EX 8-23 Using bank reconciliation to determine cash receipts stolen
Lasting Impressions Co. records all cash receipts on the basis of its cash register tapes. Lasting Impressions Co. discovered during April 2012 that one of its sales clerks had stolen an undetermined amount of cash receipts when she took the daily deposits to the bank. The following data have been gathered for April:
Cash in bank according to the general ledger $ 8,900
Cash according to the April 30, 2012, bank statement 20,500
Outstanding checks as of April 30, 2012 6,800
Bank service charge for April 100
Note receivable, including interest collected by bank in April 10,400
No deposits were in transit on April 30.
a. Determine the amount of cash receipts stolen by the sales clerk.
b. What accounting controls would have prevented or detected this theft?
Answer:
a. The amount of cash receipts stolen by the sales clerk can be determined by attempting to reconcile the bank account. The bank reconciliation will not reconcile by the amount of cash receipts stolen. The amount stolen by the sales clerk is $5,500, determined as shown below.
LASTING IMPRESSIONS CO. Bank Reconciliation April 30, 2012 Cash balance according to bank statement................................... $20,500 Deduct: Outstanding checks........................................................... 6,800 Adjusted balance.............................................................................. $13,700 Cash balance according to company’s records............................ $ 8,900 Add: Note collected by bank, including interest............................ 10,400 $19,300 Deduct: Bank service charges ........................................................ 100 Adjusted balance.............................................................................. $19,200 Amount stolen: $5,500 ($19,200 – $13,700)
b. The theft of the cash receipts might have been prevented by having more than one person make the daily deposit. Collusion between two individuals would then have been necessary to steal cash receipts. In addition, two employees making the daily cash deposits would tend to discourage theft of the cash receipts from the employees on the way to the bank.
Daily reconciliation of the amount of cash receipts, comparing the cash register tapes to a receipt from the bank as to the amount deposited (a duplicate deposit ticket), would also discourage theft of the cash receipts. In this latter case, if the reconciliation were prepared by an employee independent of the cash function, any theft of cash receipts from the daily deposit would be discovered immediately. That is, the daily deposit would not reconcile against the daily cash receipts.
Cash in bank according to the general ledger $ 8,900
Cash according to the April 30, 2012, bank statement 20,500
Outstanding checks as of April 30, 2012 6,800
Bank service charge for April 100
Note receivable, including interest collected by bank in April 10,400
No deposits were in transit on April 30.
a. Determine the amount of cash receipts stolen by the sales clerk.
b. What accounting controls would have prevented or detected this theft?
Answer:
a. The amount of cash receipts stolen by the sales clerk can be determined by attempting to reconcile the bank account. The bank reconciliation will not reconcile by the amount of cash receipts stolen. The amount stolen by the sales clerk is $5,500, determined as shown below.
LASTING IMPRESSIONS CO. Bank Reconciliation April 30, 2012 Cash balance according to bank statement................................... $20,500 Deduct: Outstanding checks........................................................... 6,800 Adjusted balance.............................................................................. $13,700 Cash balance according to company’s records............................ $ 8,900 Add: Note collected by bank, including interest............................ 10,400 $19,300 Deduct: Bank service charges ........................................................ 100 Adjusted balance.............................................................................. $19,200 Amount stolen: $5,500 ($19,200 – $13,700)
b. The theft of the cash receipts might have been prevented by having more than one person make the daily deposit. Collusion between two individuals would then have been necessary to steal cash receipts. In addition, two employees making the daily cash deposits would tend to discourage theft of the cash receipts from the employees on the way to the bank.
Daily reconciliation of the amount of cash receipts, comparing the cash register tapes to a receipt from the bank as to the amount deposited (a duplicate deposit ticket), would also discourage theft of the cash receipts. In this latter case, if the reconciliation were prepared by an employee independent of the cash function, any theft of cash receipts from the daily deposit would be discovered immediately. That is, the daily deposit would not reconcile against the daily cash receipts.
