D J Fletcher a trusted employee of Bluestem Products

found
D. J. Fletcher, a trusted employee of Bluestem Products, found himself in personal financial
difficulties and decided 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 represented the
bulk of the cash received in over-the-counter sales 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 of his account. Fletcher
made no journal entry to record the $3,000 collection from Adams, but deposited the check in
Bluestem Products’ bank account in place of the $3,000 over-the-counter cash receipts he had
stolen. In order to keep Adams from protesting when his month-end statement reached him,
Fletcher made a journal entry debiting Sales Returns and Allowances and crediting Accounts
Receivable—Michael Adams. Fletcher posted this entry to the two general ledger accounts
affected and to Adams’s account in the subsidiary ledger for accounts receivable. 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 prepares
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
internal control apparently exist in Bluestem Products. Indicate three specific changes needed
to strengthen internal control over cash receipts.View Solution:
D J Fletcher a trusted employee of Bluestem Products found
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