Receipts and payment account is a financial statement that mostly is prepared by Non-Profit Organisations (NPO). This account is made from the transactions recorded in cash books. The sole purpose of this account is for making a financial statement recording cash transactions made for sales or purchases in an accounting year. The receipts and payments account is then further used for creating an income and expenditure account.

The receipts and payments account is a simple record summary of all the cash transactions for an accounting year. This account starts with cash balance and ends with cash balance entries and doesn’t show any income or expenditure.

The receipts and payments account also assists in making the income and expenditure statement. This account is only made on the last day of the accounting year.

It helps in categorising different cash transactions under headings receipts which is the debit side and payments which is the credit side.

This account also has a feature which helps in recording transactions in one year even if the transaction made is of a past year, current year or a future period. This account does not record non-cash transactions but records all transactions that are cash be it capital or revenue.

Examples of Receipts and Payments Account

The below description is a detailed receipts and payments example.

Receipt and Payment Account for the year ended

31st March 2021

Dr. Cr.

The cash transactions are mentioned in the following way under respective columns:

• The cash transactions that appear as an inflow of cash such as donations or subscription fees of a business organisation are recorded on the debit side under the receipts column as shown in the above example
• The debit side of the above diagram has an entry “To subscription-15000” which is an inflow of cash and is recorded on the debit side
• The cash transactions that appear as an outflow of cash are recorded under the credit side with payments as the title
• The credit side of the above diagram shows an entry “By machinery-15000” which is an outflow of cash on the purchase of machinery is “15000” and is recorded under credit side payments
• The opening balance is always a cash or bank amount with the ending balance being a cash and bank amount of the end year
• The credit side opens with a credit bank amount if the cash book has a bank overdraft
• The credit side surplus which usually isn’t very common may happen and the subtraction of surplus credit and lower debt is the amount that is called bank overdraft

Receipt and Payment Account Format

The below figure shows the receipt and payment format and how transactions are mentioned.

Dr. Receipts and Payments Account                                   Cr.

• The debit side has all the cash inflow transactions whereas the credit side has all the outflow cash transactions
• The surplus amounts are written respectively after a thorough calculation
• The steps of calculating the closing amount are mentioned above
• The resultant amount is mentioned as a bank overdraft or By bal c/d

Difference between Receipts and Payments Account and Income and Expenditure Account

Opening Balance

• The receipts and payment account has the opening balance as cash from the preceding year
• The Income and expenditure account doesn’t have an opening balance

Time period

• The receipts and payment account shows receipts and payments including past year, current year and future year
• The Income and Expenditure account shows receipts and payments of the year which is under inspection

Items

• Receipts are shown on the debit side, payments are shown on the credit side
• Income is mentioned on the credit side, expenditure appears on the debit side

Closing amount

• The closing amount of receipts and payments account represents cash and bank amount of the accounting year or bank overdraft at the closing amount
• The income and expenditure accounts end with either surplus or deficit amounts

Difference between Cashbook and Receipts and Payments

Nature

• The cash book records transactions whenever they happen
• Receipts and payment accounts are made on the last day of an accounting year

Importance

• The cash book records all cash transactions like a current account
• It’s a financial statement made for creating an Income and expenditure account

Conclusion

The significance of Receipts and payments accounts are mentioned descriptively in the above article. The receipt and payment account doesn’t come under the double-entry system so it is optional to use this account while preparing accounting statements but it is sure to be a big help when preparing an income and expenditure account for finding surplus and deficit. The receipts and payments are a cash form of account and only mention cash items.