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Financial & Managerial Accounting
Found in: Page 316

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Short Answer

BTN 6-3 Harriet Knox, Ralph Patton, and Marcia Diamond work for a family physician, Dr. Gwen Conrad, who is in private practice. Dr. Conrad is knowledgeable about office management practices and has segregated the cash receipt duties as follows. Knox opens the mail and prepares a triplicate list of money received. She sends one copy of the list to Patton, the cashier, who deposits the receipts daily in the bank. Diamond, the recordkeeper, receives a copy of the list and posts payments to patients’ accounts. About once a month the office clerks have an expensive lunch they pay for as follows. First, Patton endorses a patient’s check in Dr. Conrad’s name and cashes it at the bank. Knox then destroys the remittance advice accompanying the check. Finally, Diamond posts payment to the customer’s account as a miscellaneous credit. The three justify their actions by their relatively low pay and knowledge that Dr. Conrad will likely never miss the money.


3. What are some procedures to detect this type of fraud?


Dr Conrad shall get on-board an employee that oversees the process of reconciliation. Also, there can be bank reconciliation and income reconciliation with receipt.

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Step by Step Solution

Step-by-Step SolutionStep 1: Introduction to topic

Business Ethics- Business ethics is a professional ethics that analyses ethical standards and moral or ethical issues that can emerge in a business climate.

Step 2: Procedure to detect fraud-

They must maintain proper documentation for all records, and the concerned authority must approve the transactions. The authority should practice a surprise checking process, and Dr Conrad should conduct a daily review of all the activities. A third party should be appointed as an internal auditor for Dr Conrad. Checks received must be marked as ‘For Deposit only’ the moment they are received.

Most popular questions for Business-studies Textbooks

The following information is available to reconcile Branch Company’s book balance of cash with its bank statement cash balance as of July 31, 2017.

a. On July 31, the company’s Cash account has a $27,497 debit balance, but its July bank statement shows a $27,233 cash balance.

b. Check No. 3031 for $1,482 and Check No. 3040 for $558 were outstanding on the June 30 bank reconciliation. Check No. 3040 is listed with the July canceled checks, but Check No. 3031 is not. Also, Check No. 3065 for $382 and Check No. 3069 for $2,281, both written in July, are not among the canceled checks on the July 31 statement.

c. In comparing the canceled checks on the bank statement with the entries in the accounting records, it is found that Check No. 3056 for July rent expense was correctly written and drawn for $1,270 but was erroneously entered in the accounting records as $1,250.

d. The July bank statement shows the bank collected $8,000 cash on a noninterest-bearing note for Branch, deducted a $45 collection expense, and credited the remainder to its account. Branch had not recorded this event before receiving the statement.

e. The bank statement shows an $805 charge for a $795 NSF check plus a $10 NSF charge. The check had been received from a customer, Evan Shaw. Branch has not yet recorded this check as NSF.

f. The July statement shows a $25 bank service charge. It has not yet been recorded in miscellaneous expenses because no previous notification had been received.

g. Branch’s July 31 daily cash receipts of $11,514 were placed in the bank’s night depository on that date but do not appear on the July 31 bank statement.


1. Prepare the bank reconciliation for this company as of July 31, 2017.


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