Question

Rex Company's bank statement shows a $200 NSF check. To determine the true cash balance the

amount of the NSF check must be added to the unadjusted bank balance.

amount of the NSF check must be subtracted from the unadjusted book balance.

amount of the NSF check must be added to the unadjusted book balance.

amount of the NSF check must be subtracted from the unadjusted bank balance.

Answer 1

The correct action for the Rex Company when accounting for a $200 NSF check on their bank statement is to subtract it from their unadjusted book balance, reflecting the true amount of available cash in their records.

Step-by-step explanation:

When Rex Company's bank statement shows a $200 NSF (Non-Sufficient Funds) check, it indicates that a check that was previously recorded as a deposit has bounced due to insufficient funds in the check writer's account.

Since the bank statement reflects the bank's perspective, the NSF check is initially reflected in the bank's balance. However, for Rex Company, they need to adjust their book balance to reflect this reality. Thus, the correct action is that the amount of the NSF check must be subtracted from the unadjusted book balance.

This means that in the company's accounting records, they must reverse the previous entry that recognized the check as a deposit. The NSF check does not affect the unadjusted bank balance because the bank has already deducted it when the check bounced. The reduction in the book balance updates Rex Company's cash account to represent the true amount of available cash after accounting for the NSF check.