What Is Over and Short?
Let me explain the accounting term 'over and short,' which you might also hear as 'cash over short.' It points to a difference between what a company reports in its sales records or receipts and what the actual audited figures show. This term also names an account in the company's general ledger, specifically the cash-over-short account.
You'll see this mostly in businesses that deal heavily with cash, like retail stores, banks, or places managing petty cash. If a cashier or teller gives out too much or too little change by mistake, the business ends up with a 'cash short' or 'cash over' at day's end.
Key Takeaways
- In accounting, over and short—or 'cash over short'—implies a disparity between a firm's reported figures and its audited figures.
- It's also the name of the account where the firm records these cash discrepancies.
- Being over and short occurs most often in retail and banking.
An Example of Over and Short
Suppose I work as a cashier at a sporting goods shop. I ring up a $95 pair of yoga pants correctly for $95, but I miscount the cash received. The customer hands me $96 by mistake, and neither of us notices. The system shows $95 in sales but $96 in cash collected. That extra dollar goes into the cash-over-short account. The journal entry debits cash for $96, credits sales for $95, and credits cash over short for $1.
Now, consider the reverse for a shortage. In the same setup, if I receive $94 instead of $96, cash gets debited for $94, sales credited for $95, and cash over short debited for $1.
What Causes Cash-Over-Short Incidents?
Internal tampering can lead to over and short situations in accounting, but more often, it's just human error. An employee might ring up a sale wrong or miscount cash, creating a gap between the item's sales price, the amount collected, and what's recorded in the system.
The Function of a Cash-Over-Short Account
You should track cash variances in one easy-to-access account. Classify this cash-over-short account as an income-statement account, not an expense, because these errors can either boost or cut a company's profits on the income statement.
Use the data from this account to figure out why cash doesn't match up and to cut down on these incidents through better procedures, controls, and training for employees. Essentially, this account acts as a detective control, which is an accounting tool to spot problems, including fraud, in your processes.
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