A customer's check for $25 that had been deposited into the company's checking account the previous month was returned stamped "NSF" by the bank. Which of the following journal entries is required?
A)Cash 25 Accounts Receivable 25
B)Cash 25 Accounts Payable 25
C)Account Receivable 25 Petty Cash 25
D)Accounts Receivable 25 Cash 25

Question

Quizplus · Accepted Answer

Since the customer's check bounced, the company no longer has the cash that was originally deposited. Therefore, the Accounts Receivable account must be reduced to reflect the fact that the customer's debt has not been paid. At the same time, the Cash account must also be reduced to remove the $25 deposit that was posted previously. The correct journal entry to record this transaction is:
Accounts Receivable - 25
Cash - 25

A Customer's Check for $25 That Had Been Deposited into the Company's