Not-for-Profit Organisations prepare different accounting statements to record their financial transactions and determine their financial performance. Two important statements are the Receipts and Payments Account and the Income and Expenditure Account. Although both are prepared by Not-for-Profit Organisations, they differ in their purpose, basis of preparation, and the nature of transactions recorded. Understanding these differences is essential for preparing and interpreting the financial statements of such organisations.
Receipt and Payment Account
The Receipts and Payments Account is a classified summary of the Cash Book prepared by a Not-for-Profit Organisation for a specific accounting period. It is a real account maintained on the cash basis of accounting and records all cash and bank transactions, irrespective of whether they are of a revenue or capital nature. Since it is based on the cash system, it includes only those transactions in which cash has actually been received or paid during the year, regardless of the accounting period to which they relate. Thus, receipts or payments relating to the previous, current, or succeeding year are all recorded if cash is received or paid during the current accounting period.
In these, all cash receipts are recorded on the debit side, while all cash payments are recorded on the credit side. The account begins with the opening balances of Cash in Hand and Cash at Bank and ends with the closing balances of Cash in Hand and Cash at Bank. As it records every cash transaction without making any adjustments for outstanding or prepaid items, it does not determine the surplus or deficit of the organisation. Instead, it provides a clear summary of the cash position and cash flow of the organisation during the accounting year
Income and Expenditure Account
The Income and Expenditure Account is a nominal account prepared by a Not-for-Profit Organisation to ascertain the surplus or deficit for a particular accounting year. It is equivalent to the Profit and Loss Account of a profit-earning business and is prepared on the accrual basis of accounting. The account records only revenue incomes and revenue expenses relating to the current accounting period, irrespective of whether they have been received or paid in cash. It is generally prepared from the Trial Balance when complete books of accounts are maintained or from the Receipts and Payments Account along with the necessary adjustments and additional information.
In the Income and Expenditure Account, all revenue incomes are credited, and all revenue expenses are debited after making adjustments for outstanding expenses, prepaid expenses, accrued income, income received in advance, depreciation, and other non-cash items. Capital receipts and capital expenditures are excluded because they affect the financial position rather than the financial performance of the organisation. The balance of this account represents either a surplus, when income exceeds expenditure, or a deficit, when expenditure exceeds income. The surplus is added to the Capital Fund, while the deficit is deducted from it in the Balance Sheet.
Difference between Receipt and Payment A/c and Income and Expenditure A/c:
Basis | Receipt and Payment A/c | Income and Expenditure A/c |
|---|---|---|
Nature | Receipt and Payment A/c is the real account. It is the classified summary of Cash Book depicting receipts and payments under different heads of accounts. | Income and Expenditure A/c is the nominal account. It is the Profit and Loss A/c of Non Profit Organisation. |
Object | Receipt and Payment A/c is prepared to know the balance of Cash in Hand and Cash at Bank and the difference between the two sides denotes the Cash/Bank balance at the end. | Income and Expenditure A/c is prepared to know the organisation's position for the current year by either surplus or deficit from the net results of the activities undertaken. |
Form | Receipt and Payment A/c records all the receipts on the debit side and all the payments on the credit side. | Income and Expenditure A/c records all expenses & losses on the debit side and all income and gains on the credit side. |
Capital and Revenue Items | Receipt and Payment A/c records both capital and revenue nature items during the year. | Income and Expenditure A/c records transactions of revenue nature relating to the accounting period. |
Balance | Receipt and Payment A/c opening balance shows Cash in Hand and Cash at Bank, and the balance in the end, represents Cash in Hand and Cash at Bank closing balance. | Income and Expenditure A/c has no opening balance, but the closing balance represents either deficit or surplus. |
Period | Receipt and Payment A/c records receipts and payments made during the year, whether relating to preceding, current or succeeding year. | Income and Expenditure A/c records transactions of the current year only. |
Depreciation | Receipt and Payment A/c does not includes non-cash items. E.g. Depreciation. | Income and Expenditure A/c includes non-cash items. E.g. Depreciation. |
Adjustments | Receipt and Payment A/c is based on a cash system of accounting without any adjustment. | Income and Expenditure A/c is based on an accrual system of accounting with adjustments. |