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Cash Solutions
Cash Solutions
The Patrick Company had poor internal control over its cash transactions. Facts about its cash position at November 30 were as
follows:
The cash books showed a balance of $18,901.62, which included undeposited receipts. A credit of $100 on the bank statement did not
appear on the books of the company. The balance according to the statement was $15,550.
When you receive the cutoff bank statement on December 10, the following cancelled cheques were enclosed: No. 6500 for $116.25, No.
7126 for $150.00, No. 7815 for $253.25, No. 8621 for $190.71, No. 8623 for $206.80, and No. 8632 for $145.28. The only deposit was in
the amount of $3,794.41 on December 7.
The cashier handles all incoming cash and makes the bank deposits personally. He also reconciles the monthly bank statement. His
November 30 reconciliation is shown below.
Required:
1.You suspect that the cashier has stolen some money. Prepare a schedule showing your estimate of the loss
2.How did the cashier attempt to conceal the theft?
3.Based only on the information above, name two specific features of internal control that are missing.
4.If the cashier’s October 31 reconciliation is known to be in order and you start your audit on December, what
specific auditing procedures could you perform to discover the theft? Cash 1
Cash balance, per books on November 30 $18,901.62
Less:
6500 $116.25
7126 150.00
7815 253.25
8621 190.71
8623 206.80
Cash 2
The minimum amount of the theft is $719.50 if the cash reported as
“undeposited receipts” ($3,794.41) was actually on hand, represented November
receipts, and was deposited intact in December.
REQUIRED
a)Assuming that each of these misstatements was intentional, state the most likely motivation of the
person responsible.
b)What control could be instituted for each intentional misstatement to reduce the likelihood of errors.
c)List an audit procedure that could be used to discover each misstatement.
Cash 5
Solution to Problem 17-22
3. Hold open books to improve cash Trace deposits in transit to cutoff bank statements
Independent bank reconciliation
position to determine deposit date.
6. Kiting-covering a defalcation Independent bank reconciliation Trace all bank transfers to accounting records.
7. To cover a shortage Internal verification of bank reconciliation Foot outstanding cheque list.
Cash 6