What Is Cash Short and Over in Accounting?

Cash short and cash over describe discrepancies between the actual cash a business has on hand and its recorded amount. A “cash short” occurs when physical cash is less than the recorded amount. Conversely, “cash over” happens when physical cash exceeds the recorded amount. These variances are particularly relevant for businesses that handle a large volume of daily cash transactions, such as retail stores, restaurants, or banks.

Identifying Cash Variances

Cash variances are typically discovered through a reconciliation process at the end of a business day or shift. This involves physically counting all the cash, including bills and coins, in a cash drawer or safe. The total physical cash count is then compared against the total cash sales and other cash transactions recorded for the same period, usually from a point-of-sale (POS) system, cash register tapes, or sales receipts.

If records show $500 in cash sales but only $495 is counted, a $5 cash short has occurred. Conversely, if $505 is counted against $500 in recorded sales, a $5 cash over exists.

Causes of Cash Variances

Numerous factors can lead to cash short or over situations, with human error being a common culprit. Employees might give incorrect change to customers, or miscount cash during a transaction. Errors can also arise from misringing sales on a cash register or point-of-sale system, where an item’s price is entered incorrectly. Data entry mistakes during the recording process or transposing numbers when documenting transactions are other frequent causes. Less common reasons include counting errors during the final reconciliation process itself.

Handling Cash Variances

When a cash variance is identified, businesses typically follow a structured process. The immediate action involves re-counting the physical cash to rule out simple counting errors. Transaction logs, sales receipts, and point-of-sale system reports are then reviewed to pinpoint discrepancies between recorded sales and actual transactions. Businesses also check for misplaced funds within the cash handling area.

Documenting the variance is important, including the amount, date, and, if identifiable, the responsible party. In accounting, these discrepancies are recorded in a general ledger account known as “Cash Short and Over.” This income statement account tracks both shortages (treated as an expense) and overages (treated as revenue).

Impact of Cash Variances

Cash variances can have several implications for a business. Financially, cash shorts represent a direct loss of revenue, which can negatively impact profit margins. While cash overs might seem beneficial, they indicate misstated revenue and can lead to issues if not accurately accounted for. Persistent discrepancies can distort a business’s true financial picture.

Operationally, investigating variances consumes valuable time and resources. Consistent variances often signal underlying weaknesses in cash management processes, such as inadequate internal controls or a need for improved employee training. Addressing these issues may require implementing stricter cash handling policies or providing additional training to staff.