In any business, keeping track of cash is of utmost importance. Every penny in and out of the cash register must be accounted for. This is where the cash over and short account comes in. It is an accounting tool that helps businesses keep track of the difference between the actual cash and the expected cash.
What is a Cash Over and Short Account?
A cash over and short account is an account that is used to record any differences between the actual cash in the cash register and the expected cash. This account is used to monitor any discrepancies in cash handling by employees.
Cash over occurs when the actual cash in the cash register is more than the expected amount. On the other hand, a cash shortage occurs when the actual cash in the cash register is less than the expected amount.
For instance, if the expected cash in the cash register is $1000, and the actual cash count shows $1050, then there is cash over $50. Similarly, if the expected cash is $1000, and the actual cash count shows $950, then there is a cash short of $50.
Why is a Cash Over and Short Account important?
The cash over and short account is an essential tool for businesses for the following reasons:
Helps to detect errors: The cash over and short account helps to detect errors in cash handling. Any discrepancies in cash can be traced back to the employee responsible for handling the cash.
Prevents theft: By monitoring the cash register, a business can prevent theft by employees. Any discrepancies in cash can be traced back to the employee responsible for handling the cash.
Helps to reconcile accounts: The cash over and short account helps to reconcile accounts. By tracking the differences between the actual cash and the expected cash, businesses can ensure that their accounts are accurate.
How to use a Cash Over and Short Account?
The cash over and short account is used in the following way:
Start with a beginning balance: The cash over and short account starts with a beginning balance. This balance is the expected cash in the cash register at the beginning of the day.
Record transactions: Record all transactions throughout the day, including sales, refunds, and any other cash transactions.
Count the cash: At the end of the day, count the actual cash in the cash register.
Compare the actual cash to the expected cash: Compare the actual cash in the cash register to the expected cash. If the actual cash is more than the expected cash, then there is a cash over. If the actual cash is less than the expected cash, then there is a cash short.
Record the difference: Record the difference between the actual cash and the expected cash in the cash over and short account. If there is a cash over, the difference is recorded as a credit. If there is a cash short, the difference is recorded as a debit.
Reconcile accounts: The cash over and short account is reconciled at the end of the day to ensure that all cash transactions have been recorded correctly.
Example of a Cash Over and Short Account
To illustrate how a cash over and short account works, let's look at an example:
At the beginning of the day, the expected cash in the cash register is $1000. Throughout the day, there are the following transactions:
$500 in sales
$200 in refunds
$50 paid out to an employee
$20 in cash received for a check
$10 in miscellaneous transactions
At the end of the day, the actual cash in the cash register is counted, and it shows $770. The expected cash in the cash register was $1000. Therefore, there is a cash short of $230.
To record the cash short, the following entry is made in the cash over and short account:
Cash Over and Short Account
Debit: $230
This entry indicates that there was a cash short of $230. The debit entry in the cash over and short account indicates that the cash short has been debited.
If the actual cash count had been more than the expected cash count, there would have been a cash over, and the entry in the cash over and short account would have been a credit entry instead of a debit entry.
It is important to note that the cash over and short account is not a revenue or expense account. Instead, it is a contra account, meaning that it is used to offset the cash account in the financial statements.
Conclusion
The cash over and short account is an essential tool for businesses to monitor and track any discrepancies in cash handling. It helps businesses detect errors and prevent theft by employees. By using the cash over and short account, businesses can ensure that their accounts are accurate and reconciled at the end of each day.
