Non sufficient Funds Check (NSF) - everything you need to know, including journal!

ABCAdda | Updated Jul 10, 2022

Non sufficient Funds Checks (NSF) refers to the status of a checking account that does not have sufficient funds NSF to cover transactions. This is called a check presentation fee, but it cannot be applied to account balances.

They are also called bounced checks. If the bank receives a check that is non-cashable (that is, there are Not sufficient funds to cash it), the bank may refuse payment and charge the account holder an additional fee.

Therefore, it can be seen that an NSF check is a check that the company received, deposited in the bank, but then the bank returned the check to the company because the checking account did not have sufficient funds NSF.

In this case, the company must make appropriate journal entries to account for the NSF checks to adjust the balance between the general ledger balance and the bank balance. Problems with NSF inspections are most apparent at the end of the year or when companies make bank reconciliation reports.

So you have launched your product or service and you are generating revenue. You are on your way to starting the business you have always dreamed of. However, there are always obstacles that prevent you from collecting your receivables.

Like NSF checks from customers. If you don’t know what is a nsf check? Let’s look at the definition of NSF check or what are NSF checks, what are checks, and NSF fee meanings.

What does nsf stand for in banking or what are nsf checks?

NSF (Non-Sufficient Funds) checks are sometimes referred to as bounced checks or bad checks and cannot be cashed due to not sufficient funds in the payer’s account. In other words, customers write checks for amounts greater than their checking account balances. If you receive a check from NSF, you are not paid for the goods or services you provide.

You may also have to pay a bank fee if you have written a check with insufficient funds. As an NSF check holder, your bank may NSF charge you a return shipping fee that can range from $5 to $35.

You already have unpaid customer receivables as well as fees for NSF bank fees and the value of the goods or services you provided. There are several ways to get NSF verification, from calling to seeking legal assistance.

Non sufficient Funds – The NSF meaning

NSF stands for bank Non sufficient Funds (NSF meaning), often referred to as insufficient funds, which refers to checking accounts that do not have sufficient funds to cover transactions.

  • NSF also refers to fees incurred in sending checks that are not refundable from account balances.
  • If you try to withdraw more money than you have in your account, you may receive a QS”Nonsufficient Funds” or “Insufficient Funds” message on your NSF bank statement or ATM statement (or receipt).
  • The terms “insufficient funds” (NSF) refer to checking accounts with insufficient funds to cover transactions.
  • The acronym NSF also denotes a fee that is charged upon delivery of a check but cannot be covered by the account balance.
  • In the United States, the average fee charged for NSF is between $27 and $35.
  • Overdraft fees, which occur when a NSF bank accepts a check in excess of a checking account, are slightly different from NSF fees. Consumers can avoid NSF fees by signing up for overdraft protection with their bank.

How does non sufficient funds (NSF) work?

Let’s say Erick has $1,000 in his checking account today. He went to the mall and wrote a check for $1,250 to a furniture store. Not having non sufficient funds on the check amount, Emil wrote a bad check.

When a furniture dealer tries to cash a check, the furniture dealer’s bank (Bank ABC) hands the check to Erick bank for payment. Erick bank will then either pay the check (which can happen if Erick has overdraft protection with his bank) or “reject” the check and return it unpaid to XYZ Bank.

Banks often stamp checks with a large “NSF” stamp (meaning “not sufficient funds“). Typically, XYZ Bank charges a furniture dealer for delivering a bad check, and John Doe bank charges Erick for writing a bad check. Furniture stores are also likely to charge Erick a bad check.

Why does NSF matter?

In most states, writing bad checks is a minor offense with increasing consequences depending on the state, the amount, and whether the transaction crosses state lines. Most of the NSF is simply negligence on the part of the consumer are NSF checks considered cash.

Even if the police are not involved, the cost of a bad check can run into the hundreds or even thousands of dollars if the check maker is very disorganized.

For this reason, it is important to have an overdraft facility or a secondary account that the NSF bank can reuse if there are insufficient funds in the check maker’s primary account.

What happens when you have an NSF check?

NSF inspections are sometimes colloquially referred to as “denied” or “bad” inspections. If the bank receives a statement with insufficient funds, the bank may refuse to pay and charge the NSF fee to the account holder. In addition, merchants may impose a penalty or fee on returned checks.

What to do if you don’t have enough money?

If you don’t have enough money, don’t panic. Instead, follow the checklist below to make sure you solve all NSF issues:

  • Contacts affected by NSF
  • Pay the unpaid amount
  • Pay NSF check fees
  • save receipt
  1. NSF-affected contacts: First, make sure you contact the data subject as soon as possible if you do not have sufficient funds. Explain that you know how and will do things right. This assures the person that you are not intentionally withholding their payment.
  2. Pay the amount owed: Pay the data subject the amount you owe them. If your bank charges you an NSF fee, make sure you return the fee to them as well.
  3. Pay NSF fees: If you don’t have enough funds, you may have to pay a fee to your bank. Check with your bank if you owe NSF fees. If you owe a bank fee, pay it immediately to avoid interest.
  4. Save the receipt: If you don’t have enough funds or are having trouble making payments, document your proof of payment with your bank and payee. Request a receipt and keep it as proof of your payment.

Be sure to keep all NSF receipts in your records. In future disputes, use receipts to prove that you have resolved the issue with NSF.

How to process NSF checks

How to process NSF checks. 1. Communicating with your customers 2. Invoices 3. Hire professionals 4. Taking legal action

There are several ways to perform an NSF check. Some of them are described as follows:

  • Communicating with your customers: Before taking any other action, you should communicate with your customers and inform them of the situation. Sometimes a customer gives the bank an NSFs check without asking.

Direct communication gives customers the opportunity to maintain a business relationship and pay the bank in full along with bank fees.

  • Invoices: Registered invoices can be sent to customers, asking them to make your payment as soon as possible to avoid any legal action to be taken against them.

Information such as the check number and the reason for the bounce may also be included in the letter, along with additional fees charged by your bank.

The other party must also give the customer a certain deadline for payment.

If he doesn’t make the payment on time, the other party is forced to take legal action.

  • Hire professionals: If your business faces frequent NSF checks, you can hire a collection agency to get you paid faster and more professionally. It makes more sense to hire professionals to collect small amounts, as their commissions or fees will be lower than attorneys’ fees.
  • Taking legal action: This is a last resort, but banks can sue their customers if they don’t agree to pay the amount owed (one can sue if their claim doesn’t exceed the state de minimis limit). You should have the necessary documents like bank statements and other receipts ready.

Can you go to jail for a bad check?

  • Is there a penalty if you cash a bad check? Not only do you have to pay back to the bank, you can also face criminal penalties. It is up to the bank to press charges against you or not.
  • One of the most critical considerations is whether the bank believes that you intentionally cashed the fraudulent check. If you commit fraud on purpose, the bank will almost certainly file a complaint against you.
  • Depending on the number of fraudulent checks, you could face up to three years in prison. You can be accused of a crime that will have far-reaching consequences for the rest of your life.

Consequences of NSF

  • Punish: Due to not sufficient funds, both defaulters and payees are penalized by their respective banks when the check is bounced. If a returned check conflicts with a loan payment, the defaulter may incur additional late payment fees. Penalty fees vary and differ for different account types.
  • Impact of bad credit: Bounced checks can significantly affect a person’s creditworthiness and affect their financial position. Financial institutions may feel uncomfortable extending credit to someone with bad credit who has not previously paid their fees.

Therefore, it is always advisable to have enough money saved before applying for a loan. Credit institutions and banks can ensure the reliability of your finances and will not hesitate to lend you money.

  • Criminal consequences: If a check is bounced and the debtor fails to pay by the due date, not only will their creditworthiness decrease, but they may be subject to criminal prosecution under applicable criminal law as well as Section 138 of the Negotiating Instruments Act.

Under Section 138, failing to cash a check is a criminal offense and the aggrieved party can issue court orders to defaulters. If found guilty, the offender faces up to two years in prison and/or a fine of up to double the amount of the check.

Under Sections 417 and 420, if fraud is proven, an arrest warrant may be issued. If more than one check is returned, the payee may have a separate claim for each outstanding check.

  • Other consequences: If the check is not cashed, the bank issues a reminder to the defaulters. In case of repeated failures, they can close the account and stop verification. If the loan check is not cashed, the bank may issue a legal notice or withdraw the money from the debtor’s account.

Checks may be rejected due to signature mismatch, replacement, or expiration. Remedies can only be taken if a clear case of fraud is proven.

How to avoid underfunding situations

  1. Reconcile your checking account regularly and monitor balance: By monitoring your balance and reviewing transactions regularly, you will know how much you can spend and can accommodate unexpected changes accordingly.
  2. Set up notifications in the bank: Banks may allow certain payments even if the customer does not have cash (and charges insufficient funds). For example, insurance premiums are likely to be paid even if the bank has been asked to reject the transaction.

In such a situation, you might consider setting up an alert or text message with the bank so they can be notified before this transaction occurs and give them enough time to cancel the payment.

  1. Sign an overdraft agreement with the bank: Consider enrolling in the Overdraft Protection Program. If you select the overdraft option, the bank will execute all permitted transactions, regardless of the agreed limit.

Banks charge an OD fee for this. To avoid high overdraft fees, consider setting up overdraft facilities as they are cheaper than overdraft fees per item.

What is a NSF fees meaning and Fees for Insufficient of funds

NSF fees meaning is the fee your financial institution charges when you decline a payment is called the insufficient funds fee, or NSFs. The cost of insufficient funds varies by bank and location. Some countries and banks may have higher fees than others.

The cost of insufficient funds usually ranges from $27 to $35. Recipients of checks or underpayments may also have to pay NSFs fees of between $20 and $40. In some cases, the recipient may be asked to pay a percentage of the amount or check that was rejected (eg 20%).

Banks usually have options and safeguards in case your account balance drops below zero. Many banks offer overdraft protection. In this way, if you do not have enough funds, the transaction will continue. You are still responsible for paying overdraft fees.

NSF check fees vs. Overdraft Fee

At this point you may be wondering what is the difference between overdraft fees and NSF?

Banks NSF charge fees when returning payments such as checks. Overdraft fees only apply

when the bank accepts payments in excess of the account.

NSF fees Overdraft Fee
If your bank refuses a check or payment, you will most likely be charged a fee for NSF fee. If the bank accepts the check or pays the seller, your balance will be negative and you will be owed an overdraft fee.

Underfunding and overdraft are two different terms that refer to insufficient funds and can result in fines.

Consider the following scenario: You have $100 in your checking account and want to make a $120 purchase using an Automated Clearing House (ACH) or electronic check payment.

If your bank refuses to pay the check, you will get the NSF charge fee and any fines or fees charged by the seller for the returned check.

If the bank accepts the check and pays the seller, your checking account balance drops to -$20 and you are charged an overdraft fee.

In both cases, bank fees reduce the available account balance.

How do you record insufficient funds in journal entries?

Journal entries for customer checks that are returned due to insufficient funds will debit accounts receivable and credit cash. The interest generated by the transaction is recorded as a cash debit and a credit of interest income.

How do you catch bank reconciliation nsf checks?

  • When a company deposits a NSF check with its bank, the bank refuses to deposit the check appropriate amount of cash into the company’s bank account. This can happen for a variety of reasons, including:
  • Checks are issued by the bank from which they were drawnThis occurs when the account from which the check is drawn has less available funds than the amount of registered funds in the account.
  • The check has an error, eg. missing signature, date, payee name or amount. Since the check was drawn at a bank in another country, it is automatically rejected.

Check NSF and bank reconciliation

A NSF check bank reconciliation can be defined as a document that compares the cash balance on a company’s balance sheet with the amount available on the company’s bank statement. Bank reconciliation is seen as an important step, especially as it helps organizations identify NSF accounting changes when needed.

These are then produced on a regular basis to ensure that the company’s general ledger is accurate and properly reconciled. Therefore, they act as a precaution against fraud or misappropriation of funds within the company.

The difference between the cash book balance and the balance according to the NSF check bank reconciliation system can be due to many reasons. These reasons are as follows:

  • Pending Deposits: These are deposits that have been debited by the company; however, the deposit has not been credited by the bank.
  • Pending Checks: These are checks that have been sent to the supplier but have not yet been deposited with the bank. Therefore, the company has credited the amount while the bank has not debited the amount because the check has not been submitted. This causes a difference between the two balances.
  • Banking Services: Banks usually deduct fees for all services provided to customers. This fee (detail and amount) can only be confirmed after the bank statement is issued.
  • Interest income: Interest income on checking accounts may not be charged a fee to account holders. This information can only be determined after receiving the bank statement.
  • Insufficient Funds: Check NSF are checks that have been deposited in a bank but cannot be cashed due to not sufficient funds. Therefore, the check is returned or rejected.

To reconcile the bank balance between the bank statement and the balance according to company records, the company must subtract the NSF check amount from its balance sheet so that it can be reconciled with the balance according to the cash book and properly adjusted.

Other reasons for differences in cash book balances and checking account balances must also be properly reconciled and adjusted.

NSF Accounting treatment for NSF checks

In a bank reconciliation a nsf check requires companies to compare the internal ledger with the books that are bank statements. When comparing the two, having the correct account for NSF checks is critical as it is required by businesses when creating bank reconciliations. This is to ensure that the balance is properly adjusted according to the cash book and checking account.

When a customer pays for a check deposited in a bank account, the normal procedure is to debit the cash account and credit the accounts receivable account. It represents the inflow of funds and settlement of customer accounts. The journal for this is as follows:


In contrast, an NSF check means that the amount has not been paid because the check has not been cashed. Therefore, the write-off of receivables that have been made previously must be reversed. The following journal entries are prepared for this purpose:


The journal entry above shows that accounts receivable must be added back by the company.

NSF Checks example

The concept of an NSF examination is illustrated in the following example:

ABC Co. is a manufacturing company that sells office supplies to various retailers on credit. For the year ended December 31, 2021, it has accounts receivable of $8,000.

Total sales during the year were $30,000 of which $25,000 was received in the form of a check which was then deposited in the form of a check.

The bank balance is $5,000 as of December 31, 2021, but according to the bank statement provided by the bank, the balance is $25,00. The bank also reported $2500 in NSF checks to ABC Co.

In the scenario mentioned above, it can be seen that ABC Co. sold $30,000 worth of goods for the year ended December 31, 2021. To document it, the following journal entries are first made:

CASH $500  
SALES   $30000

However, following the discovery of the NSF audit, it turned out that it was necessary to replenish previously settled claims. To record this transaction, journal entries are made as follows:

CASH $2500  

Using this transaction, it can be seen that the bank balance is automatically reduced by $2500 reconciling the bank statement and the in a bank reconciliation an NSF non-sufficient-funds check statement.


NSF check not only causes additional costs, but can also lead to legal problems. Knowingly writing a few bad checks or in bulk may be a criminal offense. In some jurisdictions, criminal prosecution for insufficient funds NSF includes fraud.

In the United States, many jurisdictions operate bad check refund programs (BCRP) to handle checks for bad funds. This program allows recipients of this type of check to collect money from local attorneys in their area.

Local authorities will contact the check writer to collect the funds, and the check writer can avoid criminal prosecution by making payments instead. Usually, all fees can be waived if the bad check issuer is able to make the payment within six days.