NSF Check Bank Reconciliation (With Complete Example)

Wanna learn non sufficient funds bank reconciliation? Read on.

Reconciling non-sufficient funds (NSF) is a task that looks difficult to accomplish, feels like a burden, and seems like only accountants can do it.

However, the task is easy to do.

Non-sufficient funds example in a bank statement.

First, you need to learn what are non-sufficient funds?

What are non-sufficient funds?

According to Investopedia:

Non-sufficient funds (NSF), or insufficient funds, is the status of a checking account that does not have enough money to cover all transactions.

Hence, when you are speaking of nonsufficient funds bank reconciliation, it must be a check from customers with no funds.

Where to start the reconciliation?

Let’s start when the customer pays obligation with a check.

As an accountant, you would record the transaction as:

Debit: Cash on Hand - Treasury
Credit:                      Accounts Receivable/Sales Income               

Next, the journal entry for deposit is:

Debit:Cash in Bank
Credit:               Cash on Hand - Treasury

Accounting Entries for the Bank

When a depositor sends checks, a bank would record the receipt as:

Debit: Cash
Credit               Accounts Payable-Customer's Deposits

The credit may vary on the location of the bank. its country will dictate it.

Here, we assume accounts payable (for operations).

When the bank knows the check to be insuficient, the bank will debit the payable account and assigns it NSF.

Debit:Accounts Payable-Customer's Deposits
Credit:             Cash

NSF checks are usually shown in the debit side of the depositor’s bank statement.

What do we notice here?

There are two entries in the bank statement when there is a non-sufficient fund.

Credit Accounts Payable-Customer's Deposits
and then...

Debit:Accounts Payable-Customer's Deposits

When reconciling non-sufficient funds in a bank reconciliation, you can look for these entries.

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Jason John Wethe
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