This account is merely a summary of the transactions appearing in the Cashbook. Receipt and payments Account is nothing more than a summary of the cash book over a certain period, analyzed and classified under suitable headings.
It is a form of account most commonly adopted by the Treasures of societies, clubs, associations, etc. When preparing the result of the year’s Working.
As such, a receipt and payment account is prepared at the end of the year from the cash book. All receipt and payments which are entered in the cash book are also entered in the receipt and payment account of course in a summary form.
For example, if a club receives subscriptions from its members on different dates, they will be recorded in the cash book in chronological order, whereas the Receipt and Payment account will contain the total subscription received during the year.
Any transaction which is not recorded in the cash book will not be entered in the receipt and payment account also.
Salient Features of Receipts and Payments Account
- Nature of Account: It is a real account and hence the rule of real account i.e. ‘Debit what comes in and Credit what goes out’ is followed while preparing it. Thus receipts are recorded on its debit side and payments on the credit side.
- It starts with the opening balance of cash in hand and at the bank: Cash in hand always shows a debit balance and will, therefore, be written on its debit side. Cash at Bank May shows a debit or favorable balance, in which case it will be written on its debit side. But if the bank balance is an overdraft or unfavorable balance, it will be placed on the credit side.
- Nature of items recorded on the Dr. Side: It is a summary of the Cashbook. All cash receipts are shown on the debit side of this account irrespective of the fact whether they are of capital nature or of revenue nature or whether they relate to the previous year, current year, or next year.
- Nature of items recorded on the Cr. Side: Likewise, all-cash payments are shown on their credit side, irrespective of the fact whether they are of capital nature or of revenue nature and whether they relate to the current year, previous year, or next year.
- The closing balance of this account shows the closing balance of Cash in hand and at the Bank: This account is balanced at the end of the year, by entering the closing balance of cash in hand and at a bank, on the credit side. If the closing balance is bank overdraft it shall be shown on the debit side.
- Non – cash items are not recorded in this account: This accounting record only the actual receipts and payments of cash. Non – cash items such as depreciation, outstanding expenses, and accrued income are ignored by preparing it.
Format of Receipt and Payment Account
RECEIPTS AND PAYMENTS ACCOUNT
For the year ended ……….
Advantages of Receipts and Payments Account
- Total receipt and total payment under different heads can be seen at a glance.
- Verification of Cash Book can be done with it.
- It provides classified records of different heads of receipts and payments.
- It provides ready-made data for the preparation of Income and Expenditure Account.
Preparation of Receipts and Payments Account
The following steps may be followed to prepare Receipts and Payments Accounts:
- Step 1: Write the title of Receipts and Payments Account and draw the format as shown is in the specimen.
- Step 2: Write the opening balances of cash and bank at the top, on the left-hand side.
- Step 3: Add up all receipts of different dates under the same head.
- Step 4: Add up all the payments, made on different dates under the same head.
- Step 5: Write the totals of each head of receipts on the left-hand side and the total of each head of payments on the right-hand side.
- Step 6: Deduct all payments from all receipts and find the closing balance.
A library and debating society was formed on 1st January 2017. Following are the receipts and payments during the year ended 31st December 2017.
Receipts: Subscription Rs. 1350, Donations Rs. 2600, Entrance fee Rs. 480, Lockers rent Rs. 785.
Payments: library books Rs. 1210, Rent of Library Hall Rs. 240, Office expenses Rs. 35, Postage and Stationary Rs. 72, Furniture purchased Rs. 934 and Investment Rs. 1100.
Required: Show the receipts and payments account for the years ended 31st December 2017.
Solution: Library and debating Society
Receipt and payment account
For the year ended on 31st December 2017
|Donation||2600||Rent of library hall||240|
|Lockers rent||785||Postage and stationary||72|
Distinction Between Receipts and Payments Account and Cashbook
Both receipts and payments account and cash book record cash transactions, i.e., cash receipts and cash payments. Some differences between the two are:
- The receipts and Payments account is prepared on the basis of the cash book whereas the cash book is prepared on the basis of each cash receipt and cash payment.
- The receipt and payment account is prepared at the end of an accounting year, in other words, it is a summary of the cash book whereas the cash book is prepared on daily basis.
- The receipt and payment account is merely a summary of the cash book, it is not deemed to be a part of the double-entry system whereas the cash book is a form part of the double-entry system.
- The receipt and payment account has receipts and payments sides instead of debit and credit sides whereas the cash book has debit and credit sides.
- The receipt and payment account has no ledger folio columns whereas the cash book has ledger folio columns.
- 6Receipt and payment account is prepared by not-for-profit organizations whereas cash book is prepared by all Organisations whether profit-seeking or not-for-profit organisation