A small hotel has an outside accountant prepare an income statement after the end of each month. For the last three months the amount shown as bad debts had increased considerably over any previous month. The owner asked the accountant to verify the authenticity of all accounts receivable written off as bad debts over the last three months. The accountant discovered that a number of accounts in large amounts had in fact been paid, and the persons contacted had canceled checks endorsed with the hotel’s stamp to prove this. About three months ago a new hotel bookkeeper was hired to carry out all record keeping and also act as cashier, receiving and depositing the cash from the front office cashier and handling and depositing payments on accounts receivable received by mail. As the hotel’s outside accountant, explain to the owner what you think has been happening and suggest how the problem can be resolved so that the same situation does not occur again.

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