Receipts and Payment Account

1. 1.Summary of Cash Book
2. 2.Prepared at the end of the year
3. 3.Any transaction not recorded in the Cash book will note be recorded in the receipts and payment account as well.
4. 4.The receipts and payment account is a Real Account. Hence, it follows the rule of ‘Debit what comes in and credit what goes out’.
5. 5.Receipts (irrespective of its nature {capital or revenue} or the year which it relates to {current, previous, future period}) are recorded on the Debit side and payments (irrespective of its nature {capital or revenue} or the year which it relates to {current, previous, future period}) on the credit side.
6. 6.The account starts with the opening balance of Cash and Bank. If the opening balance of Cash and bank is given in the opening balance sheet, then it will be recorded in the debit side of the receipts and payment account. But if there is a bank overdraft (Cash balances can never be negative but Bank balance can) it will go in the credit side of the receipts and payment account.
7. 7.The closing balance of the receipts and payment account is the closing balance of Cash and Bank. This closing balance (positive) comes on the Credit side. However, if the closing balance is Bank Overdraft, it shall be shown on the Debit side.
8. 8.Non- cash items like Income accrued but not received, Depreciation are not recorded in this account.

Income and Expenditure Account

1. 1.Similar to Profit and Loss account of profit making entities.
2. 2.It is made on Accrual Basis.
3. 3.There is no opening or closing balance.
4. 4.All expenses and losses of revenue nature are recorded on the debit side.
5. 5.All Incomes and gains of a revenue nature recorded on the credit side.
6. 6.If the credit side of the account exceeds the debit, then it is known as Surplus.
7. 7.If the debit side of the account exceeds the credit, then it is known as Deficit.
8. 8.It is a Nominal Account. Hence, it follows the rule of ‘Debit all the expenses or losses and credit all incomes and gains’.
9. 9.All the adjustments relating to the current period are made.
10. 10.All the cash and non-cash items are adjusted in this account.
11. 11.Items which do not pertain to the current year are not included in this account.
12. 12.The closing balance reveals the Surplus or Deficit.
13. 13.The Surplus is added to the Capital Fund and the Deficit is deducted from it.

Balance Sheet

1. 1.It contains only capital items, i.e. Assets, Liabilities and the Capital Fund.
2. 2.If a Trial Balance is available, then the balances of trial balance should be posted in the balance sheet.
3. 3.If the closing balances are not available then, there is a need to make some adjustments to the balances of the opening balance sheet to arrive at the closing balances of capital items.
4. 4.Capital Fund is also known as General Fund or Corpus Fund. It is the excess of Assets over Liabilities.

In NPO, 2 types of Balance Sheets are prepared:

1. Opening Balance Sheet (last year’s closing balance sheet)
2. Closing Balance Sheet

Fund Based Accounting:

For example, if Sports Fund= Rs. 5,00,000

Expenditure =

1. Rs. 4,00,000 => then the balance in the Sports Fund= Rs. 1,00,000
2. Rs. 5,00,000 => then whole of Sports Fund will be utilised
3. Rs. 6,00,000 => then whole of Sports Fund will be utilised  i.e. Rs. 5,00,000 and the rest of Rs. 1,00,000 will be taken from the general fund.

Items and where they go to:

1. Entrance fees: Revenue: Credit Income and Expenditure A/c unless the question says it to treat as a capital receipt. If it is treated as a capital receipt, then it will be shown in the Liabilities side of the Balance Sheet.
2. Life Membership fees: It is paid only one time by one person and is capital in nature. Hence, it will go to the Liabilities side of the Balance Sheet.
3. Donations

4. Legacy:

General Legacy: Goes to the income side of Income and Expenditure A/c

Specific Legacy: Goes to the Liabilities side of the Balance Sheet.

If nothing is mentioned in the question about the legacy, it will go in the liabilities side of the balance sheet.

5. Sale of used material/asset:

If Book Value > Sales Value= It’s a loss. Hence it will be recorded on the Debit side of Income and Expenditure A/c.

If Sales Value > Book Value= It’s a profit. Hence it will be recorded on the Credit side of Income and Expenditure A/c.

Balances in the books are reduced by the book value irrespective of the Sales/Market Value.

6. Newspaper and Stationery:

Purchased- Debit side of Income and Expenditure A/c.

Sold- Credit side of Income and Expenditure A/c.

7. Honorarium:

Debit side of Income and Expenditure A/c.

8. Rent, salaries and other revenue expenditure:

Debit side of Income and Expenditure A/c.

9.Interest, commission, dividends and other revenue incomes:

Credit side of Income and Expenditure A/c.

10.Capital expenditures:

Like buying a Furniture: Goes to the Assets side of the Balance Sheet.

This type of expenditure can also happen because of repayment of loan or any other liability. In this case, the liability will be reduced.

11.Capital Receipts:

Like Specific Donations: Goes to the Liabilities side of the Balance Sheet.

This type of receipt can also occur when an Asset is sold: Cash + Asset-

12. Cost of Materials Consumed:like chalks, dusters used in school:

Shown in the Debit side of Income and Expenditure Account.

Cost of Materials consumed = Opening Stock of Materials + Purchases (cash and credit) - Closing Stock of materials

Credit purchases can be found out from the Creditors A/c if not given directly.

13. Endowment Fund:

It is a capital receipt and hence will be shown on the Liabilities side.

14.Subscriptions-

It is the main source of revenue for a NPO. It will appear on the Debit side of the Receipts and Payment Account. And subscription belonging to the current year will go in the Income and Expenditure Account. And subscription received for any future period will go in the Liabilities side of the Balance Sheet.

15.Prepaid Expenses, accrued incomes and investments-

They should be shown on the Assets side of the Balance Sheet.

16.Outstanding Expenses and Income Received in advance-

They should be shown on the Liabilities side of the Balance Sheet.

Difference between Receipts and Payments Account and Cash Book:

Basis	Receipts and Payments Account	Cash Book
Period	It is prepared at the end of the year.	It is prepared on Daily Basis.
Chronological recording	The transactions are recorded in the receipts and payments account in a classified manner at the end of the accounting period.	The transactions are recorded in the cash book in a chronological order (i.e. in the order in which they occur).
Application of double entry system	The rules of double entry system are not applicable for the preparation of receipts and payments account.	The double entry system of accounting must be followed while making entries in a cash book.
Ascertainment of daily or monthly cash balance	It is mostly prepared at the end of the period so there is no question of ascertainment of daily or monthly cash balance.	In case of a cash book, one can ascertain the cash balance at the end of each day, month or another period.
Preparation by entities	It is prepared by Not-for-profit organisations.	A cash book is prepared by both profit and non-profit entities.
Importance and need	It is used for preparing income and expenditure account and for other purposes. Its preparation is optional because it is not a part of the formal double entry system of non-trading concerns. The income and expenditure account and balance sheet can be prepared directly from trial balance and some additional information.	Trading concerns maintain either a cash account or a cash book. It is a need of every business and its preparation is therefore essential.
Ledger Folio Column	It has no ledger folio column.	It has a Ledger Folio Column.

Difference between Receipts and Payments Account and Income and Expenditure Account:

Basis	Receipts and Payment Account	Income and Expenditure Account
Cash and non-cash transactions	It is prepared on a cash basis and only actual cash payments and receipts are reflected here.	It is prepared on an accrual basis and includes both cash and non-cash transactions.
Nature of account	It is a summarized version of the cash book.	It is a summary of the incomes and expenditures of the concern during a particular period.
Type of Account	It is a real account	It is a nominal account
Capital and revenue items	Items of both capital and revenue nature are reflected here.	Items of only revenue nature are reflected here.
Opening Balance	It starts with an opening balance of cash in hand and cash at bank	It has no opening balance
Closing Balance	It ends with a closing balance of cash in hand and cash at bank. The closing balance of this account is carried forward to the next year’s receipts and payments account and current year’s balance sheet.	The surplus or deficit balance shown by it is carried to the capital fund account.
Preparation	It is prepared using information from cash book maintained by the entity.	It is prepared by using information from receipt and payment account and from other relevant sources.
Relevance with accounting period	It shows transactions irrelevant of their accounting period(s) which means transactions related to past, present or future periods can be shown here.	It only reflects transactions relating to the current accounting period.
Sides	Debit side of this account records Receipts and Credit side records Payments.	Debit side of this account records expenses and losses and Credit side records incomes and gains.