Protecting Cash Osage Farm Supply had poor internal control over its cash transa

Question

Protecting Cash Osage Farm Supply had poor internal control over its cash transactions. Facts about the company's cash position at November 30 are described below The accounting records showed a cash balance of $35,400, which included a deposit in transit of $1,245. The balance indicated in the bank statement was $20,600. Included in the bank statement were the following debit and credit memoranda Debit Memoranda: Check from customer G. Davis, Bank service charges for November ed by Osage Farm 15 Credit Memorandum: Proceeds from collection of a note receivable from Regal Farms, which Osage Farm Supply had left with the bank's collection department. $6,255 . . . . . . Outstanding checks were as follows Check No. Amount 524 176 5,000 Bev Escola, the company's cashier, has been taking portions of the company's cash receipts for several months. Each month, Escola prepares the company's bank reconciliation in a manner that conceals her thefts. Her bank reconciliation for November was as follows $20,600 Collection of note from Regal Farms....._ _ .6.255 8.400 $30,000 ._ _.. . .._. . Less: Outstanding checks: 524 176 1,000 $29,000 $35,400 6,255 $29,145 Adjusted cash balance per bank statement......... . . . . .. . Less: Debit memoranda from bank:

Explanation / Answer

a. Osage Farm Supply

Corrected Bank Reconciliation Statement

November 30

b. How the concealment was managed by Escola:

c. Internal control measures needed for Osage Farm Supply :

i. There should be proper segregation of duties. The bank reconciliation statement should be prepared by a person other than the cashier. It is preferable that it should be prepared by someone who is not related to the cash department at all.

ii. A glaring failure in the internal control system is that cash receipts are not being promptly deposited in the bank, and the management seems to be unaware of this, even after several months. The daily totals of the cash deposit journal should be matched against the deposits being reflected in the bank statement. This should go a long way in ensuring that cash receipts intact are ddeposited without any lag.

$ $ Balance as per bank statement 20,600 Add : Deposit in transit 1,245 Subtotal 21,845 Less : Outstanding checks # 8231 400 # 8263 524 # 8288 176 # 8294 5,000 6,100 Adjusted balance as per bank statement 15,745 Balance as per books 35,400 Add : Note collected by bank 6,255 Subtotal 41,655 Less: NSF check 130 Bank service charges 15 145 Adjusted balance as per books, before computing cash shortage 41,510 Cash Shortage 25,765 Corrected cash balance as per books 15,745

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