Snake Creek Company has one trusted employee who, as the owner said, handles all
ID: 2367081 • Letter: S
Question
Snake Creek Company has one trusted employee who, as the owner said, handles all of the book-keeping and paperwork for the company. This employee is responsible for counting, verifying, and recording cash receipts and payments, making the weekly bank deposit, preparing checks for major expenditures ( signed by the owner), making small expenditures from the cash register for daily expenses, and collecting accounts receivable. The owners asked the local bank for a $ 20,000 loan. The bank asked that an audit be performed covering the year just ended. The independent auditor ( a local CPA), in a private conference with the owner, presented some evidence of the following activities of the trusted employee during the past year: a. Cash sales sometimes were not entered in the cash register, and the trusted employee pocketed approximately $ 50 per month. b. Cash taken from the cash register ( and pocketed by the trusted employee) was replaced with expense memos with fictitious signatures ( approximately $ 12 per day). c. $ 300 collected on an account receivable from a valued out- of- town customer was pocketed by the trusted employee and was covered by making a $ 300 entry as a debit to Sales Returns and a credit to Accounts Receivable. d. $ 800 collected on an account receivable from a local customer was pocketed by the trusted employee and was covered by making an $ 800 entry as a debit to Sales Discounts and a credit to Accounts Receivable. Required: 1. What was the approximate amount stolen during the past year? TIP: Assume employees work 5 days a week, 52 weeks a year. 2. What would be your recommendations to the owner?Explanation / Answer
Particulars Amount
Cash sales pocketed = $50* 12=$600
Cash taken from the cash register $ 12*5 days*52weeks=$3,120
Account receivable pocketed as Sales Returns= $ 300
Account receivable pocketed as Sales Discounts=$ 800
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Totals $4,820
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2) Check the evidence with trusted employee and asked to refund pocketed amount else, warned him/her if future it continues may lead to terminating job of employee.
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