Lesson: 60

Topic: Cash Short and Over

Objectives:

The primary focus of this class is to examine the accepted procedures for dealing with cash shortages and overages.

Journal entries associated with cash short or over situations.

Imagine a case where our cash sales receipts for the day total $1,156.00, but we only have $1,152.00 in cash.

Cash Short

So, what if our cash sales receipts for the day total $1,156.00, but we only have $1,152.00 in cash? We're short $4.00 in our cash account. What do we do?!

Simple. We create an expense account called "Cash Short" to keep track of all the money lost due to this style of occurrence.

Date	Account	Debit	Credit
Jan 4	Cash	1,156.00
	Sales		1,156.00

Date	Account	Debit	Credit
Jan 4	Cash Short	4.00
	Cash		4.00

Date	Account	Debit	Credit
Jan 4	Cash	1,152.00
	Cash Short	4.00
	Sales		1,156.00

Cash Over

Alright then. What if our cash sales receipts for the day total $1,156.00, but we actually have $1,158.00 in cash? We have $2.00 more in our cash account than we should. What do we do?!

Simple. We create a revenue account called "Cash Over" to keep track of all the money gained due to this style of occurrance.

Date	Account	Debit	Credit
Jan 4	Cash	1,156.00
	Sales		1,156.00

Date	Account	Debit	Credit
Jan 4	Cash	2.00
	Cash Over		2.00

Date	Account	Debit	Credit
Jan 4	Cash	1,158.00
	Cash Over		2.00
	Sales		1,156.00

Method of Instruction and Evaluation Exercise:

After a Socratic lecture on the above topics, students will observe the online illustration of the journal entries associated with cash short or over transactions. After this, students will complete Exercise #2 on page 388.

Expectations Addressed:

The "Internal Control, Financial Analysis, and Decision Making" strand of the BAF3M Ministry of Education Curriculum Guidelines outlines all of the following specific expectations. The expectations addressed by this lesson have been highlighted below.

• Internal Control Procedures:
  • describe the basic elements of an internal control system (e.g., separation of duties, prenumbered documents, rotation of staff);
  • apply appropriate control measures used in accounting for assets (e.g., petty cash procedures, bank reconciliation procedures);
  • describe the role of budgeted financial statements in planning, controlling, and evaluating business results (e.g., difference between budgeted and actual income statements);
  • describe the role and work of an auditor.
• Financial Analysis:
  • explain the importance of current assets and current liabilities when interpreting a balance sheet;
  • analyse a company’s liquidity and solvency by using simple financial ratios (e.g., current ratio, debt ratio) and other financial analysis tools (e.g., comparative statements, trend analysis, common size statements);
  • analyse a company’s profitability by using simple financial ratios (e.g., gross profit percentage, return on equity) and other financial analysis tools (e.g., comparative statements, trend analysis, common size statements).
• Decision Making:
  • describe how accounting information is used by company personnel (e.g., department managers, owners) in making decisions;
  • explain the role of financial analysis in decision making from the standpoint of potential investors (e.g., mutual fund managers, institutional investors, individual investors);
  • describe how accounting information is used by individuals or organizations outside the company (e.g., governments, Ontario Securities Commission, police, forensic accountants) in making decisions.

Reference:

Please read this topic (pages 384 - 385) in preparation for the class.

Return to main index