Understanding the Impact of NSF Checks on Cash Balances
What action should a company take when accounting for an NSF check on their bank statement?
a) Subtract the NSF check from the unadjusted bank balance.
b) Add the NSF check to the unadjusted book balance.
c) Subtract the NSF check from the unadjusted book balance.
d) Add the NSF check to the unadjusted bank balance.
Answer:
The correct action for the company when accounting for an NSF check on their bank statement is to subtract it from their unadjusted book balance.
When a company encounters an NSF (Non-Sufficient Funds) check on their bank statement, it signifies that a check initially recorded as a deposit has bounced due to insufficient funds in the check writer's account. Despite the NSF check being reflected in the bank's balance, the company must adjust its book balance to accurately portray the available cash.
Therefore, the appropriate action is to subtract the amount of the NSF check from the unadjusted book balance. This adjustment rectifies the discrepancy between the bank statement and the company's records, ensuring the true cash balance is reflected.
By subtracting the NSF check from the unadjusted book balance, the company acknowledges the impact of the bounced check on their cash flow. This adjustment is necessary to maintain accurate financial reporting and ensure the company's records align with the bank statement.