Internal control and cash transactions (LG 2, 3, 4, 5) Charles Scott is the owner of a bicycle sales shop called Charlie's Cycle Center. The business employs six salespersons and one office employee named Dan Hands. Dan is a personal friend of Charles and has been a trusted employee since the business started three years ago. The following Cash account from the general ledger and other pertinent information come from the records of Charlie's Cycle Center for the month of October 2011: Cash Acct. No. 101 Balance Debit Credit Explanation PR Debit Credit Date 2011 Sep. Balance Oct. 7,452 8,377 6,195 9,114 42,974 50,426 58,803 64,998 74,112 59,855 14 57 NATIONAL TRAY Raoine, Wisconsin Statement of Account for: Charlie's Cycle Center 4835 Lake Street Racine, Wisconsin Account No. Period Ending Page 99-492-6661 October 31, 2011 October 31, 2011 $ 45,573 $ 15,541 Balance from last statement Number of deposits Deposits Number of withdrawals $ 23,366 Withdrawals Bank service charge Interest New balance this statement 12 $ 53,380 Deposits & Credits Date 10-01 10-02 10-05 10-12 933 934 Checks & Debits 929 455 1,103 2,433 756 1.228 892 521 1,322 3,449 1.785 668 Transaction Check 932 Debit memo-nonsufficient funds check Check 931 Check Check Check 935 Check 937 Check Check Check Check Check 941 Deposit Service charge 10-19 10-21 10-22 10-26 10-30 Balance 44,644 44,189 43,086 40,653 39,897 38,669 37,777 37,256 35,934 32,485 30,700 30,032 53,398 53,380 936 10-31 23,366 #939 Summary of checks and other debits: #931 1,103 #935 932 929 936 933 2,433 937 934 756 1,228 521 892 1,322 941 3,449 1,785 668 18 Deposits Debit Cash Payments Check No. Credit Cash Date 2017 Date 2011 Oct. Oct. 933 934 7,452 8,377 6,195 9,114 31,138 935 936 937 938 939 2,433 756 1,228 521 892 1,232 3,449 1,785 668 1,293 14.257 940 941 942 Other Information As of September 30, 2011, checks no. 24 for $567, no. 931 for $1,103, and no. 932 for $929 were outstanding. Check no. 24 had been written in December 2009 and was never cashed. There were no unrecorded bank deposits or bank charges at the end of September. Examination of the checks returned with the October 31, 2011, bank statement revealed that a check written by Peg Girotti in the amount of $455 in payment for a bicycle purchased in September 2011 had been returned by the bank due to nonsufficient funds. Check number 938 was written in payment of Accounts Payable. Until the beginning of October 2011, Charles Scott had personally taken responsibility for recording and depositing cash receipts, writing out all checks for payment, and preparing the bank reconciliation at the end of each month. As of October 1, 2011, Dan Hands was put in charge of all of these duties. Dan instituted a practice of counting the amount of cash and checks in the cash register at the end of each day and reconciling the amount to the cash register tape. The two amounts were the same each day. At the end of each day, the cash and checks were placed in a file cabinet located in the basement of the store. At the end of each week, Dan made a summary entry in the cash receipts journal debiting Cash and crediting Sales. Cash receipts for October 29, 30, and 31 in the amount of $3,421 have not been recorded yet. Dan felt that since there was an adequate balance in the checking account, he would make the bank deposit only once at the end of the month. Dan removed all of the cash and the customer checks from the file cabinet on October 31, 2011. He personally made the bank deposit of $23,366 at the end of that day and made sure that the bank recorded it as being received. Dan has tried to prepare the bank reconciliation for the month of October several times. However, he is having difficulty reconciling the book and bank balances. Charles Scott is concerned because he feels that, based on sales for the month of October 2011, the bank cash balance should be higher than $53,380. REQUIRED 1. Prepare a bank reconciliation as of September 30, 2011. 2. Determine the correct cash balance that should appear as an adjusted cash balance as of October 31, 2011, and compute the missing amount of cash. 3. Prepare general journal entries to adjust the accounting records as of October 31, 2011. 4. Prepare a list of internal control recommendations for Charlie's Cycle Center.

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