Following is a bank reconciliation for The Gift Shop for June 30, 2013:

When reviewing the bank reconciliation, The Gift Shop€™s auditor was unable to locate any reference to the NSF check on the bank statement. Furthermore, the clerk who reconciles the bank account and records the adjusting entries could not find the actual NSF check that should have been included in the bank statement. Finally, there was no specific reference in the accounts receivable supporting records identifying a party who had written a bad check.

Required
a. Prepare the adjusting entry that the clerk would have made to record the NSF check.
b. Assume that the clerk who prepares the bank reconciliation and records the adjusting entries also makes bank deposits. Explain how the clerk could use a fictitious NSF check to hide the theft of cash.
c. How could The Gift shop avoid the theft of cash that is concealed by the use of fictitious NSFchecks?

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as Bank Account Statement $3,000 (1,507) $ 1,918 Balance as of 6/30/2013 Deposit in transit Outstanding checks Note collected by bank Bank service charge NSF check 600 2,000 (25) (1800) $2,093 Adjusted cash balance as of 6/30/2013 $2,093