Preparing Comprehensive Bank Reconciliation with Theft and Internal Control

Scenario: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 book-keeper. As a result, Bret Turrin handles all cash receipts, keeps the accounting records, and prepares the monthly bank reconciliations.

The balance per the bank statement on October 31, 2017, 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 undepositied 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$21,877.72Add: Outstanding checksNo. 862$190.71No. 863226.80No. 864165.28482.7922,360.51Less: Undeposited receipts3,795.51Unadjusted balance per bank, October 3118,565.00Less: Bank credit memorandum185.00Cash balance per bank statement, October 31$18,380.00