In accounting, the terms “over” and “short” refer to the differences between the actual physical count of inventory and the recorded quantity in a company’s accounting records. These discrepancies can arise due to various reasons, such as errors in recording transactions, theft, damage to inventory, or simply miscounts during inventory audits.

Understanding Over and Short

When the physical count of inventory exceeds the quantity recorded in the accounting records, it is referred to as an “over.” Overs can occur due to several factors, including errors in recording sales or receipts, receiving more inventory than what was ordered, or inaccuracies in the inventory counting process. For example, if a company’s records show that it should have 100 units of a certain product in stock, but a physical count reveals 110 units, there is an over of 10 units.

Conversely, when the physical count of inventory is less than the quantity recorded in the accounting records, it is termed as a “short.” Shorts can result from various issues, such as theft, damaged goods that were not properly accounted for, errors in recording inventory usage or sales, or discrepancies in the receiving process. For instance, if the accounting records indicate that there should be 100 units of a product on hand, but a physical count reveals only 90 units, there is a short of 10 units.

Treatment of Over and Short:

Over: When an over occurs, it typically indicates that the company has more inventory on hand than what is reflected in its accounting records. To correct this discrepancy, the over amount is usually subtracted from the cost of goods sold (COGS) for the period in which the over was discovered. This adjustment helps ensure that the company’s financial statements accurately reflect the cost of goods sold and the value of inventory on hand.

Short: Similarly, when a short occurs, it signifies that the company has less inventory on hand than what is recorded in its accounting records. To rectify this issue, the short amount is typically added to the cost of goods sold for the period in which the short was identified. By making this adjustment, the company can accurately reflect the cost of goods sold and the value of inventory on hand in its financial statements.