Title: Over and Short (Cash Over/Short) — What It Is, How It’s Recorded, and Practical Steps to Prevent and Investigate Discrepancies
Overview
Over and short (also called cash over/short) is an accounting label for the difference that can arise when a business’s recorded cash receipts (from sales or petty cash) don’t match the physical cash on hand or banked amounts after reconciliation. It’s most relevant to cash-intensive operations (retail, restaurants, banks, vending, and any area using petty cash). The variance is tracked in a ledger account—typically called “Cash Over and Short”—so management can detect and address recurring problems.
Key points
– The cash-over-short account records the net amount of cash surpluses or shortages discovered during reconciliation.
– Surpluses increase income (credited to the account) and shortages decrease income (debited to the account). Typically, the account is reported on the income statement as other income or expense.
– Most incidents result from human error (miscounting, input mistakes, wrong change), though theft or fraud can also cause variances.
– The account serves mainly as a detective control: it flags where further investigation or control improvements are needed.
Simple example (cashier sale)
– Scenario A — Cash over: A customer’s sale rings at $95.00 but the cashier receives $96.00 and the register records $95.00 in sales. At day-end the register shows $96.00 cash collected vs. $95.00 recorded sales — $1.00 over. Typical journal entry:
– Debit Cash $96.00
– Credit Sales $95.00
– Credit Cash Over and Short (or Misc. Income) $1.00
– Scenario B — Cash short: Same sale but cashier counts only $94.00 collected while sales recorded $95.00 — $1.00 short. Journal entry:
– Debit Cash $94.00
– Debit Cash Over and Short $1.00 (or Misc. Expense)
– Credit Sales $95.00
How the cash-over-short account functions in accounting
– Classification: nominal income-statement account (other income/expense). It is not treated as a balance-sheet permanent account because it reflects periodic transaction discrepancies rather than a fixed asset or liability.
– Reporting: Overages are typically shown as other income; shortages as other expense. At period-end immaterial balances can be closed to retained earnings or transferred to an appropriate P&L account.
– Purpose: to centralize and quantify day-to-day cash variances so trends can be analyzed and controls strengthened.
Primary causes of over-and-short incidents
– Human error: miscounting cash, entering the wrong amount, or ringing up wrong price.
– Incorrect change given or received.
– Timing differences: sales recorded in one period and cash deposited in another.
– POS system glitches, double swipes, or failed card terminals that are later resolved in a way that affects cash counts.
– Improper handling of refunds, voids, or discounts (not properly recorded).
– Internal theft or external theft (fraudulent voids/discounts, skimming).
– Banking/deposit errors (deposits misposted or lost).
Practical steps to prevent and reduce over-and-short occurrences
Preventive controls (day-to-day)
1. Standardize cash handling procedures
– Written procedures for opening/closing registers, making change, issuing refunds, and voids.
– Require receipts and proper authorization for refunds/voids.
2. Segregate duties
– Different people should handle sales recording, cash counts, and bank deposits where operationally possible.
3. Use POS controls
– Require manager approval for price overrides, refunds, or voids; log approvals.
– Use unique login credentials to track which employee made each transaction.
4. Limit register access and cash amounts
– Set daily cash drawer limits; have safe drops for excess cash during shift changes.
– Two-person counts for large amounts or change orders.
5. Train staff regularly
– Teach correct ringing procedures, change-making, and reconciliation steps.
6. Timely bank deposits
– Daily deposits minimize the window for misplacement or theft.
7. Petty cash controls
– Use vouchers with receipts; replenish on receipt basis; require signoffs.
Detective controls (monitoring and investigation)
1. Daily reconciliations
– Compare register totals, sales records, and actual cash; log over/short in the cash-over-short account.
2. Supervisor sign-offs
– Supervisors should review and sign daily reconciliations and investigate variances beyond a set tolerance.
3. Exception reporting
– Generate daily/weekly variance reports by register, by employee, and by shift.
4. CCTV and audit trails
– Use camera footage and POS logs to investigate discrepancies.
5. Surprise audits and cash counts
– Perform unannounced counts and compare with recorded amounts.
Practical steps to investigate an over-or-short
1. Recount and verify mathematics immediately.
2. Review POS transaction log for voids, refunds, price overrides, or manual entries.
3. Check the tape/batch report and compare with end-of-day deposit slip and bank statement.
4. Cross-check tender types (cash vs. card) to ensure card receipts were not mistakenly treated as cash.
5. Review CCTV footage if available for the relevant time and register.
6. Interview the cashier and any witnesses; document explanations and findings.
7. If fraud is suspected, escalate according to policy: senior management, internal audit, or external authorities.
8. Record findings and corrective actions taken; update training or procedure documents if root cause is process related.
Accounting and record-keeping best practices
– Record over-and-short entries daily and maintain a running ledger for trend analysis.
– Set a materiality threshold: small daily variances may be routine; larger or repeated variances require investigation.
– Reconcile the cash-over-short account at month-end and clear immaterial balances to appropriate P&L accounts.
– Maintain supporting documentation for every adjustment (receipts, manager signoff, investigation notes).
– Periodically review the frequency and size of variances to measure the effectiveness of controls and training.
Sample policy elements for a cash-handling policy
– Daily reconciliation required for each register; variance tolerance ±$X per shift.
– All refunds/voids require manager approval and a written reason.
– Cash drawers require initial and ending counts logged by employee name and supervisor signature.
– Deposits made daily and reconciled to bank within 24 hours.
– Random audits quarterly and full cash counts annually.
– Disciplinary action matrix for repeated negligence or confirmed theft.
When to involve internal/external auditors or law enforcement
– Repeated unexplained variances from the same employee or register.
– Large, unexplained shortages that exceed a predefined threshold.
– Evidence of intentional tampering (e.g., altered receipts, unauthorized voids, or footage of theft).
– If internal investigation cannot adequately explain material losses.
Monitoring and continuous improvement
– Track key metrics: variances per register, per employee, average variance, and frequency of manager-approved overrides.
– Use trend analysis to identify problem times (e.g., highest variance by shift), locations, or individuals.
– Update training and procedures based on recurring root causes.
– Consider automation (e.g., integrated POS and banking, smart safes) to reduce human handling of cash.
Conclusion
The cash-over-short account is a practical mechanism for capturing day-to-day cash discrepancies. While small variances are common and often due to human error, consistent or large variances indicate control weaknesses or possible fraud. Robust preventive and detective controls—clear procedures, segregation of duties, reconciliations, supervision, staff training, and timely investigations—reduce the incidence and impact of over-and-short events and help protect a business’s cash and reputation.
Source
– Investopedia — “Over and Short” (cash over/short). https://www.investopedia.com/terms/o/over-and-short.asp
Editor’s note: The following topics are reserved for upcoming updates and will be expanded with detailed examples and datasets.