The use of physical cash has decreased due to banking and various online alternatives. However, some companies still use petty cash as a regular part of their activities. This practice may be more common in some industries than others, for example, banking. When handling cash, companies may experience discrepancies in the amount of physical cash and the value recorded in the books.
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.
What is the Cash Over and Short Account?
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.
In practice, the cash over and short account can only have a debit or credit balance. In other words, the cash in the register can be higher or lower than the actual cash for classification in this account. It cannot be both at the same time. If a company has various cash drawer locations, the cash over and short account holds the net of these differences.
What is the accounting and journal entry for Cash Over and Short Account?
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. Two scenarios may occur.
If the physical cash amount is higher than what appears on the cash drawer records, it falls under cash over. In this case, the journal entry to record it is as follows.
| Dr | Cash |
| Cr | Cash over and short account |
If the cash recorded in the register is higher than the physical cash in hand, it falls under cash short. The journal entry for this accounting treatment is as follows.
| Dr | Cash over and short account |
| Cr | Cash |
In practice, this journal entry will also incorporate other aspects of the underlying transactions. For example, it will include receipts or expenses.
Example
A company, Red Co., maintains a cash register to record its sales. This register includes all receipts from customers for over-the-counter sales. During closing the register, Red Co. counted its cash in the drawer, which amounted to $520. However, the company only had sales of $500 during the day. Based on this calculation, Red Co. had cash over $20.
Before investigating the amount, Red Co. records the discrepancy as cash over in its accounts. The journal entry for it is as follows.
| Dr | Cash | $520 |
| Cr | Cash over and short account | $20 |
| Cr | Sales | $500 |
Conclusion
Cash over and short is an account to record cash discrepancies for companies dealing in cash transactions. It involves the difference between the value of cash transactions in the register versus the actual physical cash. However, it can cash over or short, but not both simultaneously. The accounting for these transactions is also straightforward, as discussed above.
Post Source Here: Cash Over and Short: Definition, Journal Entry, Calculation, Accounting, Formula, Example
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