Receipt and Payment Account:

Definition and Explanation:

"A receipt and payment account is a summarized cash book (cash and bank) for a given period".

or

"This is simply a summary of the cash transactions as in the cash book, analyzed and classified under suitable headings, including the opening and closing balances".

Non-profit organizations (also called non-trading concerns) prepare a receipt and payment account at the end of year. With the help of this account and some additional information, an income and expenditure account is prepared to disclose the true results of non-profit organizations. Receipt and payment account cannot disclose the true result of non-trading concern.

All the information necessary for the preparation of this account is available from cash book. Various cash receipts and cash payments during the whole year find place in this account in a classified manner. Its closing balance indicates cash in hand and cash at bank at the year end.

Characteristics of Receipt and Payment Account:

Following are the features of receipt and payment account:

1. It is abridged addition of cash book - it is, in effect, a summary of cash book.

2. All cash receipts during the whole year are recorded on its left hand (i.e., debit) side. While all the cash payments during the whole year written on its right hand (i.e., credit) side, arranged in a classified form.

3. Cash receipts and cash payments of both capital and revenue nature are recorded here.

4. Only cash transactions are recorded in this account.

5. It generally shows a debit balance. In case of bank overdraft balance, however, its net balance may be credit. Again, it may also show nil balance but such occasion is rare.

6. Its closing balance indicates closing cash in hand and closing cash at bank.

7. It is not an account within the double entry system - it is a statement only.

8. It is prepared on the last day of the accounting year.

Advantages:

The following are the advantages of receipt and payment account:

1. Total receipts and total payments under various heads are available at a glance.

2. The amount of cash in hand at the year end can be ascertained.

3. The correctness of cash book can be verified through it. The total of debit side of cash book will agree with the total of receipt side of this account. On the other hand, the total of credit side of cash book will agree with that of payment of this account.

Method of Preparation:

Receipts and payment account is prepared with all the cash receipts and cash payments of the whole year. The net result of cash receipts and cash payments of a fixed time is determined through this account. So it is its heading will be:

Receipt and Payment Account
For the Year Ended 31.12.2005

Its left hand side is called "Receipts" and right hand side "payments". On the left hand side all cash receipts are recorded, while on the right hand side all cash payments are recorded arranged in a classified form. It starts with last year's closing cash in hand and cash at bank and closes with current year's closing cash in hand and cash at bank. In other words, its opening balance indicates last year's closing cash in hand and cash at bank, while its closing balance means current year's closing cash in hand and cash at bank.

Example:

From the following cash book prepare receipts and payments account for the year ended 31 December 2005.

Cash Book

Solution:

ABC Club
Receipt and Payment Account
For the year ended 31st December, 2005

A D V E R T I S E M E N T