Slackur Company is a very profi table small business. However, it has not given much consideration to internal controls. For example, in an attempt to keep its clerical and office expenses to a minimum, the company has combined the jobs of cashier and bookkeeper. As a result, Rob Desmarais handles all the cash receipts, keeps the accounting records, and prepares the monthly bank reconciliations. On November 30, 2020, the balance on the company’s bank statement was $18,380.00. The outstanding cheques on that date were #143 for $241.75, #284 for $258.25, #862 for $190.71, #863 for $226.80, and #864 for $165.28. Included with the statement was a bank credit memorandum in the amount of $300.00, indicating the bank’s collection of a note receivable for Slackur on November 25, and a debit memorandum in the amount of $50.00 for the bank’s service charges for the month. Neither of these transactions had been recorded by Slackur Company.
The company’s Cash account had a balance of $21,892.72 on November 30, 2020, which included a substantial amount of undeposited cash on hand. Because he needed cash for holiday shopping and knew that the company’s internal controls were weak, Rob decided to take some of the undeposited cash for his personal use and report undeposited cash of only $3,845.51. In an effort to conceal his theft, he then prepared the following bank reconciliation:

When he presented this to the general manager, she called the bank to determine whether the undeposited receipts on November 30 had since been deposited, and was happy to hear the bank confirm that Rob Desmarais had made a cash deposit of $3,845.51 on the morning of December 1. She then reviewed the bank reconciliation to satisfy herself that the items on it seemed reasonable and that it was balanced.
Assuming that everything must be in order, she then thanked Rob for his good work and made a mental note to herself that he should be given a $500 year-end bonus.

Required

a. Determine the amount of cash stolen by Rob Desmarais. Prepare a corrected bank reconciliation, treating the true amount of undeposited cash as an unknown. Then solve for this unknown, and compare the reported amount of undeposited cash with the true amount.

b. Explain what Rob did in the bank reconciliation that he prepared to try to conceal his theft.

c. What should Slackur Company do differently to prevent this type of occurrence?

Transcribed Image Text:

Balance per bank statement, November 30 $18,380.00 Add: Undeposited receipts 3,845.51 Less: Outstanding cheques No. 862 $190.71 No. 863 226.80 165.28 No. 864 (582.79) Add: Note collected by bank 300.00 Less: Bank service charges (50.00) Corrected bank balance, November 30 $21,892.72 Cash balance per books, November 30 $21,892.72