How to Catch Theft with Your Cash Over and Short Account

Commercial transactions are increasingly cashless—even at small retailers and restaurants, where purchases traditionally have relied heavily on coins. The Internal Revenue Service (IRS) recommends filing out petty cash slips and attaching them to receipts to record and document petty cash expenses. 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.

  1. One of the conveniences of the petty cash fund is that payments from the fund require no journal entries at the time of payment.
  2. However, if the actual cash amount is lesser, it is called cash short.
  3. Though not literally cash, it’s money that can be easily and quickly accessed, which is why it’s “on hand.”
  4. “If not all of that money is there, that’s when we begin to investigate vendors, third party merchants, banks, employee training, store procedures or employee theft.

Subtract the amount by which you need to replenish the account from the total amount of your vouchers. A negative result represents a cash short amount, while a positive number represents a cash over amount. 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 https://business-accounting.net/ 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. 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. This term pertains primarily to cash-intensive businesses in the retail and banking sectors, as well as those that need to handle petty cash.

Cash Over and Short

Though not literally cash, it’s money that can be easily and quickly accessed, which is why it’s “on hand.” One of the conveniences of the petty cash fund is that payments from the fund require no journal entries at the time of payment. Thus, using a petty cash fund avoids the need for making many entries for small amounts. Only when the fund is reimbursed, or when the end of the accounting period arrives, does the firm make an entry in the journal.

Credit, or decrease, your cash account by the amount by which you must replenish the petty cash account in the journal entry. The opposite is true about transactions that produce cash shortages. Assume the same situation except Tom only receives $99 instead of $101. Now cash is debited for $99, cash over and short is debited for $1, and the sales account is credited for $100. 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.

Investigate large discrepancies before assuming miscount or theft

Since the petty cash account is an imprest account, this balance will never change and will remain on the balance sheet at $75, unless management elects to change the petty cash balance. Cash on hand is any accessible cash the business or liquid funds have. It can be in the form of actual money, like amounts you haven’t yet deposited in the bank or smaller bills and coins that you keep in the cash register to make change for customers.

Why Is It Called Petty Cash?

Find out what to do when the amount in your cash drawer doesn’t match your Z-Out Drawer Count report in QuickBooks Point of Sale. In addition to large amounts, be on the lookout for patterns of of loss, often small amounts, over an extended period of time. In addition, you will be able to better track and investigate Cash Over Short if you have a central place to record each register and day’s amount. For employees that are working the register it should come as a relief because they don’t have to worry about being falsely held accountable for someone else’s mistake. Click through from summaries to the receipt level to determine whether the cashier’s actions indicate a need for cashier retraining or other action.

Petty Cash Example

Petty cash accounts are managed through a series of journal entries. Entries are needed to (1) establish the fund, (2) increase or decrease the balance of the fund (replenish the fund as cash is used), and (3) adjust for overages and shortages of cash. 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. If a company has various cash drawer locations, the cash over and short account holds the net of these differences. In the financial world, it also refers to a company’s highly liquid assets—funds in checking or other bank accounts, money market funds, short-term debt instruments, or other cash equivalents.

To permit these cash disbursements and still maintain adequate control over cash, companies frequently establish a petty cash fund of a round figure such as $100 or $500. The petty cash account cash over and short is a current asset and will have a normal debit balance (debit to increase and credit to decrease). Here is a video of the petty cash process and then we will review the steps in detail.

Secure Cash Over/Short

It works well to cover small impromptu expenses—like a tip for the kid delivering pizzas to the lunch meeting, or cab fare home for employees working late. It saves the hassle of reimbursing people or expecting them to pay out-of-pocket for work-related items. “Petty cash” and “cash on hand” sound a lot alike, and they do overlap. Secure Cash Over/Short consolidates transaction and over/short data across all registers and provides an easy-to-view detailed analysis to help identify trends and discrepancies worth investigating. Simply toggle your view of metrics between register or cashier and drill down for more details with a click. Accruing tax liabilities in accounting involves recognizing and recording taxes that a company owes but has not yet paid.

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. Occasionally, errors may occur that affect the balance of the petty cash account. This may be the result of an employee not getting a receipt or getting back incorrect change from the store where the purchase was made. In this case, an expense is created that creates a cash overage or shortage. The Cash Over and Short account will be used to balance the entry when the cash needed to get back to the petty cash account does not match the total of petty cash vouchers. Remember, for all journal entries, total debits must equal total credits.

Digging deeper into these discrepancies can help you not only identify the cause of missing cash, but also ensure the overall accuracy of your financial statements. Delivery service companies are capable of committing the same errors too. They might not credit you the right amount of money or there could be an error on your invoice.

Right after this entry has been recorded, the check cashed, and the proceeds put in the box, there will be $100 in the box again, an amount which will match the general ledger account. In fact, there is always $100 in the box if you add up all the receipts and the cash (more or less, depending on the cash over/short situation). This system simply delays the recording of small expenses until the end of the accounting cycle or the fund is replenished. It’s not really an adjusting journal entry because there is an actual transaction being recorded. Having a petty cash account is  just more convenient than going to the accounts payable clerk every time someone needs a stamp or a liter of coffee for a meeting. The petty cash fund is reconciled periodically to verify that the balance of the fund is correct.

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. 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.


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