An NSF check is a check returned by a bank for non-sufficient funds. For example, a business might accept a check in settlement of an accounts receivable balance on a customer account. The business sends the check to the bank for payment, but due to lack of funds on the checking account of the customer, the bank does not honor the check and returns it.
An NSF check can also be referred to as a non-sufficient funds check, bounced check, returned check or an insufficient funds check.
NSF Check Journal Entry
When a non-sufficient funds check is returned a journal entry is required to reflect the non payment on the customer account.
Suppose for example a customer settles their account with a check for 250, the business posts the check as normal and clears the balance on the customer account. The check is then forwarded to the bank and is subsequently returned due to non-sufficient funds on the customers account.
In this instance the journal entry to record the NSF check is as follows
The Accounting Equation for an NSF Check
The Accounting Equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities plus the owners equity of the business. This is true at any time and applies to each transaction.
For this NSF check transaction the accounting equation is shown in the following table.
In this case one balance sheet asset (accounts receivable) has been increased by 250 to reflect the fact that the customer still owes the business the balance on the account. In addition, another asset (cash) has decreased as the business has not received the cash from the customer.
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About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years in all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.