How to Calculate Cash Over and Short

Cash over and short refers to the difference between the recorded amount of cash that should be present and the actual amount of cash physically counted. Managing cash accurately is fundamental for any business handling cash transactions, ranging from retail stores to banking institutions. Identifying and addressing these discrepancies is important for maintaining financial accuracy and preventing potential issues.

Gathering Necessary Information

Calculating cash over and short requires two primary components: the expected cash and the actual cash. Expected cash represents the amount that accounting records indicate should be on hand. This figure is determined by starting with the previous cash balance, adding all cash inflows for the period such as cash sales or customer payments, and then subtracting all cash outflows like cash paid out or bank deposits. This systematic tracking ensures the expected cash figure accurately reflects all recorded transactions.

Actual cash is the precise amount of money physically present at a specific time. This involves counting all bills, coins, and sometimes checks or credit card slips if they are reconciled as part of the daily cash process. Any errors in this physical count will directly impact the calculation of cash over or short.

Executing the Calculation

The calculation of cash over and short is a direct comparison between the actual cash and the expected cash. The formula used is: Actual Cash – Expected Cash = Cash Over or Short. A positive result indicates a “cash over” situation, meaning there is more physical cash than the records show. Conversely, a negative result signifies a “cash short” situation, where the physical cash on hand is less than the amount recorded.

For example, if a cash register’s records indicate an expected cash balance of $500, but a physical count reveals $505, the calculation is $505 (Actual Cash) – $500 (Expected Cash) = +$5. This positive $5 indicates a cash overage. Conversely, if the physical count shows $497 against the same expected $500, the calculation is $497 – $500 = -$3, which represents a cash shortage of $3.

Documenting and Adjusting Records

Once the cash over or short amount is determined, it must be formally recorded in the accounting records. Businesses use a specific general ledger account, named “Cash Over and Short,” to track these discrepancies. This account serves as a temporary holding place for the difference between the actual and expected cash, and it can function as either a revenue account for overages or an expense account for shortages. The account is aggregated into “other expenses” or “other revenue” on the income statement.

For a cash over scenario, the journal entry would involve debiting the Cash account for the extra amount ($5) and crediting the Cash Over and Short account ($5). This increases the cash balance to reflect the actual amount and records the overage as a credit to the Cash Over and Short account, which acts like a revenue account in this instance. In a cash short scenario, the journal entry requires debiting the Cash Over and Short account ($3) and crediting the Cash account ($3). This reduces the cash balance to its actual amount and records the shortage as a debit to the Cash Over and Short account, functioning as an expense. Regular reconciliation of these adjustments is important for internal control purposes.