Definition: Cash over and short, most often called cash over short, is an income statement account that records errors in cash receipts or payments resulting in overages or shortages. In other words, cash over and short is an account that shows the effect that errors in recording cash collections and payments have on income.
What Does Cash Over Short Mean?
In most accounting systems, this account is classified as an expense account, but its truly an income statement account since it can increase or decrease profits on the income statement.
Let’s take a look at an example of using the cash over and short account.
Most retailers’ accounting systems have a cash over short account setup because they generally deal with cash sales everyday. When goods aren’t rung up properly or entered into the cash register accurately, there is a discrepancy between the sales price of the merchandise sold, the amount collected, and the amount recorded in the accounting system.
Let’s assume Tom rang up a $100 pair of running shoes for $100, but he miscounted the cash received for the shoes. The customer gave him $101 for the purchase. The accounting system will show $100 in sales but $101 of collections. The one-dollar difference goes to the cash over and short account. The journal entry to record this sale would debit cash for $101, credit sales for $100, and credit cash over short for one-dollar.
The opposite is true about transactions that produce cash shortages. Assume the same situation except Tom only receives $99 instead of $101. Now cash is debited for $99, cash over and short is debited for $1, and the sales account is credited for $100.
This account is used to record both increases and decreases to profits resulting from errors.