Non-sufficient fund (NSF) checks are when the company gets paid with a check from a customer, and then when the bank goes to cash the check, the customer's account doesn't have the funds to pay the check amount!
The bank alerts the company of these NSF checks at the time of reconciliation. Therefore, they impact the Company's Cash Balance (since the company needs to get on the same page as the bank).
We can see a non-sufficient funds check occurred here...
Question: On April 31st, 2022, Hats LLC has a Cash balance of $800. Over the course of the month, they wrote $10,000 in checks, but $200 of those checks haven’t been processed by CashForDays bank. In addition, $170 out of their $20,000 in cash receipts still needs to be deposited in CashForDays Bank.
However, on their bank statement, it shows a Cash Balance of $850 and includes the following items not yet recorded by the company: a note receivable collected by the bank for $200, interest earned on that note of $20, and a bank service fee of $50. In addition, the bank accidentally charged Hats LLC $50 for a service fee that was meant to be on another customer’s account. Lastly, one of Hats LLC customer’s checks for $100 returned back with non-sufficient funds.
Prepare the bank reconciliation to correct the ending Cash Balance on April 31st, 2022.
...will this add or subtract form the Company's Cash Balance?
Company's Cash Balance Items
|Reconciling Item||Description||Add or Subtract to Cash Balance?|
|Note collected||Bank collects a note on behalf of the company.||Add|
|Interest earned||Bank collects interest on behalf of the company.||Add|
|Service fees||Bank charges company a service fee for bank services.||Subtract|
|NSF check||Company receives a check, but the account doesn't have sufficient funds to pay the check amount.||Subtract|
|Electronic Funds Transfers (EFTs)||Automatic withdrawals from the company's bank account (ex: rent).||Subtract|
|Company error||Company incorrectly records a transaction amount.||Add / Subtract (it depends)|
They subtract from the Company's Cash Balance!
We'll write that in our bank reconciliation like so:
(It's in parentheses because it is a negative number subtracting away from the Company's Cash Balance.)
Bank's Cash Balance
|Per Bank Statement||$850|
|Bank Balance per Reconciliation||???|
Company's Cash Balance
|Per General Ledger||$800|
|Company Balance per Reconciliation||???|