Cash Over and Short

Definition
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.
Explanation
The cash over and short account is used when an imprest account, such as
petty cash, fails to prove out.  The account is typically left open until the
end of a company's fiscal year, when it is then closed and reported as a
miscellaneous expense on the income statement.
With an imprest account, such as petty cash, the account custodian is
responsible for ensuring the total of all receipts plus the cash on hand is
equal to the imprest account's balance.  If the account does not prove out,
the following journal entries would be made:

 If the petty cash fund is short, the shortage is debited to cash over
and short
 If the petty cash fund is over, the overage is credited to cash over and
short

This account also provides companies with the ability to monitor the
handling of cash, since it can apply to tellering operations too.
Example
Company A's petty cash account has an imprest balance of $2,000.  At
month's end, the custodian would like to replenish funds in the account. 
The receipts received from employees total $1,550, and the fund has a
cash balance of $440.  Since the custodian needs to return petty cash to its
imprest balance of $2,000, an additional $1,560 in cash is required ($2,000
- $440, or $1,560).  Since petty cash is under by $10, the following journal
entries are required:
What is the Cash Over and Short Account?
The cash over and short account is an account in the general ledger .
The account stores the amount by which the actual ending cash balance
differs from the beginning book balance of cash on hand, plus or minus
any recorded cash transactions during the period.

The primary use of the cash over and short account is in cash-intensive
retail or banking environments, as well as for the handling of petty cash.
In these cases, cash variances should be stored in a single, easily-
accessible account. This information is then used to track down why
cash levels vary from expectations, and to eliminate these situations
through the use of better procedures, controls, and employee training.
Thus, the account is used as the basis for a detective control .

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.

The cash over and short account is an expense account, and so is

usually aggregated into the "other expenses" line item in the income
statement. The balance in the account tends to be quite small. A larger
balance in the account is more likely to trigger an investigation, while it
may not be cost-effective to investigate a small balance.

Example of How the Cash Over and Short Account is Used

A controller conducts a monthly review of a petty cash box that should

contain a standard cash balance of $200. He finds that the box contains
$45 of cash and $135 of receipts, which totals only $180. Therefore, $20
of cash is missing. This cash shortfall is recorded as a debit to the cash
over and short account (which is an expense) and a credit to the petty
cash or cash account (which is an asset reduction).

Alternatively, if there had been too much cash in the petty cash box (a
rare condition indeed!), the entry would be reversed, with a debit to cash
and a credit to the cash over and short account.