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What is not sufficient funds?

Author:
Harold Averkamp, CPA, MBA

Definition of Not Sufficient Funds

Not sufficient funds or NSF or insufficient funds is a term to describe a check that has been returned by the bank because the balance in the checking account on which the check was drawn was less than the amount of the check.

The check being returned as not sufficient funds is also referred to as a returned check, a bank return item, a check that bounced, or a rubber check since it was bounced back to the payee by the bank on which the check was drawn.

Checks returned as not sufficient funds usually result in bank charges for both the payee and for the person writing the check.

A check returned as not sufficient funds could be an indication that the financial condition of the maker of the check may be suspect.

Example of Not Sufficient Funds

Assume a company wrote a check for $5,000 but the balance in its general ledger account Cash was $4,500. It planned on making a $1,000 deposit before the check cleared its bank account. Unfortunately, the $5,000 check was presented to the bank prior to the planned deposit. If the bank account balance was less than $5,000, the bank likely returned the $5,000 check to the payee’s bank with the notation: Returned due to not sufficient funds.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

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