Question

Cripple Creek Company has one trusted employee, who, as the owner said, “ handles all of the bookkeeping and paperwork for the company.” This employee is responsible for counting, verifying, and recording cash receipts and payments, making the weekly bank deposit, preparing cheques for major expenditures (signed by the owner), making small expenditures from the cash register for daily expenses, and collecting trade receivables. The owner asked the local bank for a $ 20,000 loan. The bank asked that an audit be performed covering the year just ended. The independent auditor, in a private conference with the owner, presented some evidence of the following activities of the trusted employee during the past year:
a. Cash sales sometimes were not entered in the cash register, and the trusted employee pocketed approximately $ 50 per month.
b. Cash taken from the cash register (and pocketed by the trusted employee) was replaced with expense memos with fictitious signatures (approximately $ 12 per day). Cripple Creek is open five days per week throughout the year.
c. A $ 300 collection on a trade receivable of a valued out- of- town customer was pocketed by the trusted employee and was covered by making a $ 300 entry as a debit to sales returns and a credit to trade receivables.
d. An $ 800 collection on a trade receivable from a local customer was pocketed by the trusted employee and was covered by making an $ 800 entry as a debit to allowance for doubtful accounts and a credit to trade receivables.
Required:
1. What was the approximate amount stolen during the past year?
2. What would be your recommendations to the owner about the company’s internal controls?


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  • CreatedAugust 04, 2015
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