Question

What is the purpose of the cash short and over account? How does it affect the income statement? in your own words

Answer 1

The cash short and over account is used to record any shortages or overages in the cash account. It is the difference between the amount needed to replenish the petty cash fund and the amount of receipts available for replenishment.

The purpose of the account is easy tracking of cash variances. The variances are used to track down why the cash amounts vary from the expectations and use it as detective control.

The cash short and over account is an expense account. It is categrized as "other expense" in the income statement. It reduces the profit as it is a debit.