AIPB Mastering Correction of Accounting Errors Practice Test

Question: 1 / 400

What adjustment needs to be made to company books when accounting for an NSF check from a customer?

A net decrease in Cash of $550

A net decrease in Cash of $505

A net decrease in Cash of $460

When accounting for a Non-Sufficient Funds (NSF) check from a customer, the correct adjustment reflects the amount of the check that was originally recorded in the cash account but must now be reversed due to the check bouncing.

The proper adjustment involves decreasing the cash balance by the total amount of the NSF check, which indicates the company no longer has those funds available. In this scenario, if the NSF check was for $460, the correct adjustment would indeed need to be a net decrease in the Cash account by that same amount. This ensures that the books accurately reflect the company’s available cash and corrects any prior overstatement related to cash balances.

If the amounts in the other options do not match the NSF check amount, they would not accurately adjust the cash account, leading to incorrect financial statements. Thus, recognizing the exact dollar value of the NSF check is essential in maintaining the integrity of the accounting records.

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A net increase in Cash of $45

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