How to Prepare Receipt and Payment Account: Step-by-Step Guide
A Receipt and Payment Account is a fundamental concept in Accounting, especially for non-profit organisations and clubs. It serves as a summary cash account, recording all cash and bank receipts as well as payments made within an accounting period. Understanding this account is crucial for Commerce students, as it helps in grasping the basics of double-entry bookkeeping and the preparation of more complex statements, like the Income and Expenditure Account and the Balance Sheet.
Definition and Purpose
A Receipt and Payment Account is an account that records all cash and bank transactions occurring over an entire accounting period. It includes receipts—amounts received by the organisation in cash or bank—and payments—outflows or expenses paid in cash, cheque, or any other mode. All such cash flows, regardless of whether they belong to earlier, present, or upcoming years, are noted in this account.
Key Features of Receipt and Payment Account
- It is prepared at the end of the accounting year, summarising all cash and bank receipts and payments.
- The account shows the opening and closing balances of cash and bank.
- All receipts are shown on the debit (left) side; all payments are shown on the credit (right) side.
- Both capital and revenue transactions are recorded, provided they involve actual cash movement.
- The account does not distinguish between different time periods—entries from earlier, current, or future years are all included if they involve cash flow during the year.
- It is not prepared on an accrual basis; only cash transactions are considered.
- This account is mostly used by non-profit organisations to keep a record of all cash transactions and to help in preparing income and expenditure accounts.
Format of Receipt and Payment Account
The Receipt and Payment Account is structured in the format of a ledger account, with receipts (inflows) on the debit side and payments (outflows) on the credit side. The account begins with the opening balance (if any) on the receipts side and ends with the closing balance on the payments side. If payments exceed receipts, the resulting overdraft appears on the receipts side.
| Receipts | Amount (₹) | Payments | Amount (₹) |
|---|---|---|---|
| To Balance b/d (Cash/Bank) | XXXX | By Salaries | XXXX |
| To Subscriptions | XXXX | By Rent | XXXX |
| To Donations | XXXX | By Machinery | XXXX |
| To Other Receipts | XXXX | By Other Payments | XXXX |
| To Balance c/d (Closing) | XXXX |
Step-by-Step Preparation
- Start with the opening balances of cash in hand and cash at bank (from the cash book) on the receipts side.
- Record all receipts such as subscriptions, donations, interest, etc., as and when they are received in cash or bank, on the debit side.
- Record all payments—salaries, rent, purchases, utility bills, equipment, etc.—on the credit side as they are paid out.
- After listing all receipts and payments, total both sides of the account.
- If receipts exceed payments, the difference is the closing balance of cash or bank (shown as “By Balance c/d” on the payments side). If payments exceed receipts, the closing balance will show as an overdraft (on the receipts side as “To Balance c/d (overdraft)”).
Illustrative Example
Consider a club with the following transactions during an accounting period:
- Opening balance (cash+bank): ₹6,000
- Subscription received: ₹5,000
- Donations: ₹5,000
- Purchase of machinery: ₹5,000
- Salary paid: ₹10,000
The Receipt and Payment Account would look like this:
| Receipts | Amount (₹) | Payments | Amount (₹) |
|---|---|---|---|
| To Balance b/d | 6,000 | By Salary | 10,000 |
| To Subscription | 5,000 | By Machinery | 5,000 |
| To Donation | 5,000 | By Balance c/d | 1,000 |
| Total | 16,000 | Total | 16,000 |
Key Principles and Applications
- All cash and bank receipts and payments are recorded, regardless of whether they are capital or revenue items.
- Non-cash transactions (such as depreciation, outstanding expenses) are not recorded in this account.
- The account mirrors the entries from the cash book and forms the basis for preparing the Income and Expenditure Account, which follows the accrual concept and records only revenue items of the current year.
- If the receipts side is larger, there is a cash/bank surplus at the end of the period; if the payments side is larger, there is an overdraft.
Summary Table: Steps in Preparing the Account
| Step | Action |
|---|---|
| 1 | Enter opening cash and bank balances on receipts side |
| 2 | List all receipts (subscriptions, donations, etc.) as received |
| 3 | List all payments (expenses, purchases, salaries) as paid out |
| 4 | Total both sides of the account |
| 5 | Balance the account with the closing balance on the side with a lesser total |
Conclusion
The Receipt and Payment Account is similar to a cash book in its function, as it captures all the cash and bank flows within an accounting period. It is especially important for non-profit organisations to systematically record and summarise all inflows and outflows before compiling final accounts. Mastery of this statement is essential for Commerce students, enabling them to transition smoothly to more detailed statements such as the Income and Expenditure Account and the Balance Sheet.
To explore similar topics and strengthen your fundamentals, continue practising and using standard formats while solving questions on Receipt and Payment Account. Consistent practice will ensure greater accuracy when dealing with practical problems in Commerce exams.
FAQs on Receipt and Payment Account: Format, Features, and Example
1. What is a Receipt and Payment Account?
A Receipt and Payment Account is a summary statement of all cash and bank receipts and payments made during an accounting period, usually one year. It includes both capital and revenue transactions recorded on a cash basis and is commonly prepared by non-profit organisations as an overview of their cash movements.
2. What is the format of a Receipt and Payment Account?
The format is similar to a Cash Book with two sides:
- Receipts (Debit Side): All cash and bank inflows, e.g. opening balances, subscriptions, donations.
- Payments (Credit Side): All cash and bank outflows, e.g. salaries, equipment, rent.
3. Is Receipt and Payment Account a real account?
Yes, a Receipt and Payment Account is treated as a real account because it records the actual receipt and payment of cash and bank transactions without considering accruals or outstanding items. It follows the cash basis of accounting.
4. What items are included in a Receipt and Payment Account?
All cash and bank transactions—regardless of whether they are capital or revenue, for the current, previous, or next year—are included. Some examples are:
- Receipts: opening balance, subscriptions, donations, rent received.
- Payments: salaries, expenses, equipment purchased, rent paid.
5. How is a Receipt and Payment Account different from an Income and Expenditure Account?
The main differences are:
- Receipt and Payment Account: Real account, cash basis, all receipts/payments (capital and revenue), includes opening and closing balances.
- Income and Expenditure Account: Nominal account, accrual basis, only revenue items, does not show opening/closing cash balances.
6. Can both capital and revenue items be shown together in a Receipt and Payment Account?
Yes, both capital and revenue items are recorded together in a Receipt and Payment Account. This is because it is a cash summary which does not separate items by nature, as long as they involve cash or bank movement.
7. How do you prepare a Receipt and Payment Account from a Cash Book?
To prepare a Receipt and Payment Account:
- Start with opening cash/bank balances from the Cash Book.
- List all receipts (debit side) and all payments (credit side) from the Cash Book for the entire period.
- Include all cash and bank transactions, whether for the current, past, or future period.
- Balance the account. The difference is the closing cash/bank balance.
8. What does the closing balance in a Receipt and Payment Account represent?
The closing balance shows the total cash and bank balances available with the organisation at the end of the accounting period. It appears on the side with the lower total to make both sides equal.
9. Why do non-profit organisations prepare a Receipt and Payment Account?
Non-profit organisations prepare this account to:
- Summarise all cash and bank transactions.
- Monitor receipts and payments during the period.
- Provide data for preparing the Income and Expenditure Account and Balance Sheet.
10. Can Receipt and Payment Account show an overdraft (credit balance)?
Yes, it can show a credit balance if total payments exceed total receipts, indicating an overdraft at bank. This is written on the receipts side as "To Balance c/d (overdraft)" in the account.
11. What is the importance of the Receipt and Payment Account format in board exams?
Knowing the standard format helps students score full marks in practical questions. Proper headings, using both receipts and payments columns, and totaling correctly as per current CBSE/ISC guidelines is essential for accuracy and avoiding common errors in commerce exams.
12. Is it necessary to distinguish between current and previous year’s transactions in a Receipt and Payment Account?
No, distinction is not made between current, previous, or next year’s transactions in a Receipt and Payment Account. All cash or bank movements during the period are recorded, regardless of the year they pertain to.
