Question

Cullumber 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 $18,844.00. Outstanding checks were No. 62 for $157.00, No. 183 for $178.00, No. 284 for $261.00, No. 862 for $218.00, No. 863 for $244.00, and No. 864 for $203.00. Included with the statement was a credit memorandum of $236.00 indicating the collection of a note receivable for Cullumber Company by the bank on October 25. This memorandum has not been recorded by Cullumber.

The company’s ledger showed one Cash account with a balance of $22,427.00. 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 $3,862.00. He then prepared the following bank reconciliation in an effort to conceal his theft of cash.

Cash balance per books, October 31				$22,427.00
Add: Outstanding checks
No. 862		$218.00
No. 863		244.00
No. 864		203.00		515.00
				22,942.00
Less: Undeposited receipts				3,862.00
Unadjusted balance per bank, October 31				19,080.00
Less: Bank credit memorandum				236.00
Cash balance per bank statement, October 31				$18,844.00

(a) Prepare a correct bank reconciliation. (Hint: Deduct the amount of the theft from the adjusted balance per books.

Answer 1