The Receipt and Payment Account is a real account prepared by a Not-for-Profit Organisation. It is a summary of the Cash Book and records all cash transactions on a cash basis of accounting. It includes all receipts and payments, whether they are capital or revenue in nature, and whether they relate to the current, previous, or future years.
This account does not follow the accrual system, so outstanding expenses and accrued incomes are not included. All cash receipts are recorded on the debit side and all cash payments are recorded on the credit side. It starts with opening cash and bank balances and ends with the closing cash and bank balances. Thus, it shows the true cash position of the organisation during the accounting period.
Features of Receipt and Payment Account:
1. Nature: It is a real account and serves as a classified summary of all cash receipts and cash payments of a Not-for-Profit Organisation.
2. Basis of Recording: All the transactions and events settled in cash are recorded on a cash basis of accounting.
3. Recording of Transactions: It records transactions and events of both capital and revenue nature and does not distinguish between capital receipts or payments or revenue receipts and payments.
4. Period: Receipt & Payment A/c is prepared for a specific period, i.e., for a month or a year. It includes cash and bank transactions without distinguishing among current, previous or succeeding accounting periods.
5. Adjustments: Receipt & Payment A/c is not based on an accrual system of accounting, i.e., only transactions related to cash are recorded.
6. Purpose: Receipt & Payment A/c is prepared to have a fair idea about the cash position of the organisation. This account show the opening and closing balances of cash in hand and cash at bank for the accounting period.
Steps in the Preparation of Receipt and Payment Account:
Step 1: Opening balances of the cash at bank and cash in hand is written on the receipt side, i.e., credit side of this account. In case, there is a bank overdraft at the beginning of the year then, it is written on the payment side, i.e., credit side of this account to start with.
Step 2: All the transactions and events related to cash or bank which are received, i.e. receipts received in favour of the organisation are written on the debit side of this account irrespective of capital or revenue nature.
Step 3: All the transactions and events related to cash or bank payments made by the organisation are written on the credit side of this account, irrespective of capital or revenue nature.
Step 4: No accrued incomes or outstanding expenses are considered in this account, as they do not generate any inflow or outflow of cash.
Step 5: Now, both the sides are compared and the difference that arises thereon is written as a closing balance of cash in hand, and cash at bank on the credit side, i.e., payment side of this account.
Format of Receipt and Payment A/c:
* represents that the Receipt and Payment A/c will either have a positive or negative balance of Cash at Bank, i.e., when the receipt side is greater than the payment side, the difference is denoted as a positive balance of Cash at Bank, and when the payment side is more than the receipt side, the difference is denoted as Bank Overdraft or a negative balance of Cash at Bank.
Some Commonly Recorded Items in Receipt and Payment Account are:
Receipts Side:
- Opening cash/bank balance
- Subscriptions received
- Donations received
- Sale of investments or assets
- Interest and dividends
- Entrance fees
Payments Side:
- Salaries and wages
- Rent and electricity
- Purchase of furniture, equipment
- Stationery and printing
- Maintenance expenses
Difference Between Receipt & Payment A/c and Cash Book:
Basis | Receipts & Payments | Cash Book |
|---|---|---|
| Recording | Receipt & Payments is a classified summary of Cash Book. The transactions and events which have been settled in cash are recorded. | Cash Book records each receipt and payment. |
| Period | Receipts & Payments is prepared at the end of accounting year. | Cash Book records the transaction on daily basis. |
| Date | In Receipts & Payments A/c, dates are not recorded. | In Cash Book transactions are recorded date wise. |
| Ledger Folio | There is no column of Ledger Folio. | There is a separate column of Ledger Folio. |
| Entity | Receipts & Payments is prepared by a Non-Profit Organisation. | Cash Book is generally prepared by any commercial organisation. |
| Format of Account | In Receipts & Payments A/c, all the receipts are written on the debit side and all the payments made are written on the credit side. | Cash Book has debit and credit side with date, particulars, cash and bank amount column and has ledger folio columns. |
Illustration:
From the following information, prepare a Receipts and Payment account of Nisha Foundation for the year ended 31st March,2021:
1. Balance at the beginning of the year:
- Cash in Hand ₹5,500
- Cash at Bank ₹24,000
2. Subscription for the year ₹92,000.
3. Petty Cash Payment of ₹870.
4. Sundry Expenses:
a) Printing & Stationery expenses ₹2,300.
b) Advertisement expenses ₹1,700.
c) Audit fees ₹10,500.
5. Purchase of furniture ₹21,000.
6. Sale of old newspaper ₹1,200.
7. Entrance fees received ₹80,000.
8. Donation received from Mr. Rajesh Kumar for building ₹30,000.
9. Insurance paid ₹37,000.
10. Taxes paid by the organisation ₹1,400.
11. Closing balance of Cash in Hand for the year 31st March,2021 was ₹7,000. Find the closing balance of Cash at Bank also.
Solution:
