Petty Cash
Keep petty cash on hand in your business to cover small unexpected expenses. These expenses can include paying postage, tipping delivery people, purchasing supplies, buying gifts and more. The accounts involved in journalizing petty cash are petty cash, cash and cash short & over. Record petty cash shortages and overages in the cash short & over account. In this case one balance sheet asset (cash), has been increased by 1,414 when the cash is banked.
Any costs resulting from theft, such as door or lock repair, can also be recorded as theft expense. 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.
How is the account Cash Short and Over used?
This net debit represents a loss to the business for inventory damaged but not covered by the insurance claim. No matter how careful a business owner tries to be or the quality of the business’ security system, a business can still become the victim of theft. Theft of assets must be recorded on the accounting books in order to properly reflect the loss of the asset and the resulting cost of the loss.
To initially fund a petty cash account, the accountant should write a check made out to “Petty Cash” for the desired amount of cash to keep on hand and then cash the check at the company’s bank. The journal entry on the balance sheet should list a debit to the business bank account and a credit to the petty cash account. When petty cash is used for business expenses, the appropriate expense account — such as office supplies or employee reimbursement — should be expensed.
Example of How the Account Cash Short and Over is Used
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). Whenever cash is received, the asset account Cash is debited and another account will need to be credited. Since the service was performed at the same time as the cash was received, the revenue account Service Revenues is credited, thus increasing its account balance.
Revenues and gains are recorded in accounts such as Sales, Service Revenues, Interest Revenues (or Interest Income), and Gain on Sale of Assets. These accounts normally have credit balances that are increased with a credit entry. We now offer eight Certificates of Achievement for Introductory Accounting and Bookkeeping. The certificates include Debits and Credits, Adjusting Entries, Financial Statements, Balance Sheet, Income Statement, Cash Flow Statement, Working Capital and Liquidity, and Payroll Accounting. Petty cash is a current asset and should be listed as a debit on the company balance sheet.
Accounting
The cash overage/shortage account is an expense account in the income statement of the business. Cash overages are normally recorded in a separate income statement expense account often referred to as the cash over/short account.
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.
- Revenues and gains are recorded in accounts such as Sales, Service Revenues, Interest Revenues (or Interest Income), and Gain on Sale of Assets.
- These accounts normally have credit balances that are increased with a credit entry.
Over and Short
The journal entry for this sale would debit cash for $96, credit sales for $95, and credit cash over short for $1. In accounting software, this entry will add the petty cash check to your print checks list. Using columnar paper with a debit, credit and balance column, enter the amount of petty cash in the debit column.
A petty cash account is an account a company uses to pay for small expenses. A company creates a voucher each time the petty cash account is used. A firm should note instances of cash variances in a single, easily accessible account. Internal tampering could cause a business to be over and short in its accounting.
The Cash Short (Over) account is an income statement type account. For example, a retailer will compare daily cash sales to the actual cash found in the cash register drawers. 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). A debit is an accounting entry that results in either an increase in assets or a decrease in liabilities on a company’s balance sheet.
Expenses normally have debit balances that are increased with a debit entry. Since expenses are usually increasing, think “debit” when expenses are incurred. The petty cash account should be reconciled and replenished every month to ensure the account is balanced and any variances are accounted for. The accountant should write a check made out to “Petty Cash” for the amount of expenses paid for with the petty cash that month to bring the account back up to the original amount.
How do you calculate cash over and short?
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 the example, debit your cash short and over account by $10 to record the cash short amount. A company uses a cash short and over account to balance its accounting records when it replenishes its petty cash account.
The check should be cashed at the company’s bank and the cash placed back in the petty cash safe or lock box. As an example of how the cash over and short account operates, 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.
If the 2018 account was not closed, the balance that would appear at the end of 2019 would be $1,100,000. But we want to measure what occurred in 2019 only, hence the need to close the the previous period’s balance.
In fundamental accounting, debits are balanced by credits, which operate in the exact opposite direction. As noted earlier, expenses are almost always debited, so we debit Wages Expense, increasing its account balance. Since your company did not yet pay its employees, the Cash account is not credited, instead, the credit is recorded in the liability account Wages Payable.
AccountingTools
The cash over and short account is an expense account, and so is usually aggregated into the “other expenses” line item in the income statement. A larger balance in the account is more likely to trigger an investigation, while it may not be cost-effective to investigate a small balance. This enables users to know how much revenues were generated, how much expenses were incurred, and how much net income the company made in different accounting periods , 2018, 2019, etc. For example, ABC company was able to make $500,000 sales in 2018. If the sales account was not closed, it will be carried over to the next accounting period.