Usually, companies record these amounts the bookkeeping for startups accounts. 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 expense account, and so is usually aggregated into the “other expenses” line item in the income statement.

It is used in businesses that use cash in day-to-day operations, for example, retail stores and restaurants. Cash Over and Short reconciles what is in the cash drawer vs. what the cash register record says should be in the cash drawer. 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.

What is the Journal Entry to Record a Cash Shortage?

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. When there is a shortage of cash, we record the shortage as a “debit” and this has the same effect as an expense. 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.

• Cash Over and Short acts as an Expense account when there is an shortage.
• It of course makes it easier for someone to steal, too, because they are less likely to get caught.
• Drillable dashboards and reports focus on the store level, maintaining a history of shortages and overages for the store’s cashiers and registers, presenting trends and abnormalities.
• Cash over and short accounts are also used widely to balance the company’s accounting records when it replenishes its petty cash account.
• 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, 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. 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. 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).

The cash over and short account

It is then shut and listed on the income statement as a miscellaneous cost. The purpose of this policy is to protect Hotel funds by monitoring and reporting daily overages and shortages. It is the responsibility of the FC to ensure that a daily list of all overages and shortages is circulated to the appropriate department heads.