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    Bank Reconciliation and Cash Controls

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    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.

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    Solution Summary

    The solution explains some questions relating to bank reconciliation