E7-16 Using a bank reconciliation as a control device [10 min]
Lynn Cavender owns Cavender Boot City. She fears that a trusted employee has been
stealing from the company. This employee receives cash from customers and also prepares
the monthly bank reconciliation. To check up on the employee, Cavender prepares her
own bank reconciliation, as shown. This reconciliation is both complete and accurate,
based on the available data.
CAVENDER’S BOOT CITY
Bank Reconciliation
January 31, 2012
Balance, January 31 1,500
Add: Deposit in transit 410
Less: Outstanding checks 1,080
Adjusted bank balance 830
and so on ...
Requirements
1. How is the preparation of a bank reconciliation considered to be a control device?
2. Which side of the reconciliation shows the true cash balance?
3. What is Cavender’s true cash balance?
4. Does it appear that the employee has stolen from the company?
5. If so, how much? Explain your answer.
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