Problem 1

Supreme Companys bookkeeper prepared the bank reconciliation for May 31, 2010. The bookkeeper had the following responsibilities: All bookkeeping, the handling of cash receipts, the preparation of the monthly bank reconciliation and the deposit at the bank. Assume that the bookkeeper prepared all of the checks which were signed by the owner. The owner, on a daily basis verified and signed all checks that were written, counted all cash and verified the debit to cash in the cash receipts journal and the credit to cash in the cash payments journal. Assume that the office manager performed all other duties.

May 31 Bank Statement
Balance of previous bank statement on 4/30	$ 12,760
Six deposits and other credits totaling	7,596
Eleven checks and other debts totaling	4,977
Current balance as of this statement	$ 15, 379

Date	Amount	Transition Type
5/1	$ 915	Deposit	See Duplicate Deposit Slips Page 2
5/2	$ 1,000	Deposit
5/5	$ 737	Deposit
5/14	$ 850	Deposit
5/21	$ 729	Deposit
5/28	$ 815	Deposit
5/28	$ (581)	NSF Check
5/31	$ (11)	Service Charge
5/31	$ 2,550	Bank Collection	(Collection on note, principal $2,500)

Date	Check #	Amount
5/1	391	$ 125	See Carbon Copy of Checks Issued Pages 3 - 5
5/1	392	$ 112
5/2	393	$ 500
5/3	394	$ 215
5/4	395	$ 100
5/13	398	$ 750
5/17	399	$ 1,000
5/27	400	$ 543
5/28	401	$ 450
5/29	402	$ 175
5/31	403	$ 415

Duplicate Deposit Slips

Deposit Slip	Cash	Currency Coins	00	00
Date	List of Checks
4/30/10	Gilly		915	00
		Total	915	00

Deposit Slip	Cash	Currency Coins	750	00
Date	List of Checks
5/1/10	Jones		250	00
		Total	1000	00

Deposit Slip	Cash	Currency Coins	156	00
Date	List of Checks
5/4/10	Slade		581	00
		Total	737	00

Deposit Slip	Cash	Currency Coins	500	00
Date	List of Checks
5/13/10	Luce		350	00
		Total	850	00

Deposit Slip	Cash	Currency Coins	600	00
Date	List of Checks
5/20/10	Pyle		129	00
		Total	729	00

Deposit Slip	Cash	Currency Coins	445	00
Date	List of Checks
5/27/10	Dudley		370	00
		Total	815	00

Deposit Slip	Cash	Currency Coins	0	00
Date	List of Checks
5/31/10	Gilly		915	00
		Total	915	00

Copies of Written Checks

Supreme Company	Date: 4/17/10	391
Pay to the Order of Jones & Company		$ 125.00
NBT Bank	One Hundred Twenty-Five and no cents
Memo: Supplies	Jill Supreme

Supreme Company	Date: 4/15/10	392
Pay to the Order of Jordon		$ 112.00
NBT Bank	One Hundred twelve and no cents
Memo: Invoice 2324	Jill Supreme

Supreme Company	Date: 4/21/10	393
Pay to the Order of Jones & Company		$ 500.00
NBT Bank	Five Hundred and no cents
Memo: Invoice 5132	Jill Supreme

Supreme Company	Date: 4/24/10	394
Pay to the Order of King and Company		$ 215.00
NBT Bank	Two Hundred fifteen and no cents
Memo: Invoice 700	Jill Supreme

Supreme Company	Date: 4/28/10	395
Pay to the Order of Jones & Company		$ 100.00
NBT Bank	One Hundred and no cents
Memo: Invoice 2360	Jill Supreme

Supreme Company	Date: 4/30/10	396
Pay to the Order of Al Kazam Leisure Man		$ 514.00
NBT Bank	Five Hundred fourteen and no cents
Memo: Invoice 010	Jill Supreme

Supreme Company	Date: 4/30/10	397
Pay to the Order of Jones International		$ 771.00
NBT Bank	Seven Hundred seventy one and no cents
Memo: Invoice 010	Jill Supreme

Supreme Company	Date: 5/01/10	398
Pay to the Order of Carr Office Supplies		$ 750.00
NBT Bank	Seven Hundred fifty and no cents
Memo: Invoice 870	Jill Supreme

Supreme Company	Date: 5/12/10	399
Pay to the Order of Jill Supreme		$ 1,000.00
NBT Bank	One Thousand and no cents
Memo: Withdrawal	Jill Supreme

Supreme Company	Date: 5/20/10	400
Pay to the Order of Hooyah		$ 543.00
NBT Bank	Five Hundred forty three and no cents
Memo: Invoice 571	Jill Supreme

Supreme Company	Date: 5/22/10	401
Pay to the Order of King & Company		$ 450.00
NBT Bank	Four Hundred fifty and no cents
Memo: Invoice 556	Jill Supreme

Supreme Company	Date: 5/24/10	402
Pay to the Order of Utility Company		$ 175.00
NBT Bank	One Hundred seventy-five and no cents
Memo: May Electric Bill	Jill Supreme

Supreme Company	Date: 5/27/10	403
Pay to the Order of Ollyoop		$ 415.00
NBT Bank	Four Hundred fifteen and no cents
Memo: Invoice 5002	Jill Supreme

Supreme Company	Date: 5/28/10	404
Pay to the Order of Gardiner Company		$ 300.00
NBT Bank	Three Hundred and no cents
Memo: Invoice 444	Jill Supreme

Supreme Company	Date: 5/30/10	405
Pay to the Order of Father & Sons		$ 160.00
NBT Bank	One Hundred sixty and no cents
Memo: Invoice 123	Jill Supreme

Supreme Company	Date: 5/31/10	406
Pay to the Order of Thomson Learning		$ 514.00
NBT Bank	Five Hundred fourteen and no cents
Memo: Books	Jill Supreme

Supreme Company	Date: 5/21/10	407
Pay to the Order of Ollyoop		$ 800.00
NBT Bank	Eight Hundred and no cents
Memo: Invoice 5020	Jill Supreme

SUPREME COMPANYS BOOKS

Cash Receipts Recorded in Cash Receipts Journal
Date	Cash Debit
5/1	$ 1,000	*JS
5/4	$ 737	*JS
5/9	$ 1,285	*JS
5/13	$ 850	*JS
5/20	$ 729	*JS
5/27	$ 815	*JS
5/31	$ 915	*JS
Total=	$ 6,331

Cash Payments Recorded In Cash Payments Journal
Check No.	Cash Credit
398	$ 750
399	$ 1,000
400	$ 345
401	$ 450
402	$ 175
403	$ 415
404	$ 300
405	$ 160
406	$ 514
407	$ 800
Total=	$ 4,909

See duplicate deposit slips on page 2. See duplicate carbon copies of checks on pages 3 - 5.

Assume that all cash receipts were counted by owner-Jill Supreme, and she verified the debit in the cash receipts journal and the bookkeeper deposited in bank on the same day.

Assume that all deposits cleared the bank the day after they were recorded in the cash receipts journal and deposited. (i.e. 5/4 deposit cleared on 5/5 see page 1). Assume that any cash receipt that did not clear the bank by the next day was never deposited in the bank.

Cash General Ledger
Date	Explanation	Debit	Credit	Balance
4/30	Balance			11,338
5/31	Cash Receipts	6,331
5/31	Cash Payments		4,909	12,760

Check No. 400 was issued for $543 to Hooyah in payment of an accounts payable. The NSF check returned with the bank statement was received from customer, Pat Slade in payment of his Accounts

Receivable. The NSF check has not been recorded in the general ledger.

The following is the bank reconciliation prepared by the bookkeeper for April 30, 2010.

SUPREME COMPANY

BANK RECONCILIATION

April 30, 2010

Cash balance according to bank statement		$12,760
Add: Deposits in Transit 4/30	$ 915
		$ 915
		$ 13,675
Less:
Outstanding Checks:
391	$ 125
392	$ 112
393	$ 500
394	$ 215
395	$ 100
396	$ 514
397	$ 771
		$ 2,337
Adjusted Balance		$ 11,338

Cash balance according to the ledger		$ 9,200
Add:
Additions to bank account not recorded on books proceeds from collection of note
Principal	$ 2,500
Interest	$ 50
Error in recording check 389	$ 180
		$ 2,730
		$ 11,930
Deductions by bank not recorded on books:
Check Returned NSF	$ 581
Bank Service Charge	$ 11
		$ 592
Adjusted Balance		$ 11,338

SUPREME COMPANY

BANK RECONCILIATION

May 31, 2010

Cash balance according to bank statement		$ 15,379
Add: Deposits in Transit 5/31	$ 915
		$ 915
		$ 16,294
Less:
Outstanding Checks:
404	$ 300
405	$ 160
406	$ 514
407	$ 800
		$ 1,774
Adjusted Balance		$ 14,520

Cash balance according to the ledger		$ 12,760
Add:
Additions to bank account not recorded on books proceeds from collection of note
Principal	$ 2,500
Interest	$ 50
		$ 2,550
		$ 15,310
Deductions by bank not recorded on books:
Check Returned NSF	$ 581
Bank Service Charge	$ 11
Error in recording check 400	$ 198
		$ 790
Adjusted Balance		$ 14,520

Required:

Review the Bank Reconciliation prepared by your employee on May 31 above and prepare a corrected bank reconciliation. (Prepare on the Project 3 Excel Spreadsheet Problem 1 parts 1 & 4 tab).

Explain why you think your corrected bank reconciliation does not balance. How did the employee conceal the embezzlement? (Prepare on the Project 3 Excel Spreadsheet Problem 1 parts 2 & 3 tab)

Recommend any improvements to internal controls to prevent this embezzlement from occurring again. Assume that the only parties who will be working in this business will be Jill Supreme (owner), the new bookkeeper and the office manager.

Include in your discussion the following:

Who should receive the cash receipts and make the deposit at the bank when the owner is out of the office? Include the rationale for your answer.

Who should prepare the monthly bank reconciliation? Include the rationale for your answer.

Who should sign the checks? Include the rationale for your answer.

Who should do the bookkeeping? Include the rationale for your answer. (Prepare Part 3 on the Project 3 Excel Spreadsheet Problem 1 parts 2 & 3 tab)

Record all required journal entries for May 31, 2010 related to the bank reconciliation including a journal entry for the embezzlement. Assume the embezzlement was never recovered. (Record the journal entries on the Project 3 Excel Spreadsheet Problem 1 1 & 4 tab)

Requirement 4. Record the journal entries including a journal entry for the embezzlement Supreme Company Corrected Bank Reconciliation Journal E Date 31, 2010 Accounts Debit Credit Bank: Month End Cash Balance per bank statement, May 31 Add: May 31, 2010 Deposits in transit Journal En Outstanding checks: Date Accounts Debit May 31, 2010 ournal En Date May 31, 2010 Debit Credit Adjusted bank bank balance, May 31 Month End Cash Balance According to ledger Balance, May 31 Add: Journal En Date Debit May 31, 2010 Journal En Date Accounts Debit Adjusted book balance, May 31 May 31, 2010 Requirement 4. Record the journal entries including a journal entry for the embezzlement Supreme Company Corrected Bank Reconciliation Journal E Date 31, 2010 Accounts Debit Credit Bank: Month End Cash Balance per bank statement, May 31 Add: May 31, 2010 Deposits in transit Journal En Outstanding checks: Date Accounts Debit May 31, 2010 ournal En Date May 31, 2010 Debit Credit Adjusted bank bank balance, May 31 Month End Cash Balance According to ledger Balance, May 31 Add: Journal En Date Debit May 31, 2010 Journal En Date Accounts Debit Adjusted book balance, May 31 May 31, 2010