Receipts & Payments Account preparation

A receipts and payments account is a summary of a club's cash book for the period. It shows the opening cash/bank balance, all receipts (cash in) and payments (cash out) during the year, and the closing cash/bank balance. It is prepared on a cash basis and records all actual cash movements, both capital and revenue.

Closing balance = 4,500 + 61,000 − 58,200 = $7,300. As receipts ($65,500 incl. opening) exceed payments, it is a debit balance — carried down on the credit side as the balancing figure and brought down as a debit (a positive cash/bank balance).

(a) New sound system → Yes (a capital cash payment). (b) Depreciation → No (a non-cash item). (c) Subscriptions received in advance → Yes (cash actually received). (d) Insurance prepayment → No (it is an adjustment, not a cash movement — though the cash insurance paid would appear).

Receipts (Dr): opening balance 1,800 + subscriptions 42,000 + café takings 7,500 = 51,300. Payments (Cr): rent 9,000 + wages 15,000 + equipment 11,000 + loan repaid 5,000 = 40,000. Closing bank balance = 51,300 − 40,000 = $11,300 (carried down).

1. Basis. A receipts and payments account is prepared on the cash basis; an income and expenditure account on the accruals basis (matching income and expenses to the year). 2. Items included. A receipts and payments account includes both capital and revenue cash (e.g. buying equipment, loans); an income and expenditure account includes only revenue items for the year. 3. Non-cash items and result. A receipts and payments account excludes non-cash items such as depreciation and shows a closing cash balance; an income and expenditure account includes depreciation/accruals and shows a surplus or deficit.

1. It is simple to prepare, as it merely summarises the cash book and needs little accounting knowledge — suitable for a volunteer treasurer. 2. It shows members clearly how cash was received and spent during the year and confirms the closing cash/bank balance, which can be checked against the bank statement.

A receipts and payments account is prepared on the cash basis, so it does not match income and expenses to the year — it ignores accruals and prepayments. It also excludes non-cash items such as depreciation and any profit/loss on disposal, which affect performance but not cash. Because it mixes capital and revenue cash, a large closing balance might simply reflect a loan received or an asset sold, not good performance. As it shows only a cash balance and no surplus or deficit, members cannot judge whether the club is financially better or worse off.

To assess performance and position, the club also needs an income and expenditure account (accruals, giving the surplus/deficit) and a statement of financial position (showing assets, liabilities and the accumulated fund). The receipts and payments account is best seen as the raw cash data from which these are built, not a complete picture.

Cash and surplus/deficit are different measures. The cash could have risen because of capital receipts that are not income — for example a loan received, a member's life-membership payment, or selling an old asset. Meanwhile the income and expenditure account includes non-cash expenses such as depreciation, and applies the accruals basis (including amounts owed but unpaid), which can produce a deficit even though cash increased. So a rising cash balance is entirely consistent with a deficit — the two answer different questions.

Insurance expense = insurance paid + opening prepayment − closing prepayment = 4,000 + 300 − 500 = $3,800. (The opening prepayment was used up this year so it is added; the closing prepayment relates to next year so it is deducted.)

Capital items: (a) purchase of furniture (a non-current asset) and (c) proceeds from selling an old vehicle (disposal of a non-current asset). (b) Electricity paid is a revenue expense, not capital.