Nonsufficient funds (NSF) check

Definition

A nonsufficient funds (NSF) check is a check that cannot be processed because the account holder's balance is too low to cover the amount. This results in the check being returned or bounced by the bank.

5 Must Know Facts For Your Next Test

1. An NSF check can incur fees for both the issuer and the recipient from their respective banks.
2. Businesses must record an NSF check as a receivable until it is collected or written off.
3. NSF checks are typically discovered during bank reconciliation processes.
4. The accounting entry for an NSF check usually involves debiting accounts receivable and crediting cash.
5. Frequent issuance of NSF checks can damage an individual's or business's credit reputation.

Related terms

Bank Reconciliation:

A process that compares a company's financial records with their bank statement to ensure consistency.

Accounts Receivable:

Money owed to a company by its customers for goods or services delivered on credit.

Bounced Check: Another term for an NSF check, indicating that it could not be processed due to insufficient funds.