Using a bank reconciliation as a control device
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.
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CAVENDER'S BOOT CITY Bank Reconciliation January 31, 2012
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Bank
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Books
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Balance, January 31
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$ 1,500
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Balance, January 31
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$ 1,050
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Add: Deposit in transit
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410
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Add: Bank collection
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790
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Less: Outstanding checks
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1,080
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Interest revenue
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15
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Adjusted bank balance
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$ 830
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Less: Service charge
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20
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Adjusted book balance
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$ 1,835
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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.