A controller conducts a monthly review of a petty cash box that should contain a standard cash balance of $200. He finds that the box contains $45 of cash and $135 of receipts, which totals only $180. This cash shortfall is recorded as a debit to the cash over and short account (which is an expense) and a credit to the petty cash or cash account (which is an asset reduction). cash over short account Sometimes, the petty cash custodian makes errors in making change from the fund or doesn’t receive correct amounts back from users. These errors cause the cash in the fund to be more or less than the amount of the fund less the total vouchers. When the fund is replenished, the credit to Cash is for the difference between the established amount and the actual cash in the fund.

• Suppose a retail business starts each day with a cash balance of 100 in the cash register.
• This task typically falls to accounting personnel who must scrutinize transaction records, including sales receipts, refund documentation, and deposit records.
• Alternatively, if there had been too much cash in the petty cash box (a rare condition indeed!), the entry would be reversed, with a debit to cash and a credit to the cash over and short account.
• Suppose a retail business starts each day with a cash balance of 200 in the cash register.

Cash shortage journal entry

A firm should note instances of cash variances in a single, easily accessible account. This cash-over-short account should be classified as an income-statement account, not an expense account because the recorded errors can increase or decrease a company’s profits on its income statement. The custodian should prepare a voucher for each disbursement and staple any source documents (invoices, receipts, etc.) for expenditures to the petty cash voucher.

• After the check is cashed, the petty cash custodian normally places the money in a small box that can be locked.
• Once a discrepancy is detected, the next step is to reconcile the difference.
• If the petty cash account often needs to be replenished before the end of the accounting period, management may decide to increase the cash balance in the account.
• After posting to the ledger (we’ll use T accounts here), the checking account balance will go down by $100 and the petty cash balance will go up by $100.
• Having a petty cash account is  just more convenient than going to the accounts payable clerk every time someone needs a stamp or a liter of coffee for a meeting.
• Cash over and short accounts are also used widely to balance the company’s accounting records when it replenishes its petty cash account.

How to Determine Net Income or Net Loss After Adjusting Entries

If we have an overage of cash, we record the overage as a credit, and this has the same impact as if we are recording revenue. If there were cash overage, the petty cash account would be debited and the cash over and short account would be credited. In this case, the expense balance decreases, and the year-end balance is the net balance from all overages and shortages during the year. The term cash over and short refers to an expense account that is used to report overages and shortages to an imprest account such as petty cash. The cash over and short account is used to record the difference between the expected cash balance and the actual cash balance in the imprest account.

Income Statement

Cash Over and Short acts as a Revenue account when there is an overage. It’s “other revenue” for you, not a normal source of revenue like your paycheck. This account also provides companies with the ability to monitor the handling of cash, since it can apply to tellering operations too. When a cash discrepancy arises, a thorough investigation is imperative to unearth the root cause and prevent recurrence.

Table of Contents

Cash overages are normally recorded in a separate income statement expense account often referred to as the cash over/short account. In contrast, let’s assume that during the cash count, the actual cash from the cash sales is $495 instead of $510. In most cases, customers will most likely to dispute a shortage of change. Therefore, the cash over and short is usually at debit balance which represents an expense. This expense is treated as a miscellaneous expense and presented in the income statement as a general and administrative expense section. However, if the balance is at credit, it is treated as miscellaneous revenue instead.

• The account is typically left open until the end of a company’s fiscal year, when it is then closed and reported as a miscellaneous expense on the income statement.
• A petty cash fund is a small fund whose purpose is to make small disbursements of cash.
• Effective training equips staff with the knowledge and skills necessary to execute cash transactions accurately and to respond appropriately when discrepancies occur.
• (Sometimes we refer to this fund as an imprest fund since it is replenished when it becomes low.).
• The Cash Over and Short account will be used to balance the entry when the cash needed to get back to the petty cash account does not match the total of petty cash vouchers.
• Cash Over and Short acts as a Revenue account when there is an overage.
• When we give too much change to customers, it means that we make change more than it should be.

This voucher indicates the purpose of the expenditure, the date, and the name of the person receiving the cash. To create a petty cash fund, a check is written to cash for a set amount such as $75 or $100. A petty cash fund is a small fund whose purpose is to make small disbursements of cash. As you think back on this system, note that there are several internal controls in place, most notably segregation of duties, assignment of responsibility, and a reconciliation (monitoring) process. In the next section, we’ll look at one of the most important cash controls, the bank reconciliation process, in detail.

For example, if there are un-reimbursed expenditures from petty cash at the end of the year, expenses are understated and cash overstated. Actual cash remaining on hand is $15.48, indicating a shortage of $0.20 ($100 $84.32 $15.68, which is the amount that should be on hand; because only $15.48 is on hand, there is a $0.20 shortage). These discrepancies are not just numerical errors; they have real implications for businesses. They can affect trust with stakeholders, lead to potential losses, and even expose a company to fraud.

• Regular audits and surprise cash counts also play a crucial role in maintaining the accuracy of cash management.
• The physical transactions for petty cash, cash short and over need recording with the appropriate journal entries.
• A financial professional will offer guidance based on the information provided and offer a no-obligation call to better understand your situation.
• A cash shortage normally occurs in a retail environment when the sales are reconciled to the cash receipts in the register at the end of the trading day.
• When there is a shortage of cash, we record the shortage as a “debit” and this has the same effect as an expense.
• Tracking Cash Over and Short is an important piece of protecting a company’s most valuable asset, Cash, from theft and misuse.

Double Entry Bookkeeping