How to Calculate Cash Short and Over

Cash handling is a fundamental aspect of daily business operations, particularly for businesses that accept physical currency. Maintaining accurate cash records is important for financial integrity and operational efficiency. Even with diligent practices, minor differences between the expected cash amount and the actual cash counted can occur. These variances are commonly referred to as “cash short and over,” and understanding them is a routine part of managing daily financial transactions.

Understanding Cash Short and Over

Cash short occurs when the total physical cash counted in a register drawer or at the end of a business day is less than the amount that should be present based on sales and starting funds. This discrepancy indicates a deficit in the expected cash balance. For example, if a cash drawer should contain $600 but only $595 is found, the drawer is cash short by $5.

Conversely, cash over happens when the actual cash counted is greater than the amount expected. This means there is an excess of cash in the drawer compared to what sales and other transactions indicate. If the same drawer was expected to hold $600 but contained $603, it would be cash over by $3.

Steps to Calculate Cash Short and Over

Calculating cash short or over involves comparing the physical cash on hand with documented financial activity. The first step requires a precise physical count of all currency and coins in the cash drawer or designated cash receptacle. Double-checking this count helps ensure the accuracy of the foundational figure.

The next step is to determine the expected cash amount that should be in the drawer. This calculation begins with the starting cash, often called the “float,” which is the amount of money initially placed in the drawer for making change. To this float, all recorded cash sales for the period are added, usually derived from a point-of-sale (POS) system or sales receipts. Any cash payouts, such as money used for small expenses or refunds, are then subtracted from this sum to arrive at the total expected cash.

Once both the actual cash count and the expected cash amount are established, the calculation is straightforward: Actual Cash Count minus Expected Cash Amount. For instance, if a drawer started with a $100 float, had $500 in recorded cash sales, and $20 in cash payouts, the expected cash would be $100 + $500 – $20 = $580. If the physical count revealed $575, the calculation would be $575 – $580 = -$5, indicating a cash short of $5.

Alternatively, if the physical count yielded $582, the calculation would be $582 – $580 = $2, signifying a cash over of $2. A negative result from this calculation signifies a cash short, meaning less money was found than expected. A positive result indicates a cash over, meaning more money was found than expected.

Investigating and Recording Discrepancies

After calculating a cash short or over, investigate the cause of the discrepancy. Common reasons for these variances include human errors, such as providing incorrect change to a customer or miscounting currency during a transaction. Unrecorded transactions, like a cash payout made without proper documentation, or errors in setting up the initial cash float can also contribute to these differences. System errors in recording sales data can also lead to discrepancies.

The investigation process begins with a re-count of the physical cash to rule out simple counting mistakes. Sales transaction logs from the point-of-sale system are reviewed to ensure all sales were correctly recorded and totaled. Verifying any cash payouts against receipts or internal documentation is important, as is confirming the accuracy of the starting float amount.

Once the investigation is complete and the cause, if identifiable, is understood, the cash short or over must be formally recorded in the business’s financial records. These variances directly affect the reported cash balance and, consequently, the accuracy of financial statements. A cash short is treated as a minor operating expense, reducing the business’s net income for the period. Conversely, a cash over is recorded as a minor operating income, increasing the net income.