Answered Essay: Han's Supplies' bank statement contained a $270 NSF check that one of its customers had written to pay for supplies purchased.

Han’s Supplies’ bank statement contained a $270 NSF check that one of its customers had written to pay for supplies purchased.
A. Show the effects of recognizing the NSF check on the financial statements by recording the appropriate amounts in a horizontal statements model like the following one:
Assets = Liabilities + Equity; Revenue – Expenses = Net Income; Cash Flow
Cash + Accts. Rec.
b. Is the recognition of the NSF check on Han’s Books an asset source, use, or exchange transaction>
c. Suppose the customer redeems the check by giving Han $290 cash in exchange for the ad check. the additional $20 paid a service fee charged by Han. Show the effects on the financial statements in the horizontal statements model in Requirement A.
d. Is the receipt of cash referenced in Requirement C an asset source, use, or exchange transaction?
e. Record in general journal form the adjusting entry for the NSF check and the entry for redemption of the check by the customer.

Expert Answer


Answer a & c.
Cash + Accounts Receivable = Liabilities + Sharholders’ Equity Revenue Expenses = Net Income Cash Flow
(a)          (270) +                            270 =                      – +                            –                –                     – =                 –              (270) OA
©            290 +                          (270) =                      – +                           20               20                     – =                20                 290 OA
Answer b.
It is a Exchange Transaction
Exchange Transaction -according to the FASB ASC glossary, is a reciprocal transfer between two entities that results in one of the entities acquiring assets or services or satisfying liabilities by surrendering other assets or services or incurring other obligations
Answer d.
It is a Exchange Transaction
Answer e.
Journal Entry
Date Particulars Dr. Amt. Cr. Amt.
1 Accounts Recevable                            Dr.            270
   To Cash            270
2 Cash                                                         Dr.            290
   To Accounts Receivable            270
   To Misc. Income               20
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