In the context of cash balance, what does NSF check represent?

A check that is described as NSF, which stands for "non-sufficient funds," represents a check that has been returned because the account on which it was drawn does not have enough funds to cover the amount of the check. This occurs when the payer does not have sufficient funds in their bank account at the time the check is presented for payment. Therefore, when these checks are processed, they are rejected, leading to a negative impact on the cash balance of the recipient's account, as the expected funds are not received.

In accounting terms, when a company receives an NSF check, it must adjust its cash balance downward and involve additional administrative steps to seek payment or rectify the situation with the individual who issued the check. Understanding this concept is critical for accurately managing cash flows and reconciling bank statements.