The following adjustment is necessary upon discovery of a "NSF" check during a bank reconciliation:
A) Increase Accounts Receivable; decrease cash
B) Increase Not Sufficient Funds Expense; decrease Cash
C) Increase Miscellaneous Expense; decrease Cash
D) No adjustment is necessary because the bank makes the entry.
E) None of the above

Question

Quizplus · Accepted Answer

When a "NSF" (Non-Sufficient Funds) check is discovered during a bank reconciliation, the company needs to reverse the initial entry that recognized the check as cash. This involves increasing Accounts Receivable to reflect that the customer's payment was not successful and decreasing Cash to correct the cash balance.

The Following Adjustment Is Necessary Upon Discovery of a "NSF