Acura 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, Rob Rowe handles all cash receipts, keeps the accounting records, and prepares the monthly bank reconciliations.

The balance per the bank statement on October 31,1998 , was \(\$ 18,380\). Outstanding checks were: No. 62 for \(\$ 126.75\), No. 183 for \(\$ 150\), No. 284 for \(\$ 253.25\), No. 862 for \(\$ 190.71\), No. 863 for \(\$ 226.80\), and No. 864 for \(\$ 165.28\). Included with the statement was a credit memorandum of \(\$ 200\) indicating the collection of a note receivable for Acura Company by the bank on October 25. This memorandum has not been recorded by Acura Company.

The company's ledger showed one cash account with a balance of \(\$ 21,892.72\). The balance included undeposited cash on hand. Because of the lack of internal controls Rowe took for personal use all of the undeposited receipts in excess of \(\$ 3,795.51\). He then Prepare comprehensive bank reconciliation with internal control deficiencies

(SO \(1,2,3,4)\) prepared the following bank reconciliation in an effort to conceal his theft of cash:

\section*{Instructions}

(a) Prepare a correct bank reconciliation. [Hint: Deduct the amount of the theft from the adjusted balance per books.]

(b) Indicate the three ways that Rowe attempted to conceal the theft and the dollar amount involved in each method.

(c) What principles of internal control were violated in this case?

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Cash balance per books, October 31 Add: Outstanding checks No. 862 No. 863 No. 864 $190.71 226.80 165.28 $21,892.72 482.79 Less: Undeposited receipts Unadjusted balance per bank, October 31 Less: Bank credit memorandum Cash balance per bank statement, October 31 22,375.51 3,795.51 18,580.00 200.00 $18,380.00