Home  • Commerce • Accounting

What is the cash over and short account?

The cash over and short account is an account in the general ledger. The account stores the amount by which the actual ending cash balance differs from the beginning book balance of cash on hand, plus or minus any recorded cash transactions during the period. The primary use of the cash over and short account is in cash-intensive retail or banking environments, as well as for the handling of petty cash. In these cases, cash variances should be stored in a single, easily-accessible account. This information is then used to track down why cash levels vary from expectations, and to eliminate these situations through the use of better procedures, controls, and employee training. Thus, the account is used as the basis for a detective control. The cash over and short account is an excellent tool for tracking down fraud situations, especially when tracked at the sub-account level for specific cash registers, petty cash boxes, and so forth. An examination of the account at this level of detail may show an ongoing pattern of low-level cash theft, which management can act upon. For example, fraud situations may be traced back to the people directly responsible for a cash register or petty cash box. 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. The balance in the account tends to be quite small. 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. As an example of how the cash over and short account operates, 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. Therefore, $20 of cash is missing. 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). 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. Example Company A's petty cash account has an imprest balance of $2,000. At month's end, the custodian would like to replenish funds in the account. The receipts received from employees total $1,550, and the fund has a cash balance of $440. Since the custodian needs to return petty cash to its imprest balance of $2,000, an additional $1,560 in cash is required ($2,000 - $440, or $1,560). Since petty cash is under by $10, the following journal entries are required:
Cash $1,560
Misc. Business Expense$1,550
Cash Over and Short$10

How is the account Cash Short and Over used?

Cash Short and Over is an income statement account in which shortages or overages in cash are recorded. The Cash Short and Over account might be used by bank tellers to record any differences between their actual cash at the end of the day versus the expected amount of cash based on checks cashed, deposits received, etc. The account Cash Short and Over is also used to record differences discovered when replenishing a company's petty cash fund. 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 petty cash receipts indicating that $93.00 were disbursed. These two amounts indicate there is a shortage of $1.00. (The custodian started with cash of $100 and has documents showing that $93 was disbursed. Therefore, the custodian should have $7 on hand—not $6.) Using the above information, the journal entry to replenish the petty cash fund will include a credit to Cash-Checking Acct for $94. (This is the amount needed to get the petty cash on hand back to the imprest general ledger amount of $100.) The debits will be the accounts and amounts shown on the petty cash receipts, which total $93. To get the journal entry to balance, there needs to be another debit for $1 and it will be recorded in Cash Short and Over. A debit in Cash Short and Over represents an expense. In our example, the company will have an expense of $1, since there was a cash shortage of $1. A credit to Cash Short and Over indicates that there was more cash on hand than was expected. In other words, a credit to Cash Short and Over represents a revenue. If petty cash custodians and bank tellers were perfect money handlers, there would never be an entry to the account Cash Short and Over. The Cash Short and Over account provides an organization with a mechanism for monitoring its cash handling proficiency. The balance in Cash Short and Over is reported on the income statement. If the balance is insignificant, the account balance will likely be reported as part of miscellaneous expense.

Comments 0