Critical Thinking Problem 9.2 Cash Controls Mike Lucci is the owner of Lucci Con

Question

Critical Thinking Problem 9.2 Cash Controls Mike Lucci is the owner of Lucci Contractors, a successful small construction company. He spends most of his time out of the office supervising work at various construction sites, leaving the operation of the office to the company's cashier/bookkeeper, Gloria Harris. Gloria makes bank deposits, pays the company's bills, maintains the accounting records, and prepares monthly bank reconciliations. Recently a friend told Mike that while he was at a party he overheard Gloria bragging that she paid for her new clothes with money from the company's cash receipts. She said her boss would never know because he never checks the cash records. Mike admits that he does not check on Gloria's work. He now wants to know if Gloria is stealing from him. He asks you to examine the company's cash records to determine whether Gloria has stolen cash from the business and, if so, how much. Your examination of the company's cash records reveals the following information: 1. Gloria prepared the following August 31, 2019, bank reconciliation. Balance in books, August 31, 2019 Additions: Outstanding checks Check 1780 Check 1784 Check 1806 $18,786 $ 792 1,819 384 2,695 $21,481 Deductions: Deposit in transit, August S.882 28, 2019 Bank service charge Balance on bank statement, August 31, 2019 10 4,892 $16,589 2. An examination of the general ledger shows the Cash account with a balance of $18,786 n August 31, 2019 3. The August 31 bank statement shows a balance of $16,589 4. The August 28 deposit of $4,882 does not appear on the August 31 bank statement. 5. A comparison of canceled checks returned with the August 31 bank statement with the cash payments journal reveals the following checks as outstanding: Check 1590 263 check 1,218 1680 Check 1724 Check 1780 check 1,819 1784 Check 1806 486 792 384 Prepare a bank reconciliation using the format presented in this chapter for the month of August. Assume there were no bank or bookkeeping errors in August.

Explanation / Answer

BANK RECONCILIATION Balance as per books 18786 Balance as per bank statement 16589 Add: Add: Deposit in transit of August 28 4882 4882 Less: 21471 Bank service charge 10 10 Less: Checks outstanding 4962 4962 Adjusted balance as per books 18776 Adjusted balance as per bank 16509 The adjusted balance as per books is more by 18776-16509 = $2267 This is the total of the o/s checks of $1967 (263+1218+486), wilfully omitted by the cashier in the recon statement +$300 totalling mistake in the reconciliation (refer to total of outstanding checks of 2695; itshould be 2995). The difference indicates the amount that could have been taken away by the cashier.

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