Ivanhoe Company is a very 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, Bret Turrin handles all cash receipts, keeps the accounting
records, and prepares the monthly bank reconciliations.
The balance per the bank statement on October 31, 2022, was
$19,489.00. Outstanding checks were No. 62 for $152.00, No. 183 for
$170.00, No. 284 for $288.00, No. 862 for $222.00, No. 863 for
$275.00, and No. 864 for $178.00. Included with the statement was a
credit memorandum of $246.00 indicating the collection of a note
receivable for Ivanhoe Company by the bank on October 25. This
memorandum has not been recorded by Ivanhoe.
The company’s ledger showed one Cash account with a balance of
$23,257.00. The balance included undeposited cash on hand. Because
of the lack of internal controls, Bret took for personal use all of
the undeposited receipts in excess of $4,037.00. He then prepared
the following bank reconciliation in an effort to conceal his theft
of cash.
| Cash balance per books, October 31 | $23,257.00 | |||
| Add: Outstanding checks | ||||
| No. 862 | $222.00 | |||
| No. 863 | 275.00 | |||
| No. 864 |
178.00 |
515.00 |
||
| 23,772.00 | ||||
| Less: Undeposited receipts |
4,037.00 |
|||
| Unadjusted balance per bank, October 31 | 19,735.00 | |||
| Less: Bank credit memorandum |
246.00 |
|||
| Cash balance per bank statement, October 31 |
$19,489.00 |
(a) Prepare a correct bank reconciliation.
(Hint: Deduct the amount of the theft from the adjusted
balance per books.) (List items that increase balance
as per bank & books first.)
| Bank Reconciliation | |||||
| Amount | Amount | Amount | |||
| Bank Statement Balance | $19,489.00 | Book Balance | $23,257.00 | ||
| Add: | Add: | ||||
| Deposit in Transit, not recorded by Bank | $4,037.00 | ||||
| Deduct | Deduct | ||||
| Outstanding Check | Amount Stolen | ||||
| Check No: 62 | $152.00 | Omitted Unpresented Check | $610.00 | ||
| Check No:183 | $170.00 | Check No: 62:$152 | |||
| Check No:284 | $288.00 | Check No: 183 :170 | |||
| Check No:862 | $222.00 | Check No: 284:288 | |||
| Check No:863 | $275.00 | Totaling difference of Check No862, 863, 864 (675-515) | $160.00 | ||
| Check No:864 | $178.00 | $1,285.00 | Note Received Collected | $246.00 | $1,016.00 |
| Adjusted Balance | $22,241.00 | Adjusted Balance | $22,241.00 | ||
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