Cash Over and Short

Published by Alex on

Money is at the heart of all businesses. However, it is often difficult to effectively manage that money, especially if you take money from customers and give them change. This can lead to several problems, not least of all a cash over and short issue. A cash-over and short account can help in these situations.

What is the Cash Over and Short Account?

Cash over and short, also known simply as “over and short,” is an accounting term used to signal a discrepancy in how much money a company reports receiving (figures from sales and receipts) and how much money is actually the account after an audit. The term is also used to define an account in the general ledger – a cash over and short account.

The term is mainly applied to businesses that deal with petty cash on a regular basis, such as banks and brick and mortar retail businesses. In the event of cash over and short incidents, the extra money is stored in a separate, easy-to-access account known as a cash over and short account. The money is safe while the company looks into why there was too much – or too little – money in the first place. Any discrepancies in cash must be carefully examined. Businesses may wish to use better procedures, controls, or employee training to eliminate potential problems in the future. The accounts are used as a detective control.

Example of How the Cash Over and Short Account is Used

Retailer accounting systems typically include a cash-over short account because they handle so many sales each day. Suppose goods aren’t scanned properly or put into the till correctly. This mistake can cause a difference in the sales price of the goods, the money collected from the customer, and the amount recorded in an accounting system. Let’s look at a few examples to better understand how a cash-over and short account is used.

Let’s say that Tony rings up a pair of running shoes for $100, which is the correct value of the time. However, Tony miscounts how much money he gets from the customer for their purchase. Let’s say that Tony receives $101 for the shoes. The accounting system shows a $100 sale, while an audit reveals there’s $101 in the register. This one dollar difference goes into the cash over and short account. When entering the transaction in the general ledger, an account would debit the cash account for $101, credit sales for $100, and credit the extra dollar to the cash over and short account.

One of Tony’s fellow employees, Steve, makes a similar mistake. Steve takes a $50 payment for a $45 pair of pants. Neither he nor the customer notices the error, so it isn’t corrected on the spot. There is now another disparity between the total cost of goods sold and the amount collected in the register. An accountant would debit the cash account for $50, credit sales with $45, and put another five dollars in the cash over and short account.

The reverse applies to transactions that create a cash shortage, where employees take too little money. Let’s use our previous examples. Instead of collecting $101 for the shoes, Tony collects $99 without realizing it. The cash account is debited for $99, and there’s a $100 debit for sales and a $1 debit on the cash over and short account.

What Causes Cash-Over-Short Incidents?

There are several potential reasons for cash-over-short incidents. One potential problem is that of internal tampering, which may be a severe problem. However, the most common reason for the problem is human error. An employee may incorrectly ring up a sale, take the wrong amount of money, or give the wrong amount of change. All of this creates discrepancies between the sales price of the goods sold, the money collected by the employee, and the cash amount recorded into the accounting system.

The Function of a Cash-Over-Short Account

A cash-over-short account is an excellent way to detect and track fraud allegations, especially when the charge can be tracked down to a sub-account on a cash register for a specific employee or to the petty cash box. Examining the account in detail may lead to the discovery of low-level petty cash theft. Management can take the appropriate action from there. For example, fraud may be tracked to a particular worker who can then be disciplined. If the employee is innocent and simply prone to make mistakes, then they can get additional training or reassignment to prevent future problems.

The cash-over-short account is registered as an expense account, typically filed under “other expenses” on a company’s income statement. These accounts usually have relatively small balances. Significant discrepancies are more likely to cause an investigation as they are more serious, while it might not be worth the time, effort, or money to investigate minor discrepancies.

Either way, companies can use the data from the cash-over-short-account to better understand why cash levels aren’t lining up. From there, they can take measures to reduce future discrepancies, such as implementing better controls and procedures or training employees.

The primary function of a cash-over-short-account is for the account to be used as a detective control – an internal control employed to find problems, such as theft or fraud, within the accounting process.

Final Thoughts

A cash-over-short account is an accounting tool used to manage financial discrepancies between sales and accounting. If a customer pays too much or too little, the difference goes into this account. The same happens if an employee steals petty cash from the register. The account is credited or debited depending on if there is too much or too little money in the sales account. The accounts are one of the several detectives controls businesses have at their service to detect financial and accounting problems.

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