Keatts Company's bank statement included an NSF check written by one of its customers.What effect will recognizing the NSF check have on the company's financial statements?

Question

Quizplus · Accepted Answer

Recording the NSF check increases one asset (accounts receivable) and decreases another asset (cash). This results in no overall effect on total assets. There is no effect on stockholder's equity or net income. Since the company must reduce its Cash account, this transaction is reported as a cash outflow for operating activities on the statement of cash flows.

Keatts Company's Bank Statement Included an NSF Check Written by One