Final answer:
Nonsufficient funds (NSF) checks are recorded as a deduction on the company's books, reducing the cash balance. They are typically entered as a debit to the cash account and a credit to accounts receivable.
Step-by-step explanation:
When preparing a bank reconciliation, nonsufficient funds (NSF) checks would be recorded as a deduction on the company's books. An NSF check is a check that is returned by the bank due to insufficient funds in the account. It means that the person or company who wrote the check did not have enough money in their account to cover the payment.
To account for these NSF checks, they are typically entered as a debit to the company's cash account and as a credit to accounts receivable or a similar account. This reflects that the funds were not received and reduces the company's cash balance accordingly.
For example, if a customer's check for $100 is returned due to insufficient funds, the company would debit its cash account by $100 and credit accounts receivable by $100.