Basically, this account records all the cash and bank transactions of an NPO during a particular accounting period. It is prepared with the help of a cash book; therefore, often this account is regarded as a summarised version of a Cash Book. It starts with the opening cash/bank balance and ends with the closing balance of cash/bank. All the cash receipts are recorded on the Receipts side (i.e. on the debit side) and all the cash payments are recorded on the Payments side (i.e. on the credit side) of this account. It is prepared on a cash basis and records all the cash and bank transactions of both capital and of revenue nature. In addition, this account not only records the cash and bank transactions related to the current (or the present) accounting period but also records the cash and bank transactions related to the previous year and that of the next year as well.
Receipt and Payments Account as defined in the words of William Pickles, “Receipts and Payments Account is nothing more than a summary of the Cash Book (Cash and Bank transactions) over a certain period, analyzed and classified under suitable headings. It is the form of account most commonly adopted by the treasures of societies, clubs, associations, etc. when preparing the results of the year’s working.”
Features of Receipts and Payments Account
The given below are the various features of the Receipts and Payments Account.
Nature: It is a real account. As per the rule of real account “Debit what comes in and Credit what goes out” all the cash receipts are debited and all the cash payments are credited to this account.
Nature of Transactions: This account records only cash and bank transactions (i.e. monetary transactions). The non-monetary transactions such as depreciation, profit/loss on the sale, etc. are not recorded in this account.
Capital and Revenue Items: It records all the cash/bank transactions irrespective of their nature. That is, both capitals, as well as revenue-nature transactions, are recorded in this account.
Period: It records all the cash/bank transactions irrespective of the time period. That is, whether the particular transaction is related to the previous, current, or next year, all are recorded in this account.
Opening and Closing Balance: It begins with the balance of cash and bank at the beginning of an accounting year (i.e. opening balance) and ends with the balance of cash and bank at the end of an accounting year (i.e. closing balance).
Adjustments: It records only actual cash receipts and payments during an accounting period. This means any adjustments of expenses or income that are still to be paid or received are not recorded in this account. Similarly, any expenses or incomes that are paid or received in advance are also not considered while preparing this account.
Aim: It reveals the cash position of an NPO. This helps in ascertaining the closing balance of cash/bank at the end of an accounting period.
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.
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.
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.
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
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.
In order to incorporate adjustments in the financial statements, we pass the required Journal entries, which are termed as adjusting entries.