 2,500.

3) a) Two major weakness in the internal controls are

1) Segregation of duty - cashier is handling both books of accounts and cash

2) Dual control over cash means custody of cash is allotted to  two personnel handling cash instead of one personnel.

b) Recommend improvements in internal controls so that similar types of thefts of Undeposited cash receipts can be prevented

1) Segregation of duty

2) Dual control over cash

3) Cash to be deposited in bank on the same date.

4) Rotation of duty