3 2 Petty Cash Financial and Managerial Accounting

If a surplus or shortage is discovered, the difference will be recorded in Cash Short (Over); a debit balance indicates a shortage (expense), while a credit represents an overage (revenue). Typically, cash short and over petty cash accounts are reimbursed at a fixed time period. Many small businesses will do this monthly, which ensures that the expenses are recognized within the proper accounting period.

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. Debit your cash short and over account in your journal entry by the amount of cash short. Alternatively, credit your cash short and over account by the amount of cash over. In the example, debit your cash short and over account by $10 to record the cash short amount. Subtract the amount by which you need to replenish the account from the total amount of your vouchers.

How to Take Write Offs in Accounting

A bank reconciliation is commonly used for detailing the items responsible for
the difference between the cash balance reported in the bank statement and the
balance of the cash account in the general ledger. All reconciling items in the
balance per books portion of the bank reconciliation require formal journal
entries in order to adjust the cash account to the true balance. These
adjustments are not the same as adjusting entries in previous chapters, and are
therefore called “reconciling entries.” A cash short and over account is used when there is no evidence of an impressed account, such as small cash. The account is usually left active until around the end of such a company’s fiscal period or year. It is then shut and listed on the income statement as a miscellaneous cost.

A petty cash fund is frequently established to make routine payments of
relatively small amounts. It is an amount of cash (currency and coin) that is
physically separated from other forms of cash and immediately available for
disbursement upon proper authorization. The petty cash fund provides convenience
and efficiency for payment of small amounts without writing a check. The
custodian of the fund maintains the (1) cash and (2) receipts for expenses,
which usually sum to a specified total. The receipts are the basis for recording
appropriate expenses when the fund is replenished.

Definition of Cash Short and Over Account

In case of shortage, the cash over and short is on debit and vice versa. Cash short and over reflects the difference between the cash balance reported in the financial statement and the cash balance reported under audit. Throughout the month, several payments are made from the petty cash account of the Galaxy’s Best Yogurt. For example, the Galaxy’s Best Yogurt maintains a petty cash box with a stated balance of $75 at all times. Upon review of the box, the balance is counted in the following way.

• You use the Z-Out Drawer Count report to track your total cash flow for the day.
• In cases like this, businesses may want to consider installing security cameras or hiring additional staff to help with transactions and to prevent future mistakes.
• This might be the result of simple mistakes, such as math errors in making change, or perhaps someone failed to provide a receipt for an appropriate expenditure.
• A cashier working at a company’s retail store conducts a transaction with a customer in which the customer should have paid $100 for their purchase but they paid $110.
• At the same time, receipts are removed from the petty cash box and formally recorded as expenses.

Thus, this account serves primarily as a detective control—an accounting term for a type of internal control that aims to find problems, including any instances of fraud, within a company’s processes. Internal tampering could cause a business to be over and short in its accounting. To maintain internal controls, managers can use a petty cash receipt (Figure 3.7), which tracks the use of the cash and requires a signature from the manager.

Replenish Petty Cash

When a business experiences repeated “cash over” or “cash short” situations, it may be indicative of a larger problem such as theft. In some cases, petty cash may also be a contributing factor in a recurring “cash over” or “cash short” situation. The term “petty cash” refers to a small quantity of cash that businesses keep available to handle small unexpected expenses. Loose accounting of petty cash can quickly lead to a “cash over” or “cash short” situation. This is more common with companies that deal with significant amounts of cash (retail, banking, etc.) or that have large and heavily used petty cash funds. Cash Short and Over is used to balance the journal entry when actual cash
received does not agree with the cash amounts indicated on the paperwork for the
day.

I rang up a $95 pair of yoga pants correctly for $95, but I miscounted the cash I received for the pants. The customer unwittingly gave me $96 for the purchase, an error we both failed to catch. The accounting system will show $95 in posted sales but $96 of collected cash. The journal entry for this sale would debit cash for $96, credit sales for $95, and credit cash over short for $1. As a company grows, it may find a need to increase the base size of its petty cash fund. The entry to increase the fund would be identical to the first entry illustrated; that is, the amount added to the base amount of the fund would be debited to Petty Cash and credited to Cash.

The cash over and short account

For example, the cash actually counted may not equal the total of cash
sales per the cash register tapes, or the cash counted may not equal the cash
received on account and credited to accounts receivable. These discrepancies may
be due to errors in recording sales or cash receipts, to errors in making
change, or to theft by a sales clerk. The Cash Short and Over account is not a
cash account, but it is debited or credited to make the journal entry balance to
the actual cash amount of the transaction. This account can be classified as
either an expense (cash short) or an income (cash over) account. Cash over and short occurs when businesses either have more or less cash on hand than was expected/recorded in their general ledger. A general ledger is a financial record-keeping system that businesses use in order to track their revenue, expenses, and other financial transactions.

Internal control over assets
includes controls over cash, inventory, and fixed assets; however, this chapter
specifically looks at cash controls. All businesses need preventive controls for
cash received from cash sales and cash received from collections on account, and
for cash payments of all types. A cash short and over account offers a way to track the cash management skills of employees. The sums in the account are usually so low that the balance of the account will be combined with other trivial sums listed as other expenses on the income statement.