Journalizing Petty Cash Transactions Financial Accounting

Remembering all this information can be a little overwhelming, but there are a few tips to help you grasp these fundamentals and manage your entries effectively. Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching. After almost a decade of experience in public accounting, he created MyAccountingCourse.com to help people learn accounting & finance, pass the CPA exam, and start their career.

Definition of Cash Short and Over Account

For another example, on January 31, we need to reconcile the petty cash expenses and replenish the petty cash to its full established petty cash fund. The term cash over and short refers to an expense account that is used to report overages and shortages to an imprest account such as petty cash. The cash over and short account is used to record the difference between the expected cash balance and the actual cash balance in the imprest account. In this journal entry, the credit of the cash account is to refill the petty cash fund to its full established petty fund. At the same time, it also represents the cash outflow from the company as a result of petty cash expenses during the period. That is why we debit the expenses account in the above journal entry.

Use the double-entry bookkeeping system

Take a look at this comprehensive chart of accounts that explains how other transactions affect debits and credits. The journal entry includes the date, accounts, dollar amounts, and the debit and credit entries. You’ll list an explanation below the journal entry so fixed assets that you can quickly determine the purpose of the entry.

• However, when learning how to post business transactions, it can be confusing to tell the difference between debit vs. credit accounting.
• For example, when you record a sale, it automatically debits your cash or accounts receivable and credits your revenue account, so you don’t have to do it manually.
• Let’s assume Tom rang up a $100 pair of running shoes for $100, but he miscounted the cash received for the shoes.
• Let’s illustrate the Cash Short and Over account with the petty cash fund.
• The cash shortage may happen often with the retail business as it deals a lot with small notes when making the sales and the cash sales are usually need to be reconciled daily.
• The cash over and short is recorded on debit when there is a shortage.

Differences between debit and credit

The cash over and short account is the type of miscellaneous account in the income statement. If its balance is on the debit side, it is usually presented in the miscellaneous expenses. On the other hand, if its balance is on the credit side, it will be presented as miscellaneous revenue instead. In most cases, customers will most likely to dispute a shortage of change.

Journal Entry for Cash Shortage

Now, you see that the number cash over and short debit or credit of debit and credit entries is different. As long as the total dollar amount of debits and credits are equal, the balance sheet formula stays in balance. On the other hand, if the company has a cash shortage in the petty cash fund, it can make the journal entry with the debit of cash over and short account instead.

Rules of debit and credit

• In most cases, customers will most likely to dispute a shortage of change.
• For example, when a customer makes a purchase, you credit your revenue account, which increases your total income.
• Even if you decide to outsource bookkeeping, it’s important to discuss which practices work best for your business.
• In case of shortage, the cash over and short is on debit and vice versa.
• The term also is the name of an account in a company’s general ledger—the cash-over-short account.
• As long as the total dollar amount of debits and credits are equal, the balance sheet formula stays in balance.

In contrast, if we give too little change of cash to customers that means it is a gain for us. The cash over and short account is an excellent tool for tracking down fraud situations, especially when tracked at the sub-account level for specific cash registers, petty cash boxes, and so forth. An examination of the account at this level of detail may show an ongoing pattern of low-level cash theft, which management can act upon. For example, fraud situations may be traced back to the people directly responsible for a cash register or petty cash box.