Problem

Jason Chain Saws. Inc.. had poor internal control over its cash transactions. Facts about...

Jason Chain Saws. Inc.. had poor internal control over its cash transactions. Facts about the com­pany’s cash position at April 30 are. described below.

The accounting records showed a cash balance of $20,325. which included a deposit in transit of $5,000. The balance indicated in the bank statement was $14,300. Included in the bank state­ment were the following debit and credit memoranda:

Debit Memoranda:

Check from customer, deposited

 

but charged back as NSF 

  $ 125

Bank service charges for April

  50

Credit Memorandum:

Proceeds from collection of a note receivable on company’s behalf

  $6,200

Outstanding checks as of April 30 were as follows:

Check No.

Amount

836 

$ 500

842 

  440

855

   330

859 

  1,300

Tom Crook, the company’s cashier, has been taking portions of the company’s cash receipts for several months. Each month, Crook prepares the company’s bank reconciliation in a manner that conceals his thefts. His bank reconciliation for April is illustrated as follows:

Balance per bank statement, April 30

 

$14,300

Add: Deposits in transit

  $7,120

 

Collection of note 

  6,200

13,320

Subtotal 

 

$27,620

Less: Outstanding checks:

 

 

No 836

  $ 500

 

No 84?

  440

 

No 855

  330

1.270

Adjusted cash balance per bank statement

 

$26,350

Balance per accounting records. April 30

 

20,325

Add: Credit memorandum from bank

 

6,200

Subtotal 

 

$26,525

Less: Debit memoranda from bank:

 

 

NSF check 

  $ 125

 

 

 

 

Bank service charges

                   50

           175

Adjusted cash balance per accounting records

 

$26,350

Instructions

a.      Determine the amount of cash shortage that has been concealed by Crook in his bank rec­onciliation. (As a format, we suggest that you prepare the bank reconciliation correctly. The amount of the shortage then will be the difference between the adjusted balances per the bank statement and per the accounting records. You can then list this unrecorded cash shortage as the final adjustment necessary to complete your reconciliation.)


b.      Carefully review Crook’s bank reconciliation and explain in detail how he concealed the amount of the shortage. Include a listing of the dollar amounts that were concealed in various ways. This listing should total the amount of shortage determined in part a.


c.       Suggest some specific internal control measures that appear to be necessary for Jason Chain Saws, Inc.

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