Question

Notification by the bank that a deposited customer check was returned NSF requires that the company make the following adjusting entry:
a. Accounts Receivable.
Cash.
b. No adjusting entry is necessary.
c. Cash.
Accounts Receivable.
d. Miscellaneous Expense.
Accounts Receivable.

Answer 1

Answer:

A) Accounts Receivable.

Cash.

Explanation:

A not sufficient funds (NSF) check is a check that a company received form a client and it was deposited in the company's checking account but it bounced because the customer's account didn't have enough funds to cover the check.

The entry to record receiving the check was:

Dr Cash

    Cr Accounts receivable

So now that journal entry must be reversed:

Dr Accounts receivable

    Cr Cash

   

Since checks are practically considered money, they increase or decrease cash account.