Use the following to answer questions 1?9:Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter dollar amounts. (Note that "Not Affected" means that the event does not affect that element of the financial statements or the event causes an increase in that element that is offset by a decrease in the same element.)Increase = IDecrease = DNot Affected = NAIn preparing the bank reconciliation for Heath Company, a company employee found that the bank statement included an NFS check that the company had received from a customer paying its account at Heath Company.
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What will be an ideal response?
(N (NA) (NA) (NA) (NA) (NA) (D)
Recording the NSF check increases one asset (accounts receivable) and decreases another asset (cash). This asset exchange transaction has no overall effect on total assets. There is no effect on stockholder's equity or net income. Since the company must reduce its Cash account, this transaction is reported as a cash outflow for operating activities on the statement of cash flows.
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