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Bank Reconciliation and Cash Controls

Osage farm supply had poor internal control over its cash transaction. Facts about the company's cash position at nov 30 are described below.

The accounting records showed a cash balance of $35,400 which included a deposit in trainsit of $1,245. The balance indicated in the bank statement was $20,000. Included in the bank statement were the following debit and credit memoranda:

Debit Memoranda:
Check from customer g. davis, deposited by osage farm
Supply but charged back as NSF.........$130
Bank service charges for nov.......... 15

Credit Memornadum:
Proceeds from
collection of a note receivable
From regal farms, which osage farm supply
Had left with the bank's collection department..............$6,255

Outstanding checks were as follows:
Check No. amount
8231 $40
8263 524
8288 176
8294 5,000

Bev escola, the company's cashier, has been taking portions of the company's cash receipts for several months. Each month, escola prepares the company's bank reconciliation in a manner that conceals her thefts. Her bank reconciliation for nov was as follows:
balance per bank statement, nov 30 $20,600
add: deposits in transix $2,145
collection of note from regal farms 6255 8400
subtotal $30,000

less: outstanding checks:
no 8231 400
8263 524
8288 176 1000

adjusted cash balance per bank statement 29000
balance per accounting records, nov 30 35400
add: credit memorandum from bank 6255
subtotal 29145

less: debit memoranda from bank:
NSF check of g davis 130
bank service charges 15 145
adjusted cash balance per accounting records 29000

a. Determine the amount of cash shortage that has been concealed by escola in her bank reconciliation. (as a format, we suggest that you prepare the bank reconciliation correctly. The amount of the shortage then will be the difference between the adjusted balances per the bank statement and per the accounting records. You can then list this unrecorded cash shortage as the final adjustment necessary to complete the reconciliation).
b. Carefully review escola's bank reconciliation and explain in detail how she concealed the amount of the shortage: include a listing of the dollar amounts that were concealed in various ways. This listing should total the amount of the shortate determined in part a.
c. Suggest some specific internal control measures that appear to be necessary for osage farm supply.


Solution Summary

The solution explains some questions relating to bank reconciliation