Snake Creek Company has one trusted employee who, asthe owner said, handles all of the book-keeping and paperwork forthe company. This employee is responsible for counting, verifying,and recording cash receipts and payments, making the weekly bankdeposit, preparing checks for major expenditures (signed by theowner), making small expenditures from the cash register for dailyexpenses, and collecting accounts receivable. The owners asked thelocal bank for a $ 20,000 loan. The bank asked that an audit beperformed covering the year just ended. The independent auditor ( alocal CPA), in a private conference with the owner, presented someevidence of the following activities of the trusted employee duringthe past year:
a. Cash sales sometimes were not entered in the cashregister, and the trusted employee pocketed approximately $ 50 permonth.
b. Cash taken from the cash register ( and pocketed by the trustedemployee) was replaced with expense memos with fictitioussignatures ( approximately $ 12 per day).
c. $ 300 collected on an account receivable from a valued out- of-town customer was pocketed by the trusted employee and was coveredby making a $ 300 entry as a debit to Sales Returns and a credit toAccounts Receivable.
d. $ 800 collected on an account receivable from a local customerwas pocketed by the trusted employee and was covered by making an $800 entry as a debit to Sales Discounts and a credit to AccountsReceivable.
Required:
1. What was the approximate amount stolen during thepast year?
TIP: Assume employees work 5 days a week, 52 weeks a year.
2. What would be your recommendations to the owner?
Snake Creek Company has one trusted employee who, asthe owner said, handles all of the book-keeping and paperwork forthe company. This employee is responsible for counting, verifying,and recording cash receipts and payments, making the weekly bankdeposit, preparing checks for major expenditures (signed by theowner), making small expenditures from the cash register for dailyexpenses, and collecting accounts receivable. The owners asked thelocal bank for a $ 20,000 loan. The bank asked that an audit beperformed covering the year just ended. The independent auditor ( alocal CPA), in a private conference with the owner, presented someevidence of the following activities of the trusted employee duringthe past year:
a. Cash sales sometimes were not entered in the cashregister, and the trusted employee pocketed approximately $ 50 permonth.
b. Cash taken from the cash register ( and pocketed by the trustedemployee) was replaced with expense memos with fictitioussignatures ( approximately $ 12 per day).
c. $ 300 collected on an account receivable from a valued out- of-town customer was pocketed by the trusted employee and was coveredby making a $ 300 entry as a debit to Sales Returns and a credit toAccounts Receivable.
d. $ 800 collected on an account receivable from a local customerwas pocketed by the trusted employee and was covered by making an $800 entry as a debit to Sales Discounts and a credit to AccountsReceivable.
Required:
1. What was the approximate amount stolen during thepast year?
TIP: Assume employees work 5 days a week, 52 weeks a year.
2. What would be your recommendations to the owner?
