HW Unit 2 Week 6

Fraud, Internal Control, and Cash – 3 Parts

Part A. You realize that there is more to running the shop than you anticipated and maybe you should take some accounting classes at the local community college. With the success of your shop, you are spreading yourself thin and need to hire additional help including supervisors. With the hiring of additional personnel and your absence from the shop, fraud is likely to occur.

Required for part A

What measures can you establish to help you prevent losses and fraud in your business? please explain.

Part B. At school, you meet John, an accounting student who runs his own accounting service. After sharing your business success, he has asked if you would like to have him do your accounting. John and you meet and discuss your business. John suggests that he do the following for you.

1. Hold onto cash until there is enough to be deposited. (He would keep the cash locked up in his vehicle). He would also take all of the deposits to the bank at least twice a month.
2. Write and sign all the checks.
3. Record all of the deposits in the accounting records.
4. Record all of the checks in the accounting records.
5. Prepare the monthly bank reconciliation.
6. Transfer all of your manual accounting records to his computer accounting program. John maintains all of the accounting information that he keeps for his clients on his laptop computer.
7. Prepare monthly financial statements for you to review.
8. Write himself a check every month for the work he has done for you.

Required part B

Identify the weaknesses in internal control that you see in the system that John is recommending. (Consider the principles of internal control identified in the chapter). Can you suggest any improvements if John is hired to do the accounting?

Part C. You decide that you cannot afford to hire John to do the accounting. One way that you can ensure that your cash account does not have any errors and is accurate and up-to-date is to prepare a bank reconciliation at the end of each month. Prepare a bank reconciliation for June 2022 using the following information.

GENERAL LEDGER

PREMIER BANK

Statement of Account

June 30, 2021

Additional information:

1. On May 31, there were two outstanding checks: #595 for $238 and #599 for $361.
2. Premier Bank made a posting error to the bank statement: check #603 was issued for $425, not $452.
3. The deposit made on June 20 was for $125 that you received for a party. You made an error in recording this transaction.
4. The electronic fund's transfer (EFT) was for your utilities expense.
5. The NSF check was from Ron Black. You received this check for catering a class for Ron’s children. You contacted Ron, and he assured her that you will receive a check in the mail for the outstanding amount of the invoice and the NSF bank charge.

Required part C

30. Prepare a bank reconciliation for June 30.
31. Prepare any necessary adjusting entries at June 30.
32. If a balance sheet is prepared at June 30, what balance will be reported as cash in the current assets section?