She’s not sure how this could have happened and what the next steps are. Two problems of accounting for cash transactions face the accounting department. When building a financial model, cash is typically the last item to be completed and will reveal whether or not the balance sheet balances and if the model is working properly.
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. 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. A larger balance in the account is more likely to trigger cash short and over an investigation, while it may not be cost-effective to investigate a small balance. You can deduct some petty cash purchases from your business taxes if you have the proper records to support your claims. Petty cash funds typically depend on how frequently your business makes small purchases. For example, you might send an employee to pick up office supplies, like staples or printer paper.
It requires determining the difference between the value of monetary transactions recorded in the system with actual cash. As stated above, any discrepancy during this process goes into the cash over and short account. In practice, the cash over and short account can only have a debit or credit balance.
However, certain marketable securities may classify as a cash equivalent, depending on the accounting policy of a company. If the vouchers total $130 but the fund needs only $125, the journal entry includes a $5 credit to the cash over and short account. If a petty cash account is consistently short, this may be a warning sign that there is not a proper control of the account, and management may want to consider additional controls to better monitor petty cash. Throughout the month, several payments are made from the petty cash account of the Galaxy’s Best Yogurt. A cash short and over account is used when there is no evidence of an impressed account, such as small cash. The account is usually left active until around the end of such a company’s fiscal period or year.
Over and short—often called “cash over short”—is an accounting term that signals a discrepancy between a company’s reported figures (from its sales records or receipts) and its audited figures. The term also is the name of an account in a company’s general ledger—the cash-over-short account. 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.
For example, imagine that the Galaxy’s Best Yogurt runs out of milk one evening. It is not possible to operate without milk, and the normal shipment does not come from the supplier for another 48 hours. To maintain operations, it becomes necessary to go to the grocery store across the street and purchase three gallons of milk. A petty cash fund is a type of imprest account, which means that it contains a fixed amount of cash that is replaced as it is spent in order to maintain a set balance. Cash consists of coin, currency, bank deposits, and negotiable instruments such as money orders, checks and bank drafts.
For control purposes, vouchers are sequentially prenumbered and signed by both the person requesting the cash and the custodian. After the cash is spent, receipts or other relevant documents should be returned to the petty cash custodian, who attaches them to the voucher. All vouchers are kept with the petty cash fund until the fund is replenished, so the total amount of the vouchers and the remaining cash in the fund should always equal the amount assigned to the fund.
This may be the result of an employee not getting a receipt or getting back incorrect change from the store where the purchase was made. In this case, an expense is created that creates a cash overage or shortage. The Galaxy’s Best Yogurt establishes a petty cash fund on July 1 by cashing a check for $75 from its checking account and placing cash in the petty cash box. At this point, the petty cash box has $75 to be used for small expenses with the authorization of the responsible manager.
The journal entry to increase this fund balance would be a debit to petty cash and a credit to cash. The third format reconciles the balance per depositor’s record with the balance per bank statement and then with adjusted cash balance. The second format reconciles the balance per bank statement with the balance per depositor’s record and then with adjusted cash balance. Once a month, the bank sends each depositor a statement and returns the canceled checks that it has paid and charged to the depositor’s account. The returned checks are said to be “canceled” because the bank stamps or cancels, them to show that they have been paid.