NSF (Non-Sufficient Funds) checks are generally not included in cash equivalents in accounting. Cash equivalents are defined as short-term investments that are readily convertible to known amounts of cash and have an insignificant risk of changes in value. This typically includes items like Treasury bills, commercial paper, and other liquid monetary instruments that are close to their maturity dates.
When a business receives a check, it records the transaction based on the assumption that the funds will be available. However, if the check is returned for insufficient funds, it indicates that the expected cash is not actually available, thus impacting the cash flow of the business. Since NSF checks represent amounts that are no longer collectible and create uncertainty in cash balances, they do not meet the criteria for cash equivalents.
In summary, NSF checks should be treated as receivables or losses, rather than as liquid cash or cash equivalents. This distinction helps ensure accurate financial reporting and reflects the true liquidity position of the business.