Question

This month's bank statement includes a check from a customer that was marked NSF. How would this item be treated on the bank reconciliation? Is it added to or deducted from the bank balance or the company's cash (book) balance?

It would be deducted from the book balance.
It would be added to the bank balance.
It would be deducted from the bank balance.
It would be added to the book balance.

Answer 1

In bank reconciliation, an NSF check is deducted from the company's cash (book) balance because the bank has already removed the funds from the account, and thus it doesn't affect the bank balance.

Step-by-step explanation:

How to Treat a Check Marked NSF in Bank Reconciliation

When conducting a bank reconciliation, a check marked as NSF (non-sufficient funds) indicates that a customer's check has been returned by the bank because the customer's account did not have enough funds to cover the check. This NSF check needs to be accounted for in the reconciliation process. Since the check was initially recorded as a deposit in the company's books, the NSF check would now be deducted from the company's cash (book) balance. It is not directly involved with changing the bank's recorded balance, as the bank has already removed the amount from the company's account balance when the NSF status was applied. Therefore, it does not need to be added or deducted from the bank balance in the reconciliation.