What is Over and Short? Examples and How it’s Used

Over and short, commonly known as “cash over short,” is a critical accounting term that plays a vital role in financial record-keeping for various businesses. This term represents a discrepancy between a company’s reported figures, usually derived from its sales records or receipts, and the figures that have been audited for accuracy. Moreover, “over and short” also denotes the name of an account within a company’s general ledger—the cash-over-short account.

The concept of over and short is especially relevant to businesses in the retail and banking sectors. It also applies to organizations that frequently handle petty cash. In practical terms, if a cashier in a retail store or a bank teller makes an error by providing too much or too little change during a transaction, it can lead to what is commonly referred to as a “cash short” or “cash over” situation at the end of the business day.

To illustrate this concept, consider the scenario of a cashier working at a sporting goods shop. The cashier accurately rang up a $95 pair of yoga pants for $95, but there was a mistake in counting the cash received for the purchase. The customer unintentionally handed over $96 for the transaction, an error that went unnoticed by both parties. In this situation, the accounting system would record $95 as the posted sales amount but $96 as the collected cash. The one-dollar difference would be recorded in the cash-over-short account.
The journal entry for this sale would involve debiting cash for $96, crediting sales for $95, and crediting cash over short for $1. Conversely, when transactions result in cash shortages, the journal entry would debit cash for the lower amount, credit sales for the actual sale price, and debit cash over and short for the discrepancy.

Cash-over-short incidents primarily arise from human error rather than intentional tampering. In most cases, it’s employees making mistakes, such as ringing up a sale incorrectly or miscounting cash, that result in a disparity between the sales price of merchandise, the amount collected, and the figures recorded in the accounting system.

A critical aspect of managing cash-over-short incidents is the presence of a dedicated account in the company’s accounting system known as the cash-over-short account. This account serves as a repository for recording instances where cash variances occur.
It’s essential to classify the cash-over-short account as an income-statement account rather than an expense account. This distinction is crucial because the recorded errors in this account can either increase or decrease a company’s profits as reported on its income statement.

Additionally, the cash-over-short account serves a vital function in helping a company identify the reasons for cash discrepancies. By analyzing the data in this account, businesses can gain insights into the root causes of over and short incidents and take corrective actions.

The cash-over-short account is not just a record-keeping measure; it also plays a pivotal role as a detective control within a company’s financial processes. Detective control is an accounting term for an internal control mechanism designed to identify issues, including potential instances of fraud, within a company’s operations.
Companies can use the data within the cash-over-short account to pinpoint areas where their cash handling procedures or controls may be lacking. This insight enables them to enhance their operational practices, implement better procedures, and provide additional training to employees to minimize the occurrence of cash-over-short incidents.

While it’s challenging to entirely prevent over and short incidents, businesses can significantly reduce their frequency by implementing robust cash handling procedures and providing employee training.

Data from the cash-over-short account can be analyzed to pinpoint the root causes of cash discrepancies. This information can then be used to enhance operational practices, refine procedures, and provide additional training to employees, ultimately minimizing over and short incidents.

While over and short incidents are more prevalent in retail and banking, any business that handles cash can benefit from monitoring and addressing cash variances through the cash-over-short account.