Answer to Question #263363 in Accounting for nicole

Question

TOPIC: BANK RECONCILIATION

Directions: Research for the following questions and answer concisely using less than 5 sentences for each response.

1. Why are NFS Checks (not sufficient funds check) considered a debit memo?

2. Is a certified check considered to be an outstanding check?

Answer 1

1) Non-sufficient funds (NSF) status refers to the status of a checking account that does not have enough money to cover transactions. NSF fees are slightly different from overdraft fees, which apply when a bank accepts checks that overdraw checking accounts. NFS checks are referred to as debit memo because they are made to notify the customer of a debit adjustment has been made to their account, reducing the value of funds available.

2) When preparing a bank reconciliation, a certified check is not considered outstanding since both parties, the company and the bank, know about it. Once certified, a check becomes an obligation of a bank, and is paid out of bank funds. Banks charge a fee for certifying customer checks.