Osage Farm Supply had poor internal control over its cash transactions. Facts about the company’s cash position at November 30 are described below.
The accounting records showed a cash balance of $35,400, which included a deposit in transit of $1,245. The balance indicated in the bank statement was $20,600. Included in the bank statement were the following debit and credit memoranda:
Debit Memoranda: | |
Check from customer G. Davis, deposited by Osage Farm |
|
Supply but charged back as NSF | $ 130 |
|
|
Bank service Charges for November | 15 |
Credit Memorandum: | |
Proceeds from collection of a note receivable from Regal Farms, which Osage Farm Supply had left with the bank’s collection department | $6,255 |
Outstanding checks were as follows:
Check No. | Amount |
8231 | $400 |
8263 | 524 |
8288 | 176 |
8294 | 5,000 |
Bev Escola, the company’s cashier, has been taking portions of the company’s cash receipts for several months. Each month. Escola prepares the company ‘s bank reconciliation in a manner that conceals her thefts. Her bank reconciliation for November was as follows:
Balance per bank statement, Nov. 30 |
| $20,600 |
Add: Deposits in transit | $2,145 |
|
Collection of note from Regal Farms | 6,255 | 8,400 |
Subtotal |
| $30,000 |
Less: Outstanding checks: |
|
|
No. 8231 | $ 400 |
|
8263 | 524 |
|
8288 | 176 | 1,000 |
Adjusted cash balance per bank statement |
| $29,000 |
Balance per accounting records, Nov. 30 |
| $35,400 |
Add: Credit memorandum from bank |
| 6,255 |
Subtotal |
| $29,145 |
Less: Debit memoranda from bank: |
|
|
NSF check of G. Davis | $ 130 |
|
Bank service charges | 15 | 145 |
Adjusted cash balance per accounting records |
| $29,000 |
Instructions
a. Determine the amount of the cash shortage that has been concealed by Escola in her bank reconciliation. (As a format, we suggest that you prepare the hank 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 Eseola’s bank reconciliation and explain in detail how she 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 the shortage determined in part a.
c. Suggest some specific internal control measures that appear to be necessary for Osage Farm Supply.
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