Receipts and Payments Account and Income and Expenditure Account are two accounts that non-profit organizations normally make to determine their yearly results. These accounts often act as a substitute for Trading and Profit and Loss Account used in business organizations. Their nature and purpose of preparation are discussed below.
What is Receipts and Payments Account?
A Receipts and Payments Account is nothing but a summary of cash receipts and cash payments made during a whole accounting year. The account is prepared at the end of each year from the details of a cash book.
It summarizes all cash and bank transactions under different heads. For instance, in an NGO, cash received from members by way of subscription is debited to cash book on different dates. This amount is clubbed under one head and recorded on the receipts side of the Receipts and Payments Account. Similarly, salary, rent, or electricity charges paid from time to time appearing on the credit side of Cash Book are clubbed under different heads. These are recorded on the payments side of the Receipts and Payments Account as total salary paid, total rent paid, or total electricity charges paid during the complete year.
Did you know? The Receipts and Payments Account follows a real account.
To elaborate more, the Receipts and Payments Account records all receipts and payments effected in a year, irrespective of whether they pertain to the current year, previous year, or succeeding year. In addition, it does not show any disparity between capital and revenue items. All items, whether capital or revenue, are recorded therein. But one thing to be noted here is that non-cash transactions like depreciation, etc. do not find a place in Receipts and Payments Account.
Further, the opening balance of this account, which is shown on its receipts side, represents cash in hand/cash at Bank at the beginning of the year. And the closing balance represents cash or bank balance as of the end of the year, which appears on the credit side (or payments side). However, if it is bank overdraft at the end it shall be shown on its debit side.
In short, the Receipts and Payments Account looks like this:
|Receipts||Amount in $||Payments||Amount in $|
|Starts with Opening Balance||All payments – Capital or revenue|
|All receipts – capital or revenue||May be related to any period previous, current or subsequent|
|May be related to any period previous, current or subsequent||Ends with closing balance|
Now, let’s move on to the next account.
What is an Income and Expenditure Account?
An Income and Expenditure Account is a xerox of profit and loss statement and it serves the same purpose that a business organization’s profit and loss account does. Being prepared on an accrual basis, an Income and Expenditure Account provides a summary of all incomes and expenses for a particular year.
Only items of revenue nature are shown in this account, expenses & losses on the debit side (or expenditure side) and incomes and gains on the credit side (or income side). Capital incomes and expenses are excluded from this account.
Further, only those items that pertain to the current year find a place in the Income and Expenditure Account. Amounts that relate to the preceding and succeeding years are excluded.
Did you know? Income and Expenditure Account follows a nominal account. (source)
Since this account is made on an accrual basis, few adjustments need to be made in respect of outstanding and prepaid expenses, income receivable in the future, and income received in advance, etc. For example, next year’s subscription money received in the current year shall not be included if the same is received in advance. Similarly, salaries payable for the current year shall be added even though they are not yet paid in the current year. Moreover, any interest income relating to the current period will be added even if it is not yet received.
Not only this, the Income and Expenditure Account also includes non-cash items that are excluded from the Receipts and Payments Account. These could be depreciation, provision for doubtful debts, profit or loss on sale of an asset, etc.
The closing balance of this account gives the net operating result of a business in the form of a surplus (i.e., more income than expenditure) or deficit (i.e., more expenditure than income). Such surplus or deficit is transferred to the capital fund on the Balance Sheet.
To summarise, an Income and Expenditure Account somewhat looks like this:
|Expenses||Amount in $||Incomes||Amount in $|
|Only revenue expenses||Only revenue receipts|
|Only related to the current period||Only related to the current period|
|Shows either surplus||Or shows deficit|
The distinction between Receipts and Payments Account and Income and Expenditure Account will be more understandable by having a look at their sample formats as shown below:
Receipts and Payments Account
Income and Expenditure Account
For the year ended on ——-
Now that we have understood the features of each of these accounts, the main differences between the two are summarized in the table below:
Comparison table – Difference between Receipts and Payments Account and Income and Expenditure Account
|Basis of difference||Receipts and Payments Account||Income and Expenditure Account|
|Nature of account||Real account||Nominal account|
|Basis of recording||Cash basis||Accrual basis|
|Summary||It is a summary of cash transactions, both receipts and payments.||It is a summary of all incomes and expenses of a particular year.|
|Represents||It is representative of a cash book.||It is representative of a profit and loss account.|
|Nature of items||It records all receipts and payments, whether they are of capital nature or revenue nature.||This account shows operating results, and hence, incomes & expenses of only revenue nature are recorded here. Capital items are excluded, for example, sale of land, purchase of buildings, etc.|
|Period||Receipts and payments could relate to the current year, preceding year, or succeeding year.||Since it gives the net operating results for a particular year, it records income and expenditure related to the current year only.|
|Debit side||The debit side of this account shows receipts.||The debit side of this account shows expenses or losses.|
|Credit side||The credit side of this account shows payments.||The credit side of this account shows incomes and gains.|
|Non-cash items||It does not include non-cash items such as depreciation, provisions, etc.||It includes such items.|
|Opening balance||Opening balance shows cash in hand/cash at Bank at the beginning of the year (or bank overdraft).||It does not have an opening balance.|
|Closing balance||Closing balance shows cash or bank balance as at the end of the year (or bank overdraft).||Balance at the end gives a surplus or a deficit.|
|Income received in advance||Any sort of income received in advance is recorded on the debit side.||Income received in advance is not included on the credit side, since it does not relate to the current year.|
|Income to be received||Income to be received is not recorded here as it does not involve any inflow of cash.||Income to be received is recorded on the credit side, provided it pertains to the current year only.|
|Prepaid expenses||Any expenses paid in advance are recorded on the credit side.||Expenses paid in advance are not included on the debit side, since they do not pertain to the current period.|
|Outstanding expenses||Expense payable is not recorded here as it does not involve any outflow of cash.||Expense outstanding is recorded on the debit side, provided it pertains to the current year only.|
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