What happens to a company's cash balance when an NSF check is recorded?

When a company's cash balance is recorded with the presence of a Non-Sufficient Funds (NSF) check, the cash balance decreases. An NSF check occurs when a customer’s check is returned because the customer does not have enough funds available in their account to cover the payment. When this check is initially deposited, it temporarily increases the company's cash balance. However, once the check bounces, the company must reverse that initial transaction by decreasing the cash balance to reflect the reality that the funds were never actually available.

This action is a reflection of proper accounting principles, as it ensures that the company's financial statements accurately represent its cash resources. Therefore, the decrease in cash from an NSF check is necessary to correct the earlier bookkeeping of funds that were not realized.