What Is Cash Short and Over Classified As?

Cash management is a fundamental aspect of operating any business, involving the careful handling and tracking of monetary transactions. Despite diligent efforts, businesses often encounter discrepancies between the physical cash on hand and the amounts recorded in their accounting systems. These differences, where the actual cash is either more or less than expected, are commonly referred to as “cash short” or “cash over.”

What Cash Short and Over Means

“Cash short” occurs when the physical cash counted is less than accounting records indicate. Conversely, “cash over” means physical cash exceeds the recorded amount. These discrepancies arise from minor, unexplained differences during daily operations. Common reasons include human errors such as mistakes in making change, inaccuracies in recording sales transactions, or miscounts during cash reconciliation. While larger variances might prompt investigations, cash short and over usually pertains to small, routine variances inherent in cash-intensive environments like retail or banking.

How Cash Shortages Are Classified

From an accounting perspective, a cash shortage is classified as an expense. Businesses use a temporary account, often named “Cash Short and Over” or “Cash Over and Short,” to record these discrepancies. To account for a shortage, the “Cash Short and Over” account is debited, which increases its balance and reflects the expense. Concurrently, the Cash account is credited, reducing the asset balance to match the cash on hand. This accounting treatment ensures financial records accurately reflect the decreased cash and corresponding expense.

How Cash Overages Are Classified

In contrast, a cash overage is classified as revenue or other income for the business. The same “Cash Short and Over” temporary account is utilized for recording overages. When an overage is identified, the Cash account is debited, increasing the asset to reflect the cash received. Simultaneously, the “Cash Short and Over” account is credited, which increases its balance and represents the revenue or gain from the excess cash. This classification acknowledges the additional cash as an increase in the company’s financial resources.

Where Cash Short and Over Appears

The “Cash Short and Over” account’s balance is closed out at the end of each accounting period. The net balance, whether a net shortage or a net overage for the period, ultimately appears on the company’s income statement. If total debits (shortages) for the period exceed total credits (overages), resulting in a net shortage, this amount is reported as an operating expense, often categorized under “other expenses.” Conversely, if total credits (overages) surpass total debits (shortages), leading to a net overage, this amount is presented as other income or revenue on the income statement.