Question

Wilson Company used a check to pay Smith Company for services provided by Smith. Smith deposited Wilson’s check in its account with the State Bank. When Smith’s most recent bank statement was examined,the company’s accountant noticed that the Wilson check had been classified as an NSF (not sufficient funds) check. The NSF check

a. was shown as a debit on Smith’s bank statement.
b. was shown as a credit on Smith’s bank statement.
c. was not shown on Smith’s bank statement.
d. was reported only in the footnotes to Smith’s bank statement.

Answer 1

The NSF check was shown as a debit on Smith's bank statement.

Step-by-step explanation:

The correct answer is a. The NSF check was shown as a debit on Smith's bank statement.

When Smith deposited the Wilson check in its account with the State Bank, it was expecting the check to be valid and successfully cleared. However, when the bank examined Smith's most recent bank statement, it classified the Wilson check as an NSF check due to insufficient funds in Wilson's account.

In accounting, the classification of an NSF check as a debit on the bank statement represents an increase in an expense or a decrease in an asset for the recipient of the check, in this case, Smith Company.