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The records of Parker Company indicate a July 31 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 includes 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: No. 2670, $1,050; No. 3679, $675; No. 3690, $1,650; No. 5148, $225, No. 5149, $750; and No. 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: $10,400+ Cash balance per books, July 31.. Add outstanding checks: No. 5148... 5149 ......... 5151 .......... $225 750 800 Less undeposited receipts Cash balance per bank, July 31..... Deduct unrecorded note with interest True cash, July 31. ...... 1,675 $12,075 1,500 $10,575 2,400 $ 8,175

Answer 1

Answers:

1. The amount the cashier stole from Parker company is $3750. Below is the computation.

Praticulars July 31st Balance as per pass book plus Undeposited receipts Less Unrecorded receipts in cash book Amount in $| 10575 1500 12075 2500 9575 5150 4425 8175 3750 Less Total Cheques outstanding Actual Balance as per cash Book book Balance as Per Pass book as per cashier Difference stolen by Cashier

2. How did the cashier attempt to conceal the theft?

The cashier tried to embezzle the cash by taking advantage of lapping of outstanding amount and direct check deposits in the bank for the same amount. The reconciliation done by cashier flaw in it as the balance as he has omitted recording of 3 outstanding checks amount to $3375.

He has manipulated by wording it as Cash Balance as bank on 31st July 10,575.

3. a. Two major weaknesses in internal controls is that

I) there is no segregation of duties from the person receiving the checks, recording and depositing the amount in bank. Hence Cashier was able to take advantage of this situation.

II) The employee who receives cash does not disburse cash.

b. Improvements in internal controls

Arrange duties so that the employee who handles cash receipts does not record the receipts in the accounting records. This control feature follows the general principle of segregation of duties given earlier , as does the next principle.

Arrange duties so that the employee who receives the cash does not disburse the cash. This control measure is possible in all but the smallest companies.