Your customer's NSF check found on the bank statement is a reconciling item on a bank reconciliation and will need to be ______.Multiple choice question.added to the Cash balance in your accounting recordsdeducted from the Cash balance in your accounting recordsadded back to the bank balancededucted from the bank balance twice since it was added in error originally
Question
Your customer's NSF check found on the bank statement is a reconciling item on a bank reconciliation and will need to be ______.Multiple choice question.added to the Cash balance in your accounting recordsdeducted from the Cash balance in your accounting recordsadded back to the bank balancededucted from the bank balance twice since it was added in error originally
Solution
The correct answer is: deducted from the Cash balance in your accounting records.
Here's why:
An NSF (Non-Sufficient Funds) check is a check that was previously deposited into your account, but was returned by the bank due to insufficient funds in the issuer's account.
When you receive an NSF check, it means that you thought you had received money, but in fact, you did not. Therefore, you have to correct your records to reflect that the money you thought you had, is not actually there.
So, in a bank reconciliation, an NSF check is a reconciling item that needs to be deducted from the Cash balance in your accounting records. This is because your accounting records initially added this amount to your cash balance when the check was deposited. Now that the check has bounced, you need to reverse this entry, which means you need to deduct it from your cash balance.
The other options are incorrect because:
- Adding it to the Cash balance in your accounting records would increase your cash balance, which is not correct because an NSF check represents money that you do not have.
- Adding it back to the bank balance or deducting it from the bank balance twice does not make sense because the bank balance is not affected by the NSF check. The bank balance is what the bank says you have, and they have already accounted for the NSF check by not including it in your balance.
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