Elite Service Company is a very profitable small business. It has not, however, given much consideration to
Question:
Elite Service Company is a very profitable small business. It has not, however, given much consideration to internal control. For example, in an attempt to keep clerical and office expenses to a minimum, the company has combined the jobs of cashier and bookkeeper. As a result, Steve Evans handles all cash receipts, keeps the accounting records, and prepares the monthly bank reconciliations. The balance per the bank statement on March 31, 2014, was $5,931.51. Outstanding checks were: No. 206 for $358.53, No. 441 for $292, No. 590 for $283.00, No. 781 for $286.00, No. 782 for $319.47, and No. 783 for $303.14. Included with the statement was a credit memorandum of $175 indicating the collection of a note receivable for Elite Service Company by the bank on March 21. This memorandum has not been recorded by Elite Service. The company’s ledger showed one cash account with a balance of $6,889.53. The balance included undeposited cash on hand. Because of the lack of internal controls, Steve took for personal use all of the undeposited receipts in excess of $1,591.63. He then prepared the following bank reconciliation in an effort to conceal his theft of cash.
Instructions
(a) Prepare a correct bank reconciliation
(b) Indicate the three ways that Steve attempted to conceal the theft and the dollar amount involved in each method.
(c) What principles of internal control were violated in thiscase?
Step by Step Answer:
Accounting Tools for Business Decision Making
ISBN: 978-1118128169
5th edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso