Problem 7-6A

Sandhill 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. The balance per the bank statement on October 31, 2017, was $19,052.00. Outstanding checks were No. 62 for $168.00, No. 183 for $172.00, No. 284 for $283.00, No. 862 for $229.00, No. 863 for $277.00, and No. 864 for $208.00. Included with the statement was a credit memorandum of $228.00 indicating the collection of a note receivable for Sandhill Company by the bank on October 25. This memorandum has not been recorded by Sandhill. The companys ledger showed one Cash account with a balance of $22,814.00. 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 $4,148.00. He then prepared the following bank reconciliation in an effort to conceal his theft of cash.

Cash balance per books, October 31				$22,814.00
Add: Outstanding checks
No. 862		$229.00
No. 863		277.00
No. 864		208.00		614.00
				23,428.00
Less: Undeposited receipts				4,148.00
Unadjusted balance per bank, October 31				19,280.00
Less: Bank credit memorandum				228.00
Cash balance per bank statement, October 31				$19,052.00

(a) Prepare a correct bank reconciliation. (Hint: Deduct the amount of the theft from the adjusted balance per books.) (List items that increase balance as per bank & books first.)