Tarika Ltd. is a 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, Rob Tang handles all cash receipts, keeps the accounting records, and prepares the monthly bank reconciliations.

The balance per bank statement on October 31 was $19,460. Outstanding cheques at that time were #782 for $114, #783 for $160, #784 for $267, #789 for $171, #791 for $325, and #792 for $173. There were no deposits in transit. Included with the bank statement was a $299 electronic collection on account from a customer.

The company's general ledger showed the Cash account with a balance of $19,640. The balance included undeposited cash on hand. Because of the lack of internal controls, Tang took all of the undeposited receipts, which were recorded on the company's books, for his personal use. He then prepared the following bank reconciliation to hide his theft of cash:

Instructions
(a) Identify the errors in the above bank reconciliation.
(b) Prepare a correct bank reconciliation.
(c) Identify how much Tang stole for personal use.
(d) Indicate the various ways that Tang tried to hide the theft and the dollar amount for each method.
(e) What control activities were violated in this case?

Transcribed Image Text:

TARIKA LTD. Bank Reconciliation October 31 Cash balance per books Less: EFT, collection from customer Adjusted cash balance per books S19,640 299 $19,341 Cash balance per bank statement Less: Outstanding cheques S19,460 $11 16 26 17 32 17 #782 3 1 #784 #789 119 $19,341 #792 Adjusted cash balance per bank