Case 3. San Diego Harbor Tours has poor internal control over cash. Ben Johnsorn

Question

Case 3. San Diego Harbor Tours has poor internal control over cash. Ben Johnsorn, the owner, suspects the cashier of stealing. Here are some details of company cash at September 30. a. The Cash account in the ledger shows a balance of $6,450. b. The September 30 bank statement shows a balance of $4,300. The bank state- ment lists a $200 bank collection, a $10 service charge, and a $40 NSF check. c. At September 30, the following checks are outstanding: Amount $100 300 600 200 d. There is a $3,000 deposit in transit at September 30. e. The cashier handles all incoming cash and makes bank deposits. He also writes checks and reconciles the monthly bank statement. Johnson asks you to determine whether the cashier has stolen cash from the business and, if so, how much. Perform your own bank reconciliation using the for- mat illustrated in the chapter There are no bank or book errors. Explain how Johnson can improve his internal controls. (pp. 420, 417)

Explanation / Answer

Solution :-

As per bank statement:-

As per books :-

$50

$6600

Most importantly we should never allow cashier to handle all incoming cash and also make deposits into the bank. He should not be allowed to even write the cheques nor reconcile the bank statements with the books of accounts. This would result in the seperation of duties. For example:- If there are less employees in a company and does not have a computerised register or bills, this wouleads last in preparing 3 copies of invoices for each transaction and also method of payment.First copy of invoice should be signed or initiated by the customer in order to verify his method of payment. The second copy should be kept in the register. The third copy should be kept with the owner.

Then verifying the number of cheques, cc slips, cash balance should be tallied and at the end of the day a sheet containing the details of all the transactions should be stapled to the bills and should be send to the management. Management has been tallied her Ending of the day sheet, verifying both the cash and cheque balance should be checked and reconciled with the CC machine.

Beginning balance $4300 Add:- Deposit in transit $3000 $7300 Less:- Outstanding Cheques ($1200) ($1200) Adjusted Bank Balance $6100

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