Lori Root owns Root’s Boot City. She fears that a trusted employee has been stealing from the company. This employee receives cash from customers and also prepares the monthly bank reconciliation. To check up on the employee, Root prepares her own bank reconciliation, as shown on the following page. This reconciliation is both complete and accurate.

Requirements
1. How is the preparation of a bank reconciliation considered to be a control device?
2. Which side of the reconciliation shows the true cash balance?
3. What is Root’s true cash balance?
4. Does it appear that the employee has stolen from the company?
5. If so, how much? Explain your answer.

Transcribed Image Text:

ROOT'S BOOT CITY Bank Reconciliation June 30, 2011 Bank Balance, June 30 Add: Deposit in transit $ 1,550 Books Balance, June 30 $ 1,100 400 Add: Bank collection Interest revenue 840 10 Less: Outstanding checks Adjusted bank balance (1,090) Less: Service charge (25) 860 Adjusted book balance $ 1,925