The general ledger account Accounts Receivable usually contains only summary amounts and is referred to as a control account.

The details for the control accounteach credit sale for every customeris found in the subsidiary ledger for Accounts Receivable. The total amount of all the details in the subsidiary ledger must be equal to the total amount reported in the control account. The detailed information in the accounts receivable subsidiary ledger is used to prepare a report known as the aging of accounts receivable. This report directs management's attention to accounts that are slow to pay. It is also useful in determining the balance amount needed in the account Allowance for Doubtful Accounts. The aging of accounts receivable report is typically generated by sorting unpaid sales invoices in the subsidiary ledgerfirst by customer and then by the date of the sales invoices. If a company sells merchandise (or provides services) and allows customers to pay 30 days later, this report will indicate how much of its accounts receivable is past due. It also reports how far past due the accounts are. With the click of a mouse, most accounting software will provide the aging of accounts receivable report. For example, Gem Merchandise Co.'s software looks at each of its customer's accounts receivable activity and compares the date of each unpaid sales invoice to the date of the report. If we assume the report is dated August 31 and that Gem's credit terms are net 30 days, any unpaid sales invoices with an August date will be classified as current. Any unpaid invoices with a date in July are classified as 1 - 30 days past due. Any unpaid invoices with a date of June are classified as 31 - 60 days past due, and so on. The sorted information is present in a report that looks similar to the following:

Gem Merchandise Co. Aging of Accounts Receivable As of August 31, 2010

Past Due Past Due Past Due Customer Name Total Receivable Current 1 - 30 Days 31 - 60 Days 61+ Days ABC Co. $ 62,456 $ 59,121 $3,335 $ $ Extreme Co. $ 18,210 $ $ $ $18,210 Main Corp. $ 48,954 $ 48,954 $ $ $ Trifect LLC $ 1,200 $ $ $1,200 $ Totals $130,820 $108,075 $3,335 $1,200 $18,210

If a customer realizes that one of its suppliers is lax about collecting its account receivable on time, it may take advantage by further postponing payment in order to pay more demanding suppliers on time. This puts the seller at risk since an older, unpaid accounts receivable is more likely to end up as a credit loss. The aging of accounts receivable report helps management monitor and collect the accounts receivable in a more timely manner. Aging Used in Calculating the Allowance The aging of accounts receivable can also be used to estimate the credit balance needed in a company's Allowance for Doubtful Accounts. For example, based on past experience, a company might make the

assumption that accounts not past due have a 99% probability of being collected in full. Accounts that are 1-30 days past due have a 97% probability of being collected in full, and the accounts 31-60 days past due have a 90% probability. The company estimates that accounts more than 60 days past due have only a 60% chance of being collected. With these probabilities of collection, the probability of not collecting is 1%, 3%, 10%, and 40% respectively. If we multiply the totals from the aging of accounts receivable report by the probabilities of not collecting, we arrive at the expected amount of uncollectible receivables. This is illustrated below:

Gem Merchandise Co. Expected Amount of Accounts Receivable That is Uncollectible As of August 31, 2010

Age of Accounts Receivables Current Past Due: 1 - 30 days Past Due: 31 - 60 days Past Due: 61+ days Totals

Accounts Receivable Amount $108,075 $ 3,335 $ 1,200 $ 18,210 $130,820

Probability of Not Collecting 1% 3% 10% 40%

Expected Uncollectible Amount $1,081 $ 100 $ 120 $7,284 $8,585

This computation estimates the balance needed for Allowance for Doubtful Accounts at August 31 to be a credit balance of $8,585.

Petty cash is a small amount of discretionary funds in the form of cash used for expenditures where it is not sensible to make any disbursement by cheque, because of the inconvenience and costs of writing, signing and then cashing the cheque. The most common way of accounting expenditures is to use the imprest system. The initial fund would be created by issuing a check for the desired amount. Usually $100 would be sufficient for most small business needs. The entry for this initial fund would be to debit Petty Cash and credit cash. As expenditures are made, the custodian of the fund will reimburse employees and secure a petty cash voucher in return. At any given time the total of cash on hand plus reimbursed vouchers must equal the original fund. When the fund gets low the custodian submits the vouchers for reimbursement. Assuming the vouchers add up to $80 and that the majority of expenditures were for office supplies, an $80 check is issued and an $80 debit towards office expenses is marked. Once the check is cashed, the custodian has cash at the original amount. There are some business software packages that manage petty cash to have bookkeeping records. Many Point Of Sale systems use petty cash management modules to keep account for all the funds.[1] This solves a problem for small businesses that do a lot of small cash purchases. Oversight of petty cash is important because of the potential for abuse. Examples of petty cash controls include a limit (such as 10% of the total fund) on disbursements and monthly audits by someone other than the custodian. Use of petty cash is sufficiently widespread that vouchers for use in reimbursement are available at any office supply store. Companies normally use checks to pay their obligations because checks provide a record of each payment. Companies also maintain a petty cash fund to pay for small, miscellaneous expenditures such as stamps, small delivery charges, or emergency supplies. The size of a petty cash fund varies depending on the needs of the business. A petty cash fund should be small enough so that it does not unnecessarily tie up company assets or become a target for theft, but it should be large enough to lessen the inconvenience associated with frequently replenishing the fund. For this reason, companies typically establish a petty cash fund that needs to be replenished every two to four weeks. Companies assign responsibility for the petty cash fund to a person called the petty cash custodian or petty cashier. To establish a petty cash fund, someone must write a check to the petty cash custodian, who cashes the check and keeps the money in a locked file or cash box. The journal entry to record the creation of a petty cash fund appears below.

Most companies would record this entryor any other entry that credits cashin the cash disbursements special journal, but the illustrations use the general journal to eliminate journal columns that are not relevant to this discussion and to conform with this subject's presentation in most textbooks. Whenever someone in the company requests petty cash, the petty cash custodian prepares a voucher that identifies the date, amount, recipient, and reason for the cash disbursement. For control purposes, vouchers are sequentially prenumbered and signed by both the person requesting the cash and the custodian. After the cash is spent, receipts or other relevant documents should be returned to the petty cash custodian, who attaches them to the voucher. All vouchers are kept with the petty cash fund until the fund is replenished, so the total amount of the vouchers and the remaining cash in the fund should always equal the amount assigned to the fund. When the fund requires more cash or at the end of an accounting period, the petty cash custodian requests a check for the difference between the cash on hand and the total assigned to the fund. At this time, the person who provides cash to the custodian should examine the vouchers to verify their legitimacy. The transaction that replenishes the petty cash fund is recorded with a compound entry that debits all relevant asset or expense accounts and credits cash. Consider the journal entry below, which is made after the custodian requests $130 to replenish the petty cash fund and submits vouchers that fall into one of three categories.

Notice that the petty cash account is debited or credited only when the fund is established or when the size of the fund is increased or decreased, not when the fund is replenished. If the voucher amounts do not equal the cash needed to replenish the fund, the difference is recorded in an account named cash over and short. This account is debited when there is a cash shortage and credited when there is a cash overage. Cash over and short appears on the income statement as a miscellaneous expense if the account has a debit balance or as a miscellaneous revenue if the account has a credit balance. In the journal entry below, the vouchers total $130 but the fund needs $135, so the entry includes a $5 debit to the cash over and short account.

If the vouchers total $130 but the fund needs only $125, the journal entry includes a $5 credit to the cash over and short account.