D.J. Fletcher, a trusted employee of Bluestem Products, found himself in personal financial difficulties and decide to “borrow” $3,000 from the company and to conceal his theft. As a first step, Fletcher removed $3,000 in currency from the cash register. This amount represents the bulk of the cash received over the counter during the three business days since the last bank deposit. Fletcher then removed a $3,000 check from the day’s incoming mail; this check had been mailed in by a customer, Michael Adams in full payment in his account. Fletcher made no journal entry to the record the $3,000 collection from Adams but deposited the check in Bluestem Product’s bank account in place of the $3,000 over-the-counter cash receipts he had stolen. In order to keep Adams from protecting when his month-end statement reached him. Fletcher made a journal entry debiting Sales Returns and Allowances and crediting account receivables Michael Adams. Fletcher posted this entry to the two general ledger accounts affected and to Adam’s account in the subsidiary ledger for account receivables. a. Did these actions by Fletcher cause the general ledger to be out of balance or the subsidiary ledger to disagree with the control account? Explain. b. Assume that Bluestem Products prepare financial statements at the end of the month without discovering the theft. Would any items in the balance sheet or the income statement be in error? Explain. c. Several weaknesses in the internal control apparently exist at Bluestem Products. Indicate three specific changes needed to strengthen internal control cover cash receipts
D.J. Fletcher, a trusted employee of Bluestem Products, found himself in personal financial difficulties and decide to “borrow” $3,000 from the company and to conceal his theft.
As a first step, Fletcher removed $3,000 in currency from the cash register. This amount represents the bulk of the cash received over the counter during the three business days since the last bank deposit. Fletcher then removed a $3,000 check from the day’s incoming mail; this check had been mailed in by a customer, Michael Adams in full payment in his account. Fletcher made no
In order to keep Adams from protecting when his month-end statement reached him. Fletcher made a journal entry debiting Sales Returns and Allowances and crediting
a. Did these actions by Fletcher cause the general ledger to be out of balance or the subsidiary ledger to disagree with the control account? Explain.
b. Assume that Bluestem Products prepare financial statements at the end of the month without discovering the theft. Would any items in the balance sheet or the income statement be in error? Explain.
c. Several weaknesses in the internal control apparently exist at Bluestem Products. Indicate three specific changes needed to strengthen internal control cover cash receipts
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
