Question: Jason Chain Saws Inc had poor internal control over its

Jason Chain Saws, Inc., had poor internal control over its cash transactions. Facts about the company’s cash position at April 30 are described below.
The accounting records showed a cash balance of $20,325, which included a deposit in transit of $5,000. The balance indicated in the bank statement was $14,300. Included in the bank statement were the following debit and credit memoranda:

Outstanding checks as of April 30 were as follows:

Tom Crook, the company’s cashier, has been taking portions of the company’s cash receipts for several months. Each month, Crook prepares the company’s bank reconciliation in a manner that conceals his thefts. His bank reconciliation for April is illustrated as follows:

a. Determine the amount of cash shortage that has been concealed by Crook in his bank reconciliation. (As a format, we suggest that you prepare the bank reconciliation correctly. The amount of the shortage then will be the difference between the adjusted balances per the bank statement and per the accounting records. You can then list this unrecorded cash shortage as the final adjustment necessary to complete your reconciliation.)
b. Carefully review Crook’s bank reconciliation and explain in detail how he concealed the amount of the shortage. Include a listing of the dollar amounts that were concealed in various ways. This listing should total the amount of shortage determined in part a.
c. Suggest some specific internal control measures that appear to be necessary for Jason Chain
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  • CreatedApril 17, 2014
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