A general ledger is a financial record-keeping system that businesses use in order to track their revenue, expenses, and other financial transactions. The cash over and short account is an account in the general ledger that keeps track of cash over or cash short situations. The amount from this account is then reported on a company’s income statement which is used to report its net income (total revenue – total expenses). A company’s cash over or cash short amount will affect its net income for the period in which the discrepancy occurred. For example, a company with a $7 cash over entry would experience a resulting $7 increase in its net income for that period.

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. If the physical cash amount is higher than what appears on the cash drawer records, it falls under cash over. Companies can use accounting techniques or practices to account for the differences in cash. These practices can either provide a temporary solution or a permanent resolution to past cash discrepancies. Usually, companies record these amounts the cash over and short accounts.

Cash over and short journal entry

In this case, we can make the journal entry for cash shortage by debiting the cash account and the cash over and short account and crediting the sales revenue account. 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. The cash overage or cash shortage may also come from the sale and other expense transactions too.

Loose accounting of petty cash can quickly lead to a « cash over » or « cash short » situation. This is more common with companies that deal with significant amounts of cash (retail, banking, etc.) or that have large and heavily used petty cash funds. Cash over and short occurs when businesses either have more or less cash on hand than was expected/recorded in their general ledger.

Start with Petty Cash

The Cash Short (Over) account is an income statement type account. For example, a retailer will compare daily cash sales to the actual cash found in the cash register drawers. If a surplus or shortage is discovered, the difference will be recorded in Cash Short (Over); a debit balance indicates a shortage (expense), while a credit represents an overage (revenue). In this case, we need to make the journal entry for cash shortage at the end of the day or when we make the replenishment of petty cash if there is less cash on hand than the amount it is supposed to be. Cash over situations can be thought of as the opposite of cash short situations.

However, to make it easy, we will only look at the petty cash transaction as the journal entry is usually the same. For example, the cash shortage needs the adjustment on the debit side while the cash overage needs the adjustment on the credit side. 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.

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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 accounting for the cash over and short account is straightforward. 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. This term pertains primarily to cash-intensive businesses in the retail and banking sectors, as well as those that need to handle petty cash.

The cash over and short account is the type of miscellaneous account in the income statement. If its balance is on the debit side, it is usually presented in the miscellaneous expenses. On the other hand, if its balance is on the credit side, it will be presented as miscellaneous revenue instead. https://personal-accounting.org/how-to-figure-shorts-over-entries-in-accounting/ 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. The cash over and short account is used when an imprest account, such as petty cash, fails to prove out.

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Balthier Enterprises is a small business that sells and rents out video games. The general ledger balance for the company shows a cash fund ledger of $200. The cash fund ledger currently has $133 in cash and $75 in receipts. This is because the recorded amount in the ledger is $200 while the company’s actual cash fund ledger shows a balance of $208 ($133 + $75). As a company grows, it may find a need to increase the base size of its petty cash fund. The entry to increase the fund would be identical to the first entry illustrated; that is, the amount added to the base amount of the fund would be debited to Petty Cash and credited to Cash.

When the company has the cash overage in the petty cash fund, it can make the journal entry by debiting the expenses account and crediting the cash over and short account together with the cash account. For another example, on January 31, we need to reconcile the petty cash expenses and replenish the petty cash to its full established petty cash fund. The physical transactions for petty cash, cash short and over need recording with the appropriate journal entries. Here, you create a new journal entry in your accounting journal and debit, or increase, each expense account by the amount of cash used by your vouchers.

However, the company still needs to account for the cash overage or shortage with a proper journal entry in order to match the balance on the debit with the balance on the credit in the accounting system. This usually happens when we make mathematical errors during the day of the sales. Policies should be established regarding appropriate expenditures that can be paid from petty cash. When a disbursement is made from the fund, a receipt should be placed in the petty cash box.