Cash Shortage Journal Entry

A cash shortage normally occurs in a retail environment when the sales are reconciled to the cash receipts in the register at the end of the trading day. If the cash in the register is less than the sales there is said to be a cash shortage. Likewise, if the cash is greater than the sales the cash is said to be over.

Cash shortages are recorded in a separate income statement expense account usually known as the cash short or over account.

Cash Shortage Journal Entry Example

Suppose a retail business starts each day with a cash balance of 100 in the cash register. During the day sales of 1,500 are entered into the register, and a cash count at the end of the day shows cash of 1,588 as summarized below.

Cash register reconciliation
Cash count 1,588
Less opening fund 100
Amount banked 1,488
Sales on cash register tape 1,500
Cash shortage -12

The reconciliation shows that there is a cash shortfall of 12.

To record the cash shortfall the business needs to enter the cash shortage of 12 as part of the journal entry used to record the sales as follows.

Cash shortage journal entry
Account Debit Credit
Cash 1,488
Cash Shortage 12
Sales revenue 1,500
Total 1,500 1,500

The cash short/over account is an expense account in the income statement of the business.

The Accounting Equation

The accounting equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities plus the owners equity of the business. This is true at any time and applies to each transaction.

For this transaction the accounting equation is shown in the following table.

Rent Deposit – Accounting Equation
Assets = Liabilities + Owners Equity
Cash = None + Sales – Shortage
1,488 = 0 + 1,500 – 12

In this case one balance sheet asset (cash), has been increased by 1,488 when the cash is banked. On the other side of the accounting equation the sales of 1,500 less the cash shortage expense of 12 increase the net income, retained earnings, and therefore owners equity in the business by the same amount of 1,488.

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The cash shortage journal entry is one of many bookkeeping entries used in accounting, discover another at the links below.

Cash Shortage Journal Entry April 26th, 2017Team

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