Question

Sandhill 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 $19,052.00. Outstanding checks were No. 62 for $168.00, No. 183 for $172.00, No. 284 for $283.00, No. 862 for $229.00, No. 863 for $277.00, and No. 864 for $208.00. Included with the statement was a credit memorandum of $228.00 indicating the collection of a note receivable for Sandhill Company by the bank on October 25. This memorandum has not been recorded by Sandhill.

The company’s ledger showed one Cash account with a balance of $22,814.00. 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 $4,148.00. He then prepared the following bank reconciliation in an effort to conceal his theft of cash.

Cash balance per books, October 31				$22,814.00
Add: Outstanding checks
No. 862		$229.00
No. 863		277.00
No. 864		208.00		614.00
				23,428.00
Less: Undeposited receipts				4,148.00
Unadjusted balance per bank, October 31				19,280.00
Less: Bank credit memorandum				228.00
Cash balance per bank statement, October 31				$19,052.00

(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.)

Answer 1

Sandhill Company Bank Reconciliation Statement October 31, 2022
Cash Balance as per Bank Statement		$ 19,052
Add: Undeposited Receipts		$ 4,418
		$ 23,200
Less: Outstanding Checks
No. 62	($ 168)
No. 183	($ 172)
No. 284	($ 283)
No. 862	($ 229)
No. 863	($ 277)
No. 864	($ 208)	($ 1,337)
Adjusted balance as per bank		$ 21,863
Cash Balance as per books		$ 22,814
Add: Note collected by bank		$ 228
Adjusted balance per books		$ 23,042
Less: Amount of theft               ( $ 21,863 (-) $ 23,042 )		($ 1,179)
Correct balance per books		$ 21,863