When a non-sufficient funds (NSF) check is discovered and requires an adjustment to the cash balance, which journal entry should be recorded?

• A. Debit Accounts Receivable; Credit Cash
• B. Debit Cash; Credit Accounts Receivable
• C. Debit Cash; Credit Bank Service Charges
• D. Debit Bank Service Charges; Credit Cash

Answer: (A)

Verified step by step guidance

1. Understand the concept of a non-sufficient funds (NSF) check: An NSF check occurs when a check deposited into a bank account is returned because the payer's account does not have enough funds to cover the check amount. This requires an adjustment to the cash balance and accounts affected.
2. Identify the accounts involved: When an NSF check is discovered, the cash balance in the bank account decreases because the check amount is not collectible. The amount needs to be reclassified as Accounts Receivable since the payer still owes the money.
3. Determine the journal entry: To adjust for the NSF check, you need to debit Accounts Receivable to increase the amount owed by the payer and credit Cash to decrease the cash balance in the bank account.
4. Write the journal entry: The journal entry will be structured as follows: Debit Accounts Receivable (to record the amount owed by the payer) and Credit Cash (to reduce the cash balance).
5. Review the options provided: Compare the correct journal entry (Debit Accounts Receivable; Credit Cash) with the options listed in the problem to confirm the correct answer.