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Non-Profit Organizations

Receipts and Payments Account

Receipts are nothing but the incoming of money or money equivalents. On the other hand, Payments refer to the disbursement of cash or cash equivalents to another party. Both form an important part in the organizations, especially in the Not-for-Profit Organizations. It is because their whole accounting process revolves around this account. In this article, we look at various features, advantages, format, and question (with solution) of Receipts and Payments Account.

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Introduction of Receipts and Payments Account

Unlike normal organizations, Not-for-Profit organizations do not make Trading and Profit and Loss Account. Instead, they make Income and Expenditure Account and Receipts and Payments Account.

Receipts and Payments Account is just like a Cash Account for them. It forms an important part of their accounting procedure since they have to deal with various donations throughout the year, which is mostly in cash.

Receipts and Payments

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Features of Receipts and Payments Account

  1. It is also known as Cash Book Summary for the Not-for-Profit organizations because it records all the cash and cash equivalents like cheques transactions throughout the year.
  2. It starts with beginning cash and bank balance and ends with ending cash and bank balance.
  3. This account shows cash transactions of both capital and revenue nature.
  4. Mostly it shows a debit balance. In the exceptional case of overdraft balance, its net balance may be credit.
  5. The concern prepares it on the last day of the accounting year.
  6. Double Entry bookkeeping system does not apply to this account since it is a summary of transactions which are already recorded in the Cash Book.
  7. It does not involve transactions which do not include cash or bank items.

Advantages of Receipts and Payment Account

  1. It is through this account that the total payments and total receipts are easily available in the same place.
  2. It is through this account that we can ascertain the closing balance of cash at the end of the year.
  3. This account proves to be a verification point for the cash book. This is because the organization prepares it after the preparation of the Cash Book and is nothing but the summary of it.

Disadvantages of Receipts and Payment Account

  1. It does not differentiate capital and revenue expenses and incomes. This is because it shows transactions of both natures together at the same place without any showcase of difference.
  2. It fails to show the transactions on an accrual basis.
  3. It does not define any targets making it incapable of showing surpluses and deficits at the end of the year.
  4. Receipts and payments account does not show Non-Cash transactions like depreciation of assets, pilferage etc.

Learn more about Income and Expenditure Account here in detail.

Format of Receipts and Payment Account

Receipts Amount Payments Amount
Balance b/d  XXX Balance b/d (overdraft)  XXX
Cash in Hand  XXX Wages and Salaries  XXX
Cash at Bank  XXX Rent  XXX
Subscriptions  XXX Rates and Taxes  XXX
Sales of Newspaper  XXX Advertisement  XXX
Sale of Sports Materials  XXX Sundry expenses  XXX
Interest on Fixed Deposits  XXX Entertainment expenses  XXX
Donation  XXX Honorarium  XXX
Life Membership Fees  XXX Purchase of Assets  XXX
Balance c/d (Overdraft)  XXX Balance c/d  XXX
XXX XXX

Format Explanation

  1. Left Side is called the ‘Receipts’ side. The right side is the ‘Payments’ side.
  2. Left side records all the cash incomings whereas the right side records all the outgoing cash.
  3. It starts with last year’s closing cash in hand and cash at the bank.
  4. It ends with current year’s closing cash in hand and cash at the bank.
  5. If the Credit side of this account is more than the debit side than we will close the account with an overdraft balance on the debit side of the account.

Solved Question on Receipts and Payments

Question: From the following particulars from Gupta and Sons, prepare a Receipt and Payment account for the year ending 31st March 2020.

Particulars Amount Particulars Amount
Opening cash balance 1500 Sale of old sports materials 600
Opening bank balance 3600 Donation received 2300
Subscriptions collected for Sports materials purchased 1500
2017-18              ₹ 250 Purchase of refreshments 2400
2018-19              ₹ 3800 Expenses for maintenance 300
2019-20              ₹ 450 4500 Salary Paid 1000
Sale of refreshments 500 Furniture purchased 1250
Entrance fees 500 Office expenses 750
Closing cash in hand 200

Solution:     

 In the books of Gupta and Sons for the Year Ended 31st March 2020

Receipts Amount Payments Amount
Balance b/d Sports materials purchased 1500
Cash                          1500 Maintenance expenses 300
Bank                         3600 5100 Salary Paid 1000
Subscriptions Furniture purchased 1250
2017-18              ₹ 250 Office expenses 750
2018-19              ₹ 3800 Purchase of refreshments 2400
2019-20              ₹ 450 4500 Balance c/d
Sale of refreshments 500 Cash 200
Entrance fees 500 Bank 3800
Sale of old sports materials 600
11200 11200

Steps for preparation:

  1. On the left hand, firstly write all the balances of cash and bank
  2. Try to look out for the major receipts of the not-for-profit organization like a donation, subscription, etc.
  3. Find out other receipts and place them on the left side or the receipts side of the receipts and payments account.
  4. Going towards the right, look at all the major payments made throughout the year like Purchase of Sports material, payment of salary, etc.
  5. Put the Capital expenditures like the payment for the purchase of a fixed asset (in question it was Furniture) on the payments side.
  6. Find out the total of both sides.
  7. Find out the balance or the difference between both the sides.
  8. If the Receipts side exceeds the Payments side, then show the balance of cash and bank on the payment side as Balance c/d. If the Payments side exceeds the Receipts side, then show the balance on the receipts side as Overdraft balance.
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