Receipts and Payments Account

Receipts and Payments Account is a financial statement used by not-for-profit organizations to record all cash transactions during a specific period, typically a year. It is a summary of the cash inflows (receipts) and outflows (payments) that the organization has experienced. Unlike a profit and loss account, it does not differentiate between capital and revenue items, nor does it include any non-cash transactions, such as depreciation or accruals.

The receipts section includes all sources of income, like donations, membership fees, grants, and fundraising, while the payments section includes expenses such as salaries, rent, and utilities.

This account is mainly used for internal purposes and is presented on a cash basis, offering a clear view of the cash position at any given time. The surplus or deficit shown at the end of the period is transferred to the Income and Expenditure Account or Balance Sheet.

Features of Receipts and Payments Account:

• Cash-based Accounting

The Receipts and Payments Account follows a cash-based accounting method, meaning it only records cash transactions—receipts when cash is received, and payments when cash is disbursed. Non-cash transactions like credit purchases or depreciation are excluded. This method offers a straightforward representation of an organization’s liquidity.

• Chronological Order

This account is presented in chronological order, meaning transactions are listed as they occur throughout the accounting period. Each receipt or payment is recorded under the date it takes place. This helps in understanding the timing of the organization’s financial activities and its cash flow throughout the period.

• Summarizes all Cash Transactions

The Receipts and Payments Account summarizes all cash receipts and payments made by the organization during a specific period, usually annually. Receipts may include donations, grants, and income from fundraising activities, while payments include expenses such as salaries, rent, and utilities. It is an exhaustive record of every cash movement, whether related to operational expenses or capital activities.

• No Distinction Between Revenue and Capital

Unlike other financial statements like the Income and Expenditure Account, the Receipts and Payments Account does not differentiate between revenue and capital transactions. For example, both regular income (like membership fees) and capital receipts (such as donations for building projects) are listed under receipts, and both operating expenses and capital payments (e.g., purchasing a fixed asset) are listed under payments.

• Closing Balance Shows Cash Position

At the end of the period, the Receipts and Payments Account shows the closing balance, representing the cash available with the organization. This balance is the sum of the opening cash balance plus total receipts minus total payments for the period. The closing balance is transferred to the Balance Sheet under the cash or bank balance heading.

• Simple and Easy to Understand

One of the key features of the Receipts and Payments Account is its simplicity. It is a straightforward statement with no complex adjustments or accruals, making it easy for stakeholders to understand the inflow and outflow of cash. The simplicity helps organizations with limited accounting expertise to keep track of their finances effectively.

• Used for Internal Reporting

The Receipts and Payments Account is primarily used for internal reporting and is not necessarily intended for external stakeholders. While it provides an overview of cash transactions, it does not give a full picture of the organization’s financial health, as it does not account for accruals, depreciation, or non-cash transactions. External stakeholders may require other reports like the Income and Expenditure Account or Balance Sheet for a more detailed understanding of financial performance.

Preparation of Receipts and Payments A/c:

Receipts and Payments Account is a financial statement that records all cash transactions of a not-for-profit organization during a specific period. It provides a summary of the inflows (receipts) and outflows (payments) of cash, offering a clear picture of the organization’s liquidity and cash position.

1. Identify the Receipts

• Sources of Income: Include all receipts that come into the organization. Common examples include donations, membership fees, subscription income, grants, and fundraising proceeds.
• Capital Receipts: These are one-time cash inflows that may come from the sale of fixed assets or donations for specific purposes like building funds or endowments.
• Interest, Dividends, and Bank Deposits: Any income from interest on bank deposits, investments, or dividends should also be included in the receipts section.

2. Identify the Payments

• Operating Payments: Include all expenses made in the course of regular operations, such as salaries, rent, office supplies, utilities, and postage.
• Capital Payments: Include payments for the purchase of fixed assets, like land, buildings, furniture, or equipment.
• Repayments: Payments made for clearing liabilities like loans or outstanding debts.
• Miscellaneous Payments: Other one-time or extraordinary payments should also be included, such as contributions to other organizations, donations, or grants.

3. Prepare the Account

• List the receipts on the left-hand side (debit side) of the account.
• List the payments on the right-hand side (credit side) of the account.
• Ensure that each receipt and payment is recorded with the appropriate date and amount.
• Total both the receipts and payments at the end of the period.

4. Calculate the Closing Balance

• The closing balance is calculated as the difference between the total receipts and total payments, along with the opening balance (if applicable). The formula is: $$\text{Closing Balance }=\text{Opening Balance }+\text{Total Receipts }-\text{Total Payments}$$
• The closing balance should be transferred to the Balance Sheet as the cash/bank balance.

Example

Receipts and Payments Account for the Year Ending 31st December 2024

Notes:

1. Opening Balance: Cash in hand or at the bank at the beginning of the period.
2. Receipts: Income or funds received during the period, including donations, grants, membership fees, etc.
3. Payments: All cash expenditures made during the period, including operating and capital payments.
4. Closing Balance: The difference between receipts and payments, representing the cash position at the end of the period.