When performing a bank reconciliation, the adjustment related to fees for returned checks is D. NSF fees. These fees are recorded as an expense to reflect the additional cost incurred by the company due to insufficient funds in the account.
The adjustment that relates to fees for returned checks is D. NSF fees. NSF stands for "Non-Sufficient Funds," and it refers to a situation where a check is returned by the bank because the account holder did not have enough funds to cover the payment. When a bank reconciliation is performed, any NSF fees charged by the bank due to returned checks need to be journalized.
1. A bank reconciliation is a process of comparing the bank statement balance with the company's cash balance to ensure they match.
2. During this process, any discrepancies between the two balances are identified and adjustments are made to bring them into agreement.
3. One common adjustment is to account for NSF fees charged by the bank for returned checks.
4. When a check is returned due to insufficient funds, the bank usually charges a fee to the account holder.
5. To properly reflect this in the company's books, the NSF fees should be recorded as an expense.
6. The journal entry to record the NSF fees would involve debiting an expense account, such as "Bank Service Charges" or "NSF Fees," and crediting the cash account to reduce the cash balance.
7. By making this adjustment, the company's books accurately reflect the additional expense incurred due to returned checks.