Question

Egrane, Inc.'s monthly bank statement showed the ending balance of cash of $14,800. The bank reconciliation for the period showed an adjustment for a deposit in transit of $1,200, outstanding checks of $1,600, a NSF check of $560, bank service charges of $24 and the EFT from a customer in payment of the customer's account of $1,200.
What journal entry should be recorded by Egrane for the NSF check returned?


(A) Debit Accounts Recelvable and credit Cosh for $560

(B) Debit Cosh and credit Accounts Receivable for $560

(C) Debit Cash and credit Accounts Payable for $560

(D) No joumal entry is necessary for this Item

Answer 1

Answer: The correct answer is "(A) Debit Accounts Receivable and credit Cash for $560".

Explanation: The non-existent 560 must be adjusted in the cash account, and the 560 receivable must be added to the third party that issued the check in the "accounts receivable" account.

The entry would be:

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Accounts Receivable                   560

                   Cash                                      560

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