The following are the main points of difference between Receipts and Payments Account and Income and Expenditure
Account.
| Basis of Distinction | Receipts and Payments Account | Income and Expenditure Account |
|---|---|---|
| Meaning | It shows a summary of all cash transactions along with opening and closing balances of cash and bank during an accounting period. | It shows revenue income earned and revenue expenses incurred during an accounting period. |
| Nature of Account | Real Account | Nominal Account |
| Objective | Prepared with the objective to summarise all cash receipts and cash payments of a particular accounting period. | Prepared with the objective to ascertain surplus or deficit arising from revenue incomes and revenue expenses during an accounting period. |
| Basis | Prepared on a Cash basis. | Prepared on an Accrual basis |
| Two Sides | Receipts are recorded on the debit side and Payments are recorded on the credit side. | Expenditure is recorded on the debit side and incomes are recorded on the credit side. |
| Opening Balance | It has an opening balance of cash and bank. | It does not have any opening balance. |
| Closing Balance | The closing balance reveals the balance of cash and bank at the end of an accounting period. | The closing balance either reveals surplus or deficit. |
| Nature of Transactions | Records transactions of both nature revenue as well as capital. | Records transactions of only revenue nature. |
| Period | Records all the cash transactions whether related to the previous, current, or the next year. | Records only those transactions that are related to the current year. |
| Non-Cash Transactions | Do not record any non-cash transactions. | Records both cash as well as noncash transactions. |
Also, Read
Interest on Capital
Any interest paid on capital is considered as an expense and is shown in the Profit and Loss Account. Treatment of interest on capital in the final accounts is as follows.
Interest on Drawings
Treatment of interest on drawings in the final accounts is as follows. Firstly, interest in drawings is shown on the credit side of the Profit and Loss Account.
What is Operating Profit?
Operating Profit can be defined as the profit earned by carrying the normal business activities. It is computed by subtracting the operating expenses from the gross profit.
Balance Sheet
The balance sheet is the last financial statement that is prepared by any organization. This statement helps to ascertain the true financial position of an enterprise at the end of an accounting period
Profit and Loss Account
A profit and Loss Account is the second financial statement prepared by an organization. This account is prepared to ascertain the net results of a firm in form of net profit earned or net loss incurred during an accounting period.
What are Adjusting Entries?
In order to incorporate adjustments in the financial statements, we pass the required Journal entries, which are termed as adjusting entries.