Front-line sales typically encounter cash over and short. This is because they involve with cash sales that currency changes are required.
In this article, we cover how to account for the cash short and over; especially on the cash over and short journal entry.
Now let’s get started!
What is Cash Over and Short?
Cash over and short refers to circumstances where there is a shortage or overage of cash due to making incorrect changes. In a retail business; especially with front-line sales, some customers might be given too little or too much change. This is discovered by cross-checking the cash register and the amount of cash receipt. The difference due to this error in making change is recorded as Cash over and short. So how do we record the cash over and short?
Is Cash Over and Short a Debit or Credit?
The cash over and short is recorded on debit when there is a shortage. That’s means we have given too much change to customers. In contrast, the cash over and short is recorded on credit when there is overage. This results from too little change to customers.
Therefore, the balance of cash short and over is on debit or credit depends on whether it is shortage or overage. In case of shortage, the cash over and short is on debit and vice versa.
Cash Over and Short Journal Entry
As mentioned above, the sales staff or cashier can give too much or too little change to the customer. This difference is treated as income or expense and presented in the income statement. When we give too much change to customers, it means that we make change more than it should be. It results in a shortage of cash. Thus, it is a loss as we give much more change of cash to customers. Therefore, it is treated as an expense.
Below is the journal entry to record cash shortage:
| Account Name | Debit | Credit |
|---|---|---|
| Cash | XXX | |
| Cash Over and Short | XXX | |
| Sales | XXX | |
| (To record cash sales with cash shortage) |
In contrast, if we give too little change of cash to customers that means it is a gain for us. It results in an overage of cash. This gain is recorded as income.
Below is the journal entry to record cash overage:
| Account Name | Debit | Credit |
|---|---|---|
| Cash | XXX | |
| Cash Over and Short | XXX | |
| Sales | XXX | |
| (To record cash sales with cash overage) |
In most cases, customers will most likely to dispute a shortage of change. 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.
In order to clearly understand this cash over and short, let’s go through the examples below.
Cash Over and Short Example
ABC retail shop sells ice cream to its customers. On January 31, 20X1, the cash register’s record shows $500. However, the cash count shows that the total cash is $510. In this case, there is an overage of cash.
Therefore, the journal entry for this cash overage is as follow:
| Account Name | Debit | Credit |
|---|---|---|
| Cash | $510 | |
| Cash Over and Short | $10 | |
| Sales | $500 | |
| (To record cash sales with cash overage) |
In contrast, let’s assume that during the cash count, the actual cash from the cash sales is $495 instead of $510. In this case, there is a shortage of cash. This shortage of cash is recorded as an expense.
Below is the journal entry to record the shortage of cash:
| Account Name | Debit | Credit |
|---|---|---|
| Cash | $495 | |
| Cash Over and Short | $5 | |
| Sales | $500 | |
| (To record cash sales with cash shortage) |
Conclusion
The cash short and over journal entry is very straightforward. When there is a cash shortage, it is treated as an expense; thus we recorded on debit. In contrast, when there is an overage, it is treated as income; thus we recorded on credit.
