Receipt and Payment Account

Throughout the world and in South Asia’s booming economies, Non-Profit Organisations have emerged in significant numbers. Abbreviated as NPOs, these entities mainly serve social causes which are overlooked by governments and the private sector.

Some famous NPOs in India include HelpAge India and CRY. International NPOs like The Salvation Army and the Red Cross Society are instantly recognisable names.

Such entities need to prepare Receipts and Payments accounts so that they can have a firm grasp of their financial position. Here, we shall learn what these accounts are, along with some of their characteristics.

What are Receipt and Payment Accounts?

Simply put, a receipt and payment account is a summarised and abridged cash-book prepared for a pre-selected period of time. Such an account presents brief details of all cash transactions done during that specified period. Most NPOs prepare this account when a calendar year ends.

Later, armed with some extra information, an income and expenditure (I&E) account is framed. It must be noted here that a receipt and payment account does not reflect the true financial viability of a Non-Profit. Only an I & E account can do that.

Receipt and payment accounts are necessary to fulfil various governmental oversight norms. They also highlight the direction in which an NPO is going financially.

Task for Students: You can easily go online and research about the largest NPOs in India and the world. Read about what they do, how they give back to societies across the planet, and how their funds are allocated.

Characteristics of an R&P Account

It must be remembered that this type of account summarises the receipts and payments in the daily cash book. It cannot reflect the true or actual financial status of the NPO.

Here are some of the main features of these accounts.

• Receipts and Payments Accounts are simply summaries of cash books. They are later incorporated at the end of a Financial Year to complete final accounts.

• All cash that is received will go to the debit side. All cash which has been paid throughout the year will go to the credit side.

• Both payments in cash and receipts are considered and clubbed. Their nature, capital or revenue does not matter.

• An R&P account will only reflect cash transactions.

• Students of commerce must remember that such accounts tend to have a debit balance. However, if there is any overdraft, it will be reflected in the credit balance.

• All Receipts and Payments accounts will reflect cash in hand and closing cash in the bank without exception.

• Some non-cash items may, at times, appear in an R&P Account. These might include accrued incomes, any outstanding expenses and depreciation. These have been shown in a case study below.

Visit Vedantu’s other sections to get an idea of why some non-cash elements are added in a receipt and payment account. You will also see aspects of other accounts which NPOs generally maintain.

An R&P account follows a standardised format. For transparency and agility in accounting processes, all NPOs worldwide follow the Receipt and Payment Format given here.

R&P Account Format

Now that you have a receipts and payments format, here is a solved example for students of commerce.

Solved Example of Receipt and Payment Account

Here is an R & P account for a fictitious company ABC Exports.

Question

Draw up an R & P account for ABC Exports for FY 2019-2020 with the data provided.

Solution:

Based on standard Receipts and Payments Format, here is the balanced table of accounts.

For FY 2019-2020

 Debit    Credit

Task for you: Visit the website of any known NPO and check their accounts. You will get first-hand knowledge of how receipts and payments accounts work in real life. Also, to know the intricate drivers of a nation’s economy, check our website and best-in-class study materials. You can also download the Vedantu app.

The account which is used to record the transactions related with payment and receipts. For example, if any person pays cash for buying an item then it will be recorded in the receipt account; similarly, when a person receives money through cheque or bank draft that transaction will be recorded as an underpayment account. 

The balance of these two accounts should always be equal because every time there is receipt of an amount so automatically there must have been some payment by somebody else. If we take the cases where only one type of instrument i.e., either receipt or payments are used then also both types of accounts should keep the same balance otherwise accounting fails as well as business fails due to internal contradiction between its own records. It can not enjoy benefits of money without having its equal payment partner who is ready to accept the benefit in return. The accounting rules for these accounts are not very complex like other business transactions but still you need to learn it carefully because if there is any mistake then consequences can be severe and long-lasting in nature.

Payment and Receipt Account is Important to Study in Following Ways:

1. It will help you to understand the basic concepts of double-entry bookkeeping.

This is the first and very important step for every accountant because all other complex accounting procedures are based on this simple concept. Once you have understood it then everything else becomes easy for you.

2. Receipt and Payment Account also Helps in Understanding Following:

Cash basis accounting:

In cash basis accounting, only payments and receipts that involve cash are recorded in books of accounts. This method is not as popular as accrual basis accounting but still some businesses use it due to its simplicity. Transactions under this system are usually easier to track and manage.

Accrual Basis Accounting:

Under accrual basis accounting, all economic transactions whether they involve cash or not are recorded in books of accounts. This method is mostly used because it provides more accurate information about business transactions and allows the company to make better financial decisions.

Here are Some Tips to Study Receipt and Payment Account:

1) Know what you are looking for- You need to know what information is contained within your Receipt and Payment Account before you start searching for it. For example, are you looking at transactions from last week or last month? Do you want all transactions or just those above $50?

2) Look at trends- Is there a trend developing over time where money continues to be withdrawn but no new funds enter the account? If so then this could be an early warning sign of financial trouble ahead. Similarly, if you notice that transactions are gradually increasing each month then this could be a sign of growing business activity. Both of these trends can help inform your financial decision making.

3)Keep track of regular payments: There will likely be some regular payments made out of the Receipt and Payment Account such as rent, loan repayments, etc. Make sure to keep track of these so that you can ensure they are made on time.

4) Check for any one off transactions: There may be some irregular transactions you need to keep track of such as a major purchase or an investment. Again, record these so that they can be managed appropriately in the future.

5) Make sure all receipts match payments: Ensure that there aren’t large discrepancies between your receipts and payments which could indicate theft or fraud. If this is the case you should speak with someone from finance immediately!

6) Keep up to date records- Quite often people don’t have much information about their Receipt and Payment Account because it has been left untouched by many generations before them who were not interested in accounting practises at all times . Therefore make sure to keep up to date records of your account so that you can always be in the know.

7) Compare budget with actual figures- Once you have gathered all the relevant data from your Receipt and Payment Account, compare it against your budgeted figures. This will help give you an idea whether or not you are on track to achieving your financial goals. If not, then adjustments may need to be made.

8) Review notes often- The best way to learn is through repetition so make sure to review your notes on the Receipt and Payment Account often. This will help embed the information in your mind making it easier for you to use when needed.