Question

Pharoah 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 $20,286.00. Outstanding checks were No. 62 for $166.00, No. 183 for $178.00, No. 284 for $291.00, No. 862 for $200.00, No. 863 for $275.00, and No. 864 for $212.00. Included with the statement was a credit memorandum of $203.00 indicating the collection of a note receivable for Pharoah Company by the bank on October 25. This memorandum has not been recorded by Pharoah. The company’s ledger showed one Cash account with a balance of $23,744.00. 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 $3,832.00. He then prepared the following bank reconciliation in an effort to conceal his theft of cash. Cash balance per books, October 31 $23,744.00 Add: Outstanding checks No. 862 $200.00 No. 863 275.00 No. 864 212.00 577.00 24,321.00 Less: Undeposited receipts 3,832.00 Unadjusted balance per bank, October 31 20,489.00 Less: Bank credit memorandum 203.00 Cash balance per bank statement, October 31 $20,286.00 (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

Solution

PHAROAH COMPANY

Bank Reconciliation

Particulars	Amount	Amount
Cash balance as per bank statement		$20,286.00
Add Undeposited receipt		$3832.00
		$24118
Less outstanding Checks
Check no-62	$166
Check no - 183	$178
Check no-284	$291
Check no -862	$200
Check no -863	$275
Check no-864	$212	($1322)
Adjusted cash balance per bank books		$22796
Cash balance as per books at October 31		$23,744.00
Add bank credit memorandum		$203.00
Adjusted balance before theft		$23541
Less theft (23541-22796)		(745)
Adjusted balance as per books		$22796