NSF Check Journal Entry
NSF or non-sufficient funds check is the check that the company deposited to the bank but later the bank returned the check back to the company due to the checking account does not have sufficient funds. In this case, the company needs to make a proper journal entry for the NSF check to correct the difference between the book balance and the balance at the bank.
The case of NSF check is usually found out when the company prepares the bank reconciliation. Likewise, the balance that is required for the adjustment here is the book balance, hence the journal entry for the NSF check will be required after the company have prepared the bank reconciliation.
NSF check journal entry
The company can make the NSF check journal entry by debiting the accounts receivable of the customer who gave the NSF check as payment or as settlement the receivable and crediting the cash account.
In this journal entry, the company debits the accounts receivable as it will need to collect the amount due from the customer. This is because the check provided for the payment or settlement of receivable is not valid due to not having sufficient funds in the customer’s checking account. At the same time, the company needs to credit the cash account as the bank should have already deducted the NSF check in the bank statement.
For example, the company has received the bank statement for the month together with the return of the NSF check for $500 from the bank.
In this case, the company needs to make the journal entry for NSF check that the bank return to correct its book balance as below:
NSF check with the fee charged from the bank
Sometimes, the bank may charge the fee on the NSF check and this fee charge seems to be the expense that the company should recognize as NSF check expense. However, as the original owner of the NSF check, that is the customer, is accountable for NSF, the company usually record the fee charged to the customer’s account instead of recording expense in the income statement.
Likewise, the journal entry is still the debit of accounts receivable and the credit of cash account. So, if there are fee charges on the NSF check from the bank, the accounts receivable in the journal entry will be the amount of the NSF check plus the fee charge.