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Journal Entry for Cash Shortage Overage


It requires determining the difference between the value of monetary transactions recorded in the system with actual cash. As stated above, any discrepancy during this process goes into the cash over and short account. At the end of the month, assume the $100 petty cash fund has a balance of $6.25 in actual cash (a five-dollar bill, a one-dollar bill, and a quarter).

  • Generally, the amounts in the account Cash Short and Over are so small that the account balance will be included with other insignificant amounts reported on the income statement as Other Expenses.
  • It involves the difference between the value of cash transactions in the register versus the actual physical cash.
  • In this article, we cover how to account for the cash short and over; especially on the cash over and short journal entry.
  • He finds that the box contains $45 of cash and $135 of receipts, which totals only $180.

If the cash recorded in the register is higher than the physical cash in hand, it falls under cash short. Cash over and short refers to an account that records the differences in cash. This difference is between the expected amount in a cash register and the actual amount counted at the end of a shift or a day. If the latter is higher than the expected amount, it falls under cash over. However, if the actual cash amount is lesser, it is called cash short. Examining the account in detail may lead to the discovery of low-level petty cash theft.

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The cash over and short account is used when an imprest account, such as petty cash, fails to prove out. 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. The opposite is true for transactions that produce cash shortages. Assume the same situation except that I receive $94 instead of $96 for the sale. Now cash is debited for $94, the sales account is credited for $95, and cash over and short is debited for $1. I rang up a $95 pair of yoga pants correctly for $95, but I miscounted the cash I received for the pants.

The cash-over-short account is registered as an expense account, typically filed under “other expenses” on a company’s income statement. Significant discrepancies are more likely to cause an investigation as they are more serious, while it might not be worth the time, effort, or money to investigate minor discrepancies. Let’s assume Tom rang up a $100 pair of running shoes for $100, but he miscounted the cash received for the shoes. The accounting system will show $100 in sales but $101 of collections. The one-dollar difference goes to the joint products by-products and co-products cost accounting account. The journal entry to record this sale would debit cash for $101, credit sales for $100, and credit cash over short for one-dollar.

  • The cash over and short is recorded on debit when there is a shortage.
  • However, some companies still use petty cash as a regular part of their activities.
  • The Cash Over and Short account can be either an expense (short) or a revenue (over), depending on whether it has a debit or credit balance.

When handling cash, companies may experience discrepancies in the amount of physical cash and the value recorded in the books. Either way, companies can use the data from the cash-over-short-account to better understand why cash levels aren’t lining up. From there, they can take measures to reduce future discrepancies, such as implementing better controls and procedures or training employees. The cash over and short is recorded on debit when there is a shortage. In contrast, the cash over and short is recorded on credit when there is overage. For example, assuming that there is a $5 cash overage instead when we replenish the petty cash in example 2 above, which results in the petty cash reconciliation looking like the below table instead.

In this journal entry, the credit of the cash account is to refill the petty cash fund to its full established petty fund. At the same time, it also represents the cash outflow from the company as a result of petty cash expenses during the period. That is why we debit the expenses account in the above journal entry. In this journal entry, we credit the sales revenue because in the retail business the cash shortage usually happens due to us failing to keep the accurate records that are related to sales revenue. Also, the debit of cash over and short represents the loss, e.g. a few dollars, due to the cash being less than the amount it is supposed to be when comparing the sales records.

Cash overage in replenishment of petty cash

These errors cause the cash in the fund to be more or less than the amount of the fund less the total vouchers. We post the discrepancy to an account called Cash Over and Short. The Cash Over and Short account can be either an expense (short) or a revenue (over), depending on whether it has a debit or credit balance. Let’s say that Tony rings up a pair of running shoes for $100, which is the correct value of the time. However, Tony miscounts how much money he gets from the customer for their purchase.

Is Cash Over and Short a Debit or Credit?

Thus, this account serves primarily as a detective control—an accounting term for a type of internal control that aims to find problems, including any instances of fraud, within a company’s processes. 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. In any business, keeping track of cash is of utmost importance.

Cash Over and Short – What is Cash Over and Short?

A miscellaneous expense account used to record the difference between the amount of cash needed to replenish a petty cash fund and the amount of petty cash receipts at the time the petty cash fund is replenished. On the other hand, if the company has a cash shortage in the petty cash fund, it can make the journal entry with the debit of cash over and short account instead. The reverse applies to transactions that create a cash shortage, where employees take too little money. Instead of collecting $101 for the shoes, Tony collects $99 without realizing it. The cash account is debited for $99, and there’s a $100 debit for sales and a $1 debit on the cash over and short account. The cash shortage may happen often with the retail business as it deals a lot with small notes when making the sales and the cash sales are usually need to be reconciled daily.

If the amounts are the same, continue with your end-of-day procedures. Find out what to do when the amount in your cash drawer doesn’t match your Z-Out Drawer Count report in QuickBooks Point of Sale. Cash Over and Short acts as a Revenue account when there is an overage.

Internal tampering could cause a business to be over and short in its accounting. Cash over occurs when the actual cash in the cash register is more than the expected amount. On the other hand, a cash shortage occurs when the actual cash in the cash register is less than the expected amount. Employees who handle cash are expected to be careful and accurate and to settle their funds each day without overages or shortages. We recognize the possibility that differences may occur from time-to-time and we have developed the following recommended procedures.

A series of cash overs and shorts may be a sign of theft or other problems in the company. The cash over and short account is an expense account, and so is usually aggregated into the “other expenses” line item in the income statement. A larger balance in the account is more likely to trigger an investigation, while it may not be cost-effective to investigate a small balance. For instance, if the expected cash in the cash register is $1000, and the actual cash count shows $1050, then there is cash over $50. Similarly, if the expected cash is $1000, and the actual cash count shows $950, then there is a cash short of $50.

However, it is often difficult to effectively manage that money, especially if you take money from customers and give them change. This can lead to several problems, not least of all a cash over and short issue. Therefore, the balance of cash short and over is on debit or credit depends on whether it is shortage or overage. In case of shortage, the cash over and short is on debit and vice versa. At the end of the day, the actual cash in the cash register is counted, and it shows $770. For example, assuming that we have a cash overage of $10 instead in example 1 above, as a result of having actual cash on hand of $2,800 which is more than the cash receipts of $2,790.

Meanwhile, other types of businesses usually only have a cash shortage when dealing with the petty cash when it is needed to be replenished (usually once a month). Let’s illustrate the Cash Short and Over account with the petty cash fund. Assume that the company has a petty cash fund of $100 and its general ledger account Petty Cash reports an imprest balance of $100. Let’s now assume that when the petty cash fund is replenished, there is $6.00 on hand and there are $93.00 of petty cash vouchers. Most retailers’ accounting systems have a cash over short account setup because they generally deal with cash sales everyday. Likewise, it can save us a bit of time and effort by including both cash shortage and cash overage into only one account.

This system simply delays the recording of small expenses until the end of the accounting cycle or the fund is replenished. It’s not really an adjusting journal entry because there is an actual transaction being recorded. 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. A cash-over-short account is an accounting tool used to manage financial discrepancies between sales and accounting. If a customer pays too much or too little, the difference goes into this account.

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