Assignment

Snake Creek Company has one trusted employee who, as the owner said, handles all of the book-keeping and paperwork for the company. This employee is responsible for counting, verifying, and recording cash receipts and payments, making the weekly bank deposit, preparing checks for major expenditures (signed by the owner), making small expenditures from the cash register for daily expenses, and collecting accounts receivable. The owners asked the local bank for a $ 20,000 loan. The bank asked that an audit be performed covering the year just ended. The independent auditor ( a local CPA), in a private conference with the owner, presented some evidence of the following activities of the trusted employee during the past year:

a. Cash sales sometimes were not entered in the cash register, and the trusted employee pocketed approximately $ 50 per month.

b. Cash taken from the cash register (and pocketed by the trusted employee) was replaced with expense memos with fictitious signatures (approximately $ 12 per day).

c. $ 300 collected on an account receivable from a valued out- of- town customer was pocketed by the trusted employee and was covered by making a $ 300 entry as a debit to Sales Returns and a credit to Accounts Receivable.

d. $ 800 collected on an account receivable from a customer was pocketed by the trusted employee and was covered by making an $ 800 entry as a debit to Sales Discounts and a credit to Accounts Receivable.

Required:

1. What was the approximate amount stolen during the past year?

TIP: Assume employees work 5 days a week, 52 weeks a year.

2. What would be your recommendations to the owner?

What insight does ROI give into investment performance? Is it acceptable to lose profit on one product, if that product is vital to the sale of an extremely profitable product? Why?

As you think about these questions, also consider what other measures beside ROI might be help in analyzing solutions to business problems - or opportunities.