Following is a bank reconciliation for Holt’s Sandwich Shop for May 31, 2006:

Because of limited funds. Holt’s employed only one accountant who was responsible for receiving cash, recording receipts and disbursements, preparing deposits, and preparing the bank reconciliation. The accountant left the company on June 8, 2006, after preparing the preceding statement. His replacement compared the checks returned with the bank statement to the cash disbursements journal and found the total of outstanding checks to be \($3,700\).

Required:

a. Prepare a corrected bank reconciliation.

b. What is the total amount of cash missing, and how was the difference between the “true cash” per the bank and the “true cash” per the books hidden on the reconciliation prepared by the former employee?

c. What could Holt’s do to avoid cash theft in the future?

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Cash Bank Account Statement Balance as of 5/31/06 $25,000 $22,000 Deposit in transit 4,250 Outstanding checks (465) Note collected by bank 1,815 Bank service charge (30) Automatic payment on loan (1,000) Adjusted cash balance as of 5/31/06 $25,785 $25,785