Supreme Companys bookkeeper prepared the bank reconciliation for May 31, 2010. The bookkeeper had the following responsibilities: All bookkeeping, the handling of cash receipts, the preparation of the monthly bank reconciliation and the deposit at the bank. Assume that the bookkeeper prepared all of the checks, which were signed by the owner. The owner, on a daily basis verified and signed all checks that were written, counted all cash and verified the debit to cash in the cash receipts journal and the credit to cash in the cash payments journal. Assume that the office manager performed all other duties.

May 31 Bank Statement
Balance of previous bank statement on 4/30	$ 12,760
Six deposits and other credits totaling	7,596
Eleven checks and other debts totaling	4,977
Current balance as of this statement	$ 15, 379

1. Review the Bank Reconciliation prepared by your employee on May 31 above and prepare a corrected bank reconciliation.
2. Explain why you think your corrected bank reconciliation does not balance. How did the employee conceal the embezzlement?
3. Recommend any improvements to internal controls to prevent this embezzlement from occurring again. Assume that the only parties who will be working in this business will be Jill Supreme (owner), the new bookkeeper and the office manager.

Include in your discussion the following:

• Who should receive the cash receipts and make the deposit at the bank when the owner is out of the office? Include the rationale for your answer.
• Who should prepare the monthly bank reconciliation? Include the rationale for your answer.
• Who should sign the checks? Include the rationale for your answer.
• Who should do the bookkeeping? Include the rationale for your answer.

4. Record all required journal entries for May 31, 2010 related to the bank reconciliation including a journal entry for the embezzlement. Assume the embezzlement was never recovered.