Receipt and Payment Account
The day-to-day transactions of a ‘Not for Profit’ organisation are documented in the cash book and subsequently posted to the ledger account for that organisation. At the conclusion of the financial period, the cash book and ledger account are balanced, and the Receipts and Payments Account is created based on the balances in the cash book and ledger account.
Thus, a Receipts and Payments Account is a summary of cash transactions and bank transactions for a certain time. Receipts and Payments Account is similar to a cash book in that receipts are recorded on the left hand side of the page and payments are recorded on the right hand side. It is not necessary to record credit transactions in the Receipt and Payments Account. The majority of transactions with ‘Not for Profit’ organisations are monetary transactions.
The Account for Receipts and Payments is a Real Account Type. As a result, all revenues are recorded on the debit side of the account, and all payments are recorded on the credit side of the account. This account begins with a cash balance and a bank balance at the beginning of the specific period and ends with a cash balance and a bank balance at the conclusion of the specific period.
Receipts and Payments Account is debited for all receipts received within a certain period, regardless of the year in which they are received or the type of their reception – income or capital. It is possible that such revenues are linked to the prior year, the present year, or the next year. Revenue receipts and capital receipts are both terms that may be used to describe such receipts. This account gets debited in full for all transactions.
For example, the total subscription received during the period 01-04-2009 to 31-03-2010 is Rs. 53,500, of which the subscription for the previous year, i. e. 2008-09, is Rs. 1,500, the subscription for the current year, i. e. 2009-10, and the subscription for the following year, i. e. 2010-11, is Rs. 2,000.
Because the amount of subscription was received during the fiscal year 2009-10, it is recorded on the receipts side of the Receipts and Payments Account for the fiscal year 2009-10, even though the amount received is related to the previous year, the current year, and the fiscal year following the current fiscal year.
All payments made within a certain period are credited to the Receipts and Payments Account, regardless of whether the payment corresponds to the period to which it relates or whether the payment is of a revenue or capital type. Such a payment may be linked to the prior year, the current year, or the next year; similarly, such payments may be for revenue spending or capital expenditure, depending on the situation. This account has been credited with all of the funds.
For example- There has been a total of Rs. 14,000 in rent paid between April 1, 2009 and March 31, 2010, with payment for the current year (2009-10), and rent for the next year (2010-11), totaling Rs. 12,000 and Rs. 2,000 respectively.
Because the rent was paid during the fiscal year 2009-10, the amount paid is credited to the Receipts and Payments Account for the fiscal year 2009-10, even if the amount paid is linked to the current and following fiscal years.
Also Read :
Paying Banker : Duties and Rights of Paying Banker
Capital Reserve : Difference between Capital Reserve and Revenue Reserve
Petty Cash Book : Definition, Types, Format, Example
What is Cash Flow and It’s Types ? Cash Flow Statement and Analysis
Limitations of Single Entry System
Advantages of Receipt and Payment Account
The following are some of the advantages of a receipt and payment account:
- It is a condensed version of the cash book – in other words, it is a condensed version of the cash book.
- All cash received over the course of the year are recorded on the left-hand (debit) side of the ledger. While all of the cash payments made during the year are recorded on the right-hand (credit) side of the ledger, they are organised in a categorised manner.
- Both capital and revenue receipts and payments are documented in this section, as are cash advances.
- In this account, just cash transactions are logged, and nothing else.
- In most cases, it displays a negative balance. In the event of a bank overdraft balance, on the other hand, the net balance may be positive. Again, it is possible to have no balance, although this is an uncommon occurrence.
- Its closing balance reflects the sum of cash on hand and cash in the bank at the end of the day.
- It is not a separate account under the double entry system; rather, it is a statement.
- It is responsible for preparing it on the final day of the accounting year.
Disadvantages of Receipts and Payment Account
- DOES NOT RECORD EXPENSES OTHER THAN CASH
The Receipt and Payment account solely keeps track of monetary transactions. It does not keep track of non-cash costs such as depreciation.
- RECEIPTS AND PAYMENTS ARE LIMITED IN SCOPE ACCOUNT
It does not display items in the order in which they are received: The receipt and payment account do not keep track of things on an accrual basis like the other accounts. It keeps track of things on a monetary basis, which means that only those items are documented for which money is received or spent.
- THERE IS NO SURPLUS OR DEFICIT IN THIS FORM
The receipt and payment account does not record any adjustments for accumulated income, unpaid expenditures, prepaid expenses, or income received in advance since they are not recorded in the ledger. As a result, it does not indicate whether the year ended in surplus or deficit. Rather, it displays the opening and closing balances of cash on hand at the time of the transaction.
- DO NOT MAKE ANY DIFFERENCE BETWEEN CAPITAL AND REVENUE ITEMS
The receipt and payment account does not distinguish between things that are considered capital and those that are considered income. It keeps track of all of the assets, liabilities, income, and spending in a single accounting period.
- FAILURE TO DEPICT CORRECT YEAR-TO-DATE INFORMATION
There is no guarantee that the goods entered in the receipt and payment account will be used in the current or future year. As a result, it does not accurately represent the actual transactions that occurred during the current fiscal year.
- DOES NOT RECORD EXPENSES OTHER THAN CASH
The Receipt and Payment account solely keeps track of monetary transactions. It does not account for non-cash costs such as depreciation, which must be accounted for in order to demonstrate the true worth of assets.
Preparation Method: Using a standardised method
All of the cash receipts and cash payments for the whole year are compiled into a single receipts and payments account. This account is responsible for calculating the net outcome of cash receipts and cash payments over a certain period of time. As a result, the following will be the heading:
Receiving and Paying Account for the Fiscal Year Ended December 31, 2005
There are two tabs: “Receipts” on the left hand side and “Payments” on the right hand side. All cash receipts are recorded on the left hand side of the ledger, and all cash payments are recorded on the right hand side of the ledger, both in a categorised format. It begins with the cash in hand and cash in the bank at the end of the previous year and ends with the cash in hand and cash in the bank at the end of the current year. In other words, its starting balance represents the cash in hand and cash in the bank at the end of the previous year, while its closing balance represents the cash in hand and cash in the bank at the end of the current year.
Receipt and Payment Account Format
- The ‘Receipts’ side is located on the left side of the screen. The ‘Payments’ section is located on the right side of the screen.
- The left side of the ledger records all of the entering cash, while the right side records all of the cash outgoings.
- It all begins with the cash in hand and cash in the bank from the previous year’s close.
- It comes to a close with cash in hand and cash in the bank from the current year’s conclusion.
- If the credit side of this account is more than the debit side, we will terminate the account and leave an overdraft amount on the debit side of the account, else we will cancel the account.
Receipts and Payment Accounts Characteristics
- THE NATURE OF THE ACCOUNT
It is a genuine account. The things recorded in this account are both of a capital and income character, and they are categorized as such. It is important to remember that the following guideline is followed while posting the items: ‘DEBIT WHAT COMES IN, CREDIT WHAT GOES OUT’. Therefore, revenues are recorded on the Debit side of the ledger, while payments are entered on the Credit side of the ledger.
- THE PRINCIPLES OF PREPARATION
In the receipts and payments account, the balance is kept on a cash basis alone. Transactions are documented when money is exchanged for them or when money is received in exchange for them.
- ITEMS RELATING TO CAPITAL AND REVENUE
This account keeps track of both capital and revenue expenditures. The capital receipt, as well as the revenue receipt, are both recorded on the debit side of the ledger statement. It is indicated on the credit side of this account that both capital and revenue payments have been made to the company.
- BALANCES FOR THE STARTING AND ENDING TIMES
During the accounting period, the opening and closing balances of the receipts and payments account to reflect the amount of cash in hand or cash in the bank.
Receivables & Payment Account does not record any adjustments for Accrued Income, Outstanding Expenses (including prepaid expenses), and pre-received income (which includes accrued expenses).
The purpose of compiling this account is to get an understanding of the non-profit organization’s financial situation.
1. Receipt and Payment Account is Which Type of Account ?
It is a Type of Real Account, as you can also say that it is a summarised of Cash Book for a Specific time of Period.
2. Receipt and Payment Account Generally Show ?
It is Generally Show Debt Balance not Credit Balance.
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