Chapter 9, Problem 1.1SRQ

To determine

Describe cash shortage and the way in which it is recorded.

Explanation of Solution

Cash:

Cash can be defined as a current asset which is recorded under the balance sheet. It is a highly liquid asset which consists of marketable securities like government bonds. Checks, bank accounts and other type of currency are included in cash.

Generally, there can be some errors while preparing cash account. These errors can be found when the cash is less or more than the cash recorded in the cash register. When the receipts of cash are more than the sales recorded in the register, then the amount of cash is more. When the receipts of cash are less than the sales recorded in the register, then the amount of cash is less.

The over and under valuation of cash is recorded in the cash short or over account. The cash will be more and will be treated as revenue when the cash short or over account has credit balance. If the account is having a debit balance, then it will be treated as shortage that is an expense.