When recording your cash register totals, be sure to account for your beginning balance (e.g. $100). Record any cash, credit, store credit (if applicable), checks, coupons, and other sales in your books. When balancing your cash drawer, look out for both overages and shortages.

An overage is when your drawer is over the amount your POS report says you should have. Occasional errors may cause the petty cash fund to be out of balance. The sum of the cash and receipts will differ from the correct Petty Cash balance. This might be the result of simple mistakes, such as math errors in making change, or perhaps someone failed to provide a receipt for an appropriate expenditure.

The rules of business

Management should be concerned about controlling the proper use of petty cash. Whatever steps are deemed necessary (such as surprise counts) should be performed to assure that controls are adequate. This voucher indicates the purpose of the expenditure, the date, and the name of the person receiving the cash. The check is cashed and the money is placed under the control of one designated individual. This ensures that one individual can be held responsible for all the cash in the fund.

• Cash short situations tend to be more common than cash over and happen when businesses have less cash on hand than what was expected.
• If, for example, management of the Galaxy’s Best Yogurt decides to increase the petty cash balance to $100 from the current balance of $75, the journal entry to do this on August 1 would be as follows.
• If the voucher amounts do not equal the cash needed to replenish the fund, the difference is recorded in an account named cash over and short.
• If a cashier or bank teller errs by giving too much or too little change, for example, then the business will have a “cash short” or “cash over” position at the end of the day.

Over and short—often called “cash over short”—is an accounting term that signals a discrepancy between a company’s reported figures (from its sales records or receipts) and its audited figures. The term also is the name of an account in a company’s general ledger—the cash-over-short account. 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. Debit your cash short and over account in your journal entry by the amount of cash short. Alternatively, credit your cash short and over account by the amount of cash over. In the example, debit your cash short and over account by $10 to record the cash short amount.

Calculating Cash Over and Short

The accounting system will show $95 in posted sales but $96 of collected cash. The journal entry for this sale would debit cash for $96, credit sales for $95, and credit cash over short for $1. After calculation, even though the total petty cash expenses are only $82 ($45+$25+$12), we need to replenish $85 ($100-$15) as we have only $15 cash on hand left. Likewise, the $3 difference is the cash shortage that we need to recognize as a small loss.

However, there are situations in which it is not practical to use a check. For example, imagine that the Galaxy’s Best Yogurt runs out of milk one evening. It is not possible to operate without milk, and the normal shipment does not come from the supplier for another 48 hours. To maintain operations, it becomes necessary to go to the grocery store across the street and purchase three gallons of milk. A petty cash fund is a type of imprest account, which means that it contains a fixed amount of cash that is replaced as it is spent in order to maintain a set balance.

How to Journalize Petty Cash Replenishment

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). Frank, who is the responsible person, has been filling out the voucher during the month, and all the receipts are stapled to the voucher. If the vouchers total $130 but the fund needs only $125, the journal entry includes a $5 credit to the cash over and short account. 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. 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).

Another more serious reason to have money in the Cash Over Short account is theft, and this is a big reason you want to pay attention to it. Examining point of sale records and deposit records side by side with the bank statement is the first step in affirming your accounting processes are working as they should. 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. Cash on hand is generally calculated by determining the cash flow of the business. Cash flow refers to the money that flows both in and out of the business.

Manage products, fulfill orders and control sales with Erply

Count the money remaining in your petty cash account at the end of an accounting period. Now subtract the amount remaining from the account’s original balance to determine by how much you need to replenish the account. In the example, if your petty cash account’s original balance was $1,000, subtract $550 from $1,000 to get $450, which is the amount by which you need to replenish the account. The cash over and short account is an account that keeps a record of any discrepancies between the expected cash on hand and the actual cash on hand. If a company has more cash on hand than what was expected, this is referred to as a “cash over” situation. If a company has less cash on hand than what was expected, this is referred to as a “cash short” situation.

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. Let’s illustrate cash short and over 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.

Cash shortage in retail business

A cash short and over account offers a way to track the cash management skills of employees. The sums in the account are usually so low that the balance of the account will be combined with other trivial sums listed as other expenses on the income statement. As we have discussed, one of the hardest assets to control within any organization is cash. One way to control cash is for an organization to require that all payments be made by check.

With a counting machine, you don’t have to worry about manually counting cash or change by hand. The custodian would use the $176 to restore the amount of cash to $200. 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). The size of the fund depends on the company’s needs, but it should be large enough to last at least three to four weeks. 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.

Cash shortage in replenishment of petty cash

Cash short situations can happen for a number of reasons such as theft, mistakes in recording transactions, or incorrect change given to customers. Cash over situations occur when businesses have more cash on hand than what was expected. For example, a company would be cash over $8 if its general ledger showed a balance of $200 for its cash fund but the company actually had $133 in cash and $75 in receipts (for a total of $208). The cash over and short account is a temporary account that is closed out at the end of the accounting period. The over or short amount is then eventually integrated with the income statement and, in cash short situations, will result in a decrease in net income.

• Trends such as an increase in interest rates for business loans or inflation on capital goods can affect the amount of funds a business should set aside to cover possible future expenses.
• This would also result in a $10 increase in the company’s net income.
• Did you know that having an overage in the drawer is just as bad as having a shortage?
• 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.
• Now subtract the amount remaining from the account’s original balance to determine by how much you need to replenish the account.