What is a receipts and payments account?
A receipts and payments account is a bank account that records all incoming and outgoing cash payments. It is used by businesses to manage their finances, making it easier to identify who has paid what to whom and when.
Receipts and payments accounts are commonly used by non profit organizations. because they do not want to store large amounts of cash on hand. The accounts allow companies to transfer money between banks and pay employees, suppliers and other vendors directly from their bank accounts.
The summary of receipts and payments is prepared only for one accounting period and these are prepared at the end of the accounting period. However, an important thing to note is that when dealing with these accounts the receipts and payments are seen as the same thing irrespective of whether their source is from revenue or capital infusion. Hence essentially all transactions that include the bank or direct cash form a part of the receipt and payment account. However, non cash transactions like depreciation are not included.
How is it different from an income and expenditure account?
An income and expenditure account is similar to the profit and loss accounts of for-profit organizations. These are generally prepared on the basis of either the receipts and payments account or the the trial balance sheets with full sets. These are generally nominal account which is essentially a general ledger account that is closed when the accounting year ends. Irrespective of whether the income and expenses are paid or not they are recorded for this account if they are related to the current accounting period. This account plays an important role in the calculation of either surplus or deficit. When working with the income and expenditure account, if the income is from revenue then it is credited and if the expense is for the revenue then it is debited.
Key differences between income and expenditure account and the receipt and payment accounts are as follows:
- Type of account
Receipt and payment account is a real account whereas the income and expenditure account is the nominal account. Hence for both types of accounts the golden rule in accounting applies.
- Objective
Receipt and payment accounts are prepared for finding out how much cash is present in the bank and what percent of cash is liquid. The difference between these two figures shows the balance at the end of the accounting period. However, the income and expenditure account is generally prepared to find out whether the net financial position of the organization in the ongoing year is surplus or deficit. This helps in deciding whether the activites that were taken in the organization were good for the financial health or not. If the final net balance is in surplus then the activities are validated.
- Format
In the receipts and payment account, the receipts are recorded on the debit side whereas the payments are entered on the credit side. In the income and expenditure account, the expenses and the losses are recorded on the debit side whereas the income and all the gains are part of the credit side.
