Accounting: Daisey Company is a very profitable small business

Subject: Business    / Accounting
Scenario: Daisey 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 book-keeper. As a result, Bret Turrin
handles all cash receipts, keeps the accounting records, and prepares the monthly bank
The balance per the bank statement on October 31, 2017, was $18,380. Outstanding checks were
No. 62 for $140.75, No. 183 for $180, No. 284 for $253.25, No. 862 for $190.71, No. 863 for
$226.80, and No. 864 for $165.28. Included with the statement was a credit memorandum of $185
indicating the collection of a note receivable for Daisey Company by the bank on October 25.
This memorandum has not been recorded by Daisey.
The company’s ledger showed one Cash account with a balance of $21,877.72. The balance
included undepositied cash on hand. Because of the lack of internal controls, Bret took for personal
use all of the undeposited receipts in excess of $3,795.51. He then prepared the following bank
reconciliation in an effort to conceal his theft of cash:
Cash balance per books, October 31
Add: Outstanding checks
No. 862
No. 863
No. 864
165.28 482.79
Less: Undeposited receipts
Unadjusted balance per bank, October 31
Less: Bank credit memorandum
Cash balance per bank statement, October 31
Prepare a bank reconciliation report (hint: deduct the amount of the theft from the adjusted balance
per books) including the following: Indicate the three ways that Bret attempted to conceal the theft and the dollar amount involved in each method. What principles of internal control were violated in this case? Show all work in the Excel® spreadsheet and submit with the reconciliation report.