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. The custodian should prepare a voucher for each disbursement and staple any source documents (invoices, receipts, etc.) for expenditures to the petty cash voucher. At all times, the employee responsible for petty cash is accountable for having cash and petty cash vouchers equal to the total amount of the fund. At the end of the month, assume the $100 petty cash fund has a balance of $6.25 in actual cash (a five-dollar bill, a one-dollar bill, and a quarter). Frank, who is the responsible person, has been filling out the voucher during the month, and all the receipts are stapled to the voucher.

Journal entry for cash shortage

• When the fund is replenished, the credit to Cash is for the difference between the established amount and the actual cash in the fund.
• Sometimes, the petty cash custodian makes errors in making change from the fund or doesn’t receive correct amounts back from users.
• However, to make it easy, we will only look at the petty cash transaction as the journal entry is usually the same.
• This account also provides companies with the ability to monitor the handling of cash, since it can apply to tellering operations too.

In this case, we can make the journal entry to record the cash overage by debiting the cash account and crediting the cash over and short account and the sales revenue account. To permit these cash disbursements and still maintain adequate control over cash, companies frequently establish a petty cash fund of a round figure such as $100 or $500. The petty cash account is a current asset and will have a normal debit balance (debit to increase and credit to decrease). Cash shortage usually happens when the actual cash on hand received from sales is less than the total amount in sales receipts for the retail business. For other types of businesses, it usually occurs when the cash on hand, left after petty cash expenses, is less than the total amount in petty cash expenses receipts.

Cash shortage in retail business

• (Sometimes we refer to this fund as an imprest fund since it is replenished when it becomes low.).
• On the other hand, if the company has a cash shortage in the petty cash fund, it can make the journal entry with the debit of cash over and short account instead.
• The petty cash account is a current asset and will have a normal debit balance (debit to increase and credit to decrease).

Companies replenish the petty cash fund at the end of the accounting period, or sooner if it becomes low. The reason for replenishing the fund at the end of the accounting period is that no record of the fund expenditures is in the accounts until the check is written and a journal entry is made. (Sometimes we refer to this fund as an imprest fund since it is replenished when it becomes low.). To determine which accounts to debit, an employee summarizes the petty cash vouchers according to the reasons for expenditure.

One of the conveniences of the petty cash fund is that payments from the fund require no journal entries at the time of payment. Thus, using a petty cash fund avoids the need for making many entries for small amounts. Only when the fund is reimbursed, or when the end of the accounting period arrives, does the firm make an entry in the journal. On the other hand, if the company has a cash shortage in the petty cash fund, it can make the journal entry with the debit of cash over and short account instead.

The journal entry to record replenishing the fund would debit the various accounts indicated by the summary and credit Cash. Right after this entry has been recorded, the check cashed, and the proceeds put in the box, there will be $100 in the box again, an amount which will match the general ledger account. 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).

For example, the petty cash custodian may sometimes find themselves having less cash on hand as a result of the total cash plus receipts does not add up to the total amount of the established petty cash fund. Assume that the company has a petty cash fund of $100 and its general ledger account Petty Cash reports an imprest balance of $100. Let’s now assume that when the petty cash fund is replenished, there is $6.00 on hand and there are $93.00 of petty cash vouchers. When the company has the cash overage in the petty cash fund, it can make the journal entry by debiting the expenses account and crediting the cash over and short account together with the cash account. In accounting, cash over and short journal entry is usually made when the company replenishes its petty cash fund. This is due to the cash remaining and the receipts in the petty cash box may not equal the amount of petty cash fund established.

Cash overage in replenishment of petty cash

A controller conducts a monthly review of a petty cash box that should contain a standard cash balance of $200. He finds that the box contains $45 of cash and $135 of receipts, which totals only $180. This cash shortfall is recorded as a debit to the cash over and short account (which is an expense) and a credit to the petty cash or cash account (which is an asset reduction).

Journalizing Petty Cash Transactions

In this case, we can make the journal entry for cash shortage by debiting the cash account and the cash over and short account and crediting the sales revenue account. the petty cash account cash short and over is a permanent account. Additionally, this account is usually included in the other expenses or other revenues when we prepare the income statement at the end of the accounting period. A miscellaneous expense account used to record the difference between the amount of cash needed to replenish a petty cash fund and the amount of petty cash receipts at the time the petty cash fund is replenished. The term cash over and short refers to an expense account that is used to report overages and shortages to an imprest account such as petty cash. The cash over and short account is used to record the difference between the expected cash balance and the actual cash balance in the imprest account.

In this journal entry, the credit of the cash account is to refill the petty cash fund to its full established petty fund. At the same time, it also represents the cash outflow from the company as a result of petty cash expenses during the period. For other types of businesses, the cash shortage usually happens when dealing with petty cash.

Opposite to the cash shortage, cash overage occurs when the cash we have on hand at the end of the day is more than the cash sales. For the past 52 years, Harold Averkamp (CPA, MBA) hasworked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. Generally, the amounts in the account Cash Short and Over are so small that the account balance will be included with other insignificant amounts reported on the income statement as Other Expenses. For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. Also, the expenses in this journal entry are usually the expenses with a small amount such as postage expenses and freight expenses, etc. As you think back on this system, note that there are several internal controls in place, most notably segregation of duties, assignment of responsibility, and a reconciliation (monitoring) process.

Sometimes, the petty cash custodian makes errors in making change from the fund or doesn’t receive correct amounts back from users. These errors cause the cash in the fund to be more or less than the amount of the fund less the total vouchers. When the fund is replenished, the credit to Cash is for the difference between the established amount and the actual cash in the fund. The Cash Over and Short account can be either an expense (short) or a revenue (over), depending on whether it has a debit or credit balance. In this case, we need to make the journal entry for cash shortage at the end of the day or when we make the replenishment of petty cash if there is less cash on hand than the amount it is supposed to be. Note that the entry to record replenishing the fund does not credit the Petty Cash account.

For example, assuming that we have a cash overage of $10 instead in example 1 above, as a result of having actual cash on hand of $2,800 which is more than the cash receipts of $2,790. When disbursing cash from the fund, the petty cash custodian prepares a petty cash voucher, which should be signed by the person receiving the funds. A petty cash voucher is a document or form that shows the amount of and reason for a petty cash disbursement. The cash over and short account is an excellent tool for tracking down fraud situations, especially when tracked at the sub-account level for specific cash registers, petty cash boxes, and so forth. An examination of the account at this level of detail may show an ongoing pattern of low-level cash theft, which management can act upon.

The cash overage or cash shortage may also come from the sale and other expense transactions too. However, to make it easy, we will only look at the petty cash transaction as the journal entry is usually the same. For example, the cash shortage needs the adjustment on the debit side while the cash overage needs the adjustment on the credit side.