Daisey 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, Bret Turrin handles all cash receipts, keeps the accounting records, and prepares the monthly bank reconciliations.

Prepare a comprehensive bank reconciliation with theft and internal control deficiencies.

The balance per the bank statement on October 31, 2020, was $18,380. Outstanding checks were No. 62 for $140.75, No. 183 for $180, 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 $185 indicating the collection of a note receivable for Daisey Company by the bank on October 25. This memorandum has not been recorded by Daisey.

The company's ledger showed one Cash account with a balance of $21,877.72. The balance included undeposited cash on hand. Because of the lack of internal controls, Bret took for personal use all of the undeposited receipts in excess of $3,795.51. He then prepared the following bank reconciliation in an effort to conceal his theft of cash.

Cash balance per books, October 31		$21,877.72
Add: Outstanding checks
No. 862	$190.71
No. 863	226.80
No. 864	165.28	482.79
		22,360.51
Less: Undeposited receipts		3,795.51
Unadjusted balance per bank, October 31		18,565.00
Less: Bank credit memorandum		185.00
Cash balance per bank statement, October 31		$18,380.00

Question:

If you are interested in forensic accounting, then this is the problem for you, in which you are placed in the position of a fraud investigator.

1. In order to determine the amount of the fraud, start with the given balance per bank statement (not fraudulent) and prepare a bank reconciliation as discussed in lecture and tutorial. The balance per GL that you will derive will be correct and different from the fraudulent figure calculated by Bret Turrin.

2. Calculate the amount of the fraud. (Hint: do not ignore the credit memo Bret failed to record.)

3. Assuming that Bret has skipped town and will not repay Daisey, prepare the journal entry to recognise the loss. Where in the SOCI should this loss appear?