How to Catch Theft with Your Cash Over and Short Account

When it comes to balancing your cash drawer, your steps might differ from another business’s. For example, a bigger business might need to make multiple deposits during the day. Your cash drawer, also called a register or till, stores cash, coins, checks, and other valuable items (e.g., coupons) at the point-of-sale (POS). Balancing your cash drawer is an essential part of your business’s daily routine. Just like brushing your teeth, you should also be balancing your cash register drawer daily.

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 over and short occurs when businesses either have more or less cash on hand than was expected/recorded in their general ledger.

Cash shortage in replenishment of petty cash

If the amounts are the same, continue with your end-of-day procedures. 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. 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. Cash Over Short is the difference between the cash you actually have in the register at the end of day and the amount the register report says you should have. Special promotions are another potential error source that can be guarded against with proper training.

Although it would be preferable if all disbursements were made by check and all receipts were deposited intact, most firms usually maintain a small amount of cash on hand for miscellaneous expenditures. This is because they involve with cash sales that currency changes are required. Any discrepancies identified from reconciling the bank statement become valuable tools in analyzing whether errors are due to theft or some other cause. With enough information, the root issue can be uncovered with further investigation to see if it really is theft, a training error or even a bank error. Also, the expenses in this journal entry are usually the expenses with a small amount such as postage expenses and freight expenses, etc.

Example of How the Cash Over and Short Account is Used

The cash shortage may happen often with the retail business as it deals a lot with small notes when making the sales and the cash sales are usually need to be reconciled daily. Meanwhile, other types of businesses usually only have a cash shortage when dealing with the petty cash when it is needed to be replenished (usually once a month). However, it should be replenished at the end of the accounting period in order to ensure that all expenses are properly recorded. 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. Otherwise, take note that the only entry to the Petty Cash account occurred when the fund was established.

• 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).
• Not do you run the risk of an unhappy customer never shopping at your store again, they might also post about their experience getting shortchanged on social media.
• The account stores the amount by which the actual ending cash balance differs from the beginning book balance of cash on hand, plus or minus any recorded cash transactions during the period.
• A cash short and over account is used when there is no evidence of an impressed account, such as small cash.
• After each person responsible counts down the till it should be documented and signed off on.

A cashier working at a company’s retail store conducts a transaction with a customer in which the customer accidentally underpays. The customer should have paid $100 for their purchase but they only paid $90. The cashier did not notice this mistake and accepted the $90 as full payment. In this journal entry, we credit the sales revenue because in the retail business the cash shortage usually happens due to us failing to keep the accurate records that are related to sales revenue. Also, the debit of cash over and short represents the loss, e.g. a few dollars, due to the cash being less than the amount it is supposed to be when comparing the sales records.

Financial and Managerial Accounting

When it comes to your cash drawer, the fewer people who access it, the better. Limitations allow you to avoid cash drawer discrepancies and can help you avoid workplace theft. Regardless of how small or large your business is, here cash short and over are four steps to get you on the right foot when it comes to balancing your cash drawer. Financial accountants (and independent auditors) are generally not concerned with petty cash because of the immateriality of the amounts.

It doesn’t always refer to actual cash—it can also include any short-term, liquid investments such as money market funds or liquid assets that can be quickly converted to cash. While managers shouldn’t be quick to accuse cashiers of theft at the first sign of a shortage, there are instances where employees do steal from the drawer. As soon as you notice money regularly missing at the end of a shift, you’ll want to conduct an investigation to see whether someone is stealing from you. There are a number of reasons why your cashier could be out of balance when it’s time to close out a register. For the most part, these discrepancies arise as a result of employees making simple mistakes and not catching them in time. If you start noticing cash drawer discrepancies time and time again, something might be up.

Step 3: Create a shortage or overage account in QuickBooks Desktop

An income statement provides a summary of a company’s revenue and expenses for a period of time. Revenue is the total amount of money that a company has earned from its activities during a period of time, while expenses are the costs that a company incurs while generating its revenue. The total amount that a company is over or short in an accounting period will affect its net income (total revenue minus total expenses). For example, if a company records a cash over entry of $7, this will increase its net income by $7. On the other hand, if a company records a cash short entry of $7, this would decrease its net income by $7. When a business experiences repeated “cash over” or “cash short” situations, it may be indicative of a larger problem such as theft.

For example, if you notice an employee’s drawer is constantly off $20, you might need to do some more digging and observing. Sales reports can also give you a glimpse into your cash flow for the day. Before you delve into how to balance a cash drawer, you need to learn a little background information about it. Read on to learn how to balance your cash drawer as well as tips and tricks to keep your drawer in shipshape. For example, when you sell $100 worth of merchandise to customer “a”, debit sales for $100 and credit cash for $100. For example, if there are un-reimbursed expenditures from petty cash at the end of the year, expenses are understated and cash overstated.

Journal entry for cash overage

You are responsible for creating strong systems and processes for verifying your deposits, invoices and transactions. And it can be overwhelming to find the time to review all of these important financial documents and successfully run the other aspects of your business at the same time. At OnePoint, our clients rely on us as their trusted accounting partner to monitor for discrepancies and identify problem areas. A good accounting vendor will provide that second set of eyes on your data to help you avoid costly errors and employee theft. This term pertains primarily to cash-intensive businesses in the retail and banking sectors, as well as those that need to handle petty cash. If a cashier or bank teller errs by giving too much or too little change, for example, then the business will have a “cash short” or “cash over” position at the end of the day.

• Cash over occurs when there is more cash on hand than what was expected/recorded in a company’s general ledger.
• For example, on December 22, after reconciling the cash on hand with the cash sales, we find that there is a cash shortage of $5.
• Recall that materiality means that the dollar amount in question would have a significant impact in financial results or influence investor decisions.
• These errors cause the cash in the fund to be more or less than the amount of the fund less the total vouchers.
• How you track your costs does not matter as long as it is consistent.

The journal entry for this action involves debits to appropriate expense accounts as represented by the receipts, and a credit to Cash for the amount of the replenishment. Notice that the Petty Cash account is not impacted — it was originally established as a base amount, and its balance has not been changed by virtue of this activity. A check for cash is prepared in an amount to bring the fund back up to the original level. The check is cashed and the proceeds are placed in the petty cash box. At the same time, receipts are removed from the petty cash box and formally recorded as expenses. Policies should be established regarding appropriate expenditures that can be paid from petty cash.

When the fund requires more cash or at the end of an accounting period, the petty cash custodian requests a check for the difference between the cash on hand and the total assigned to the fund. At this time, the person who provides cash to the custodian should examine the vouchers to verify their legitimacy. The transaction that replenishes the petty cash fund is recorded with a compound entry that debits all relevant asset or expense accounts and credits cash. Consider the journal entry below, which is made after the custodian requests $130 to replenish the petty cash fund and submits vouchers that fall into one of three categories. If the balance in the petty cash account is supposed to be $75, then the petty cash box should contain $45 in signed receipts and $30 in cash. Assume that when the box is counted, there are $45 in receipts and $25 in cash.

Whatever the cause, the available cash must be brought back to the appropriate level. If the management at a later date decides to decrease the balance in the petty cash account, the previous entry would be reversed, with cash being debited and petty cash being credited. As cash is spent from a petty cash fund, it is replaced with a receipt of the purchase. At all times, the balance in the petty cash box should be equal to the cash in the box plus the receipts showing purchases. Whenever someone in the company requests petty cash, the petty cash custodian prepares a voucher that identifies the date, amount, recipient, and reason for the cash disbursement.