CHAPTER 12
RECEIPTS AND PAYMENTS, AND INCOME AND EXPENDITURE ACCOUNTS
These accounts should present no difficulties whatsoever to students once the function of each account is clearly understood.
A Receipts and Payments Account is essentially a summary of the Cash Book, encompassing all cash and bank transactions over a specific period. It is the form of account most commonly adopted by the treasurers of societies, clubs, associations, etc., when presenting the result of the year's working. All the receipts of each type (whether cash or cheque) are I entered on the debit side, that is the same side as that on which they in the Cash Book; and all the payments (whether cash or cheque) are entered on the credit side. The opening and closing balances of cash and bank are shown in the usual way, unless (as is generally found) the cash and bank items are combined, When there is no separate balance for cash and bank. The main features of the Receipts and Payments Account may be summarized thus: appear,
1. It is an abbreviated copy of the Cash Book, usually merging cash and bank items, Contras between Cash and Bank thus being eliminated.
2. Thus, items are recorded on the same side as they appear in the Cash Book: receipts on the debit side and payments on the credit side.
3. Just as the Cash Book itself may be part of the double entry book-keeping so may the Receipts and Payments Account. Accounts presented in this torm however, almost invariably suggest an absence of double entry.
4. All receipts and payments, whether of revenue or capital nature are included.
5. The balance of Receipts and Payments Account must be debit, being Cash on hand and at Bank, unless there is a Bank overdraft; but that of Income and Expenditure Account may be debit or credit, being loss or profit, usually transferred, except in the case of a limited company, to the Capital Account.
6. There is no disclosure of gain or losses, as the account does not- indeed cannot-deal with:
(a) Stock Increases or Decreases.
(b) Depreciation or Appreciation of assets.
(c) Provisions and Accruals or Prepayments.
Whilst on the other hand it includes:
(d) Capital Receipts and Payments.
(e) Appropriations of Profits, including Drawings.
No difficulty should arise if the NATURE rather than the name of the account is recognized, particularly as many Receipts and Payments Ac- counts are often misdescribed, e.g. as an Income and Expenditure Ac- count, or even as a Balance Sheet.
ACCOUNTANCY
Illustration 1
A club which was inaugurated on 1st January 19... had the following receipts and payments during the year ended 31st December 19.. £100; Rent and Hire of Room, £40; General Expenses, £21; Postages and Receipts: Subscriptions, £330; Donations, £26. Payments: Investments,
Stationary, £7; and Sundries, £3.
Cash in hand at 31st December-£2.
Cash at Bank at 31st December-£183.
Please present the Receipts and Payments Account for the year ending on the 31st.
December 19...
RECEIPTS AND PAYMENTS ACCOUNT FOR THE YEAR ENDED 31ST DECEMBER 19.
Receipts
Subscriptions Donations
Cash in Hand
Cash at Bank
Payments
£
330
Investments.
26
Rent and Hire of Room
General Expenses.
Postages and Stationery Sundries
100
21
Cash in Hand
Cash at Bank
c/d
183
£356
£356
b/d
b/d
183
From a study of the above account it will be apparent at once that the amount of £185 cannot be the year's profit, as:
(i) The first item on the credit side records the purchase of an ASSET. (ii) No account has been taken of subscriptions in arrear or in advance; nor of expenses accrued, accruing, or paid in advance.
This is obvious, the account being one dealing solely with receipts and payments through the medium of either Cash or Bank. In order to remedy the defective results thereby disclosed, it is necessary to prepare an Income and Expenditure Account usually by the construction of the double entry, in which case it will be supported by a Balance Sheet drawn up at the date of the close of the period in question.
Income and Expenditure Account. This may be described as the equi valent of the Profit and Loss Account drawn up for a non-trading concern; it performs the same functions, and is compiled and constructed on precisely the same principles. It is a normal account recording losses and expenses on the debit, and gains on the credit, normally postulating the existence of a double entry system.
It may be noted that the balance of the Receipts and Payments Account is brought down below the line and shown in the Balance Sheet as an asset if a debit balance, or liability if a credit balance. The balance of the Income and Expenditure Account will be transferred to the debit or credit of the Capital Account (or its equivalent) according to whether a loss or gain has resulted.
The excess of assets over liabilities will, as in the case of clubs, societies. and other organizations not having a formal Capital Account, be rep resented by a Capital Fund Account, or Accumulation Fund to which the net gains or losses are transferred in the usual way, the revised figure of which will be shown in the Balance Sheet on the liabilities side. The adjustments of a general nature and those peculiar to the organization itself, the chief of which will be accruals, prepayments, provisions, depre- ciation, and the adjustment in Expenses of opening and closing stocks (e.g Stationery), will be made in the normal manner.
RECEIPTS, PAYMENTS. INCOME, EXPENDITURE ACCOUNTS
Illustration 2
The following is an abridged Receipts and Payments Account:
Receipts
£
Payments
Balance
b/d
200 Expenses
Subscriptions
520
The outstandings are:
Beginning.
End.
Prepare Income and Expenditure Account.
£
317
Subscriptions
Expenses
£
40
120
37
ཡ་ྔ?
39
SUBSCRIPTIONS
£
Balance, outstandings (begin-
Cash
ning).
b/d
40 Outstandings (end)
c/d
1333
520
37
Income and Expenditure
Account
517
£557
£557
Balance, outstandings
b/d 37
*
EXPENSES
£
Cash
Outstandings (end)
c/d
པཎྞ?
317
39
Balance, outstandings (begin- ning)
h/d
120
Income and Expenditure
Account
236
£356
£356
Balance, outstandings
bd.
39
RECEIPTS, PAYMENTS. INCOME, EXPENDITURE ACCOUNTS 1203 net gains or losses are transferred in the usual way, the revised figure of which will be shown in the Balance Sheet on the liabilities side. The adjustments of a general nature and those peculiar to the organization itself, the chief of which will be accruals, prepayments, provisions, depre- ciation, and the adjustment in Expenses of opening and closing stocks (e.g Stationery), will be made in the normal manner.
Illustration 2
The following is an abridged Receipts and Payments Account:
Receipts
£
Payments
Balance
b/d
200 Expenses
Subscriptions
520
The outstandings are:
Beginning.
End.
Prepare Income and Expenditure Account.
£
317
Subscriptions
Expenses
£
40
120
37
ཡ་ྔ?
39
SUBSCRIPTIONS
£
Balance, outstandings (begin-
Cash
ning).
b/d
40 Outstandings (end)
c/d
1333
520
37
Income and Expenditure
Account
517
£557
£557
Balance, outstandings
b/d 37
*
EXPENSES
£
Cash
Outstandings (end)
c/d
པཎྞ?
317
39
Balance, outstandings (begin- ning)
h/d
120
Income and Expenditure
Account
236
£356
£356
Balance, outstandings
bd.
39
ACCOUNTANCY
INCOME AND EXPENDITURE ACCOUNT
£
236 Subscriptions
281
Surplus transferred to Capital
Fund
£517
L
517
£517
In examination work, in order to avoid opening the Ledger Accounts,
the Income and Expenditure Account may be prepared thus:
Expenses Paid.
INCOME AND EXPENDITURE ACCOUNT
Subscriptions Received
£
£
£
520
317
Add Outstandings at end
37
Add Outstandings at end
39
557
356
Less Outstandings at be-
Less Outstandings at be-
120
ginning
40
ginning
Surplus transferred to
Capital Fund
236
517
281
£517
£517
The items may be presented in a manner more abbreviated (which is recommended in simple adjustments), thus:
Expenses (317+39-120)
£ 236
Subscriptions (520+37-40)
£
517
It must be remembered that the beginning outstandings are part of the OPENING; balances; those at the end part of the END balances (and therefore in the Balance Sheet prepared in conjunction with the Income and Expenditure Account for the period under review): hence, in the above case £37 is an asset: £39 a liability.
Many examination problems involve the compilation of an Income and Expenditure Account and a Balance Sheet from a summarized Receipts and Payments Account. Students, when confronted by this type of prob lem, should always build up the opening Balance Sheet or Statement of Affairs, particulars of the assets and liabilities of which are usually given. The opening cash balance will be found from the Receipts and Payments Account, whilst the creditors may appear in total under the heading of creditors, or the expense creditors may appear separately, being found on the credit of the respective expense accounts which represent the servic supplied. Particulars of the adjustments necessary will be given at the foot of the Receipts and Payments Account, and these (mutatis mutandis) ar made in the same way as the usual Trading and Profit and Loss Account and Balance Sheet adjustments.
RECEIPTS. PAYMENTS, INCOME. EXPENDITURE ACCOUNTS
Illustration 3
The following is the Receipts and Payments Account of the L. M. Club in respect of the year to 31st December 19.2:
RECEIPTS AND PAYMENTS FOR THE YEAR ENDED 31ST DECEMBER 19.2
Balance
Subscriptions-
19.1.
19.2.
19.3.
£
£
b/d
205
ES
Salaries Stationery Rates
416
80
120
422
Telephone
20
16
Investment in £250 4%
446
Stock (6th Dec.) at par
250
310
Sundry Expenses
185
200
Balance
90
£1.161
£1,161
hid
90
Sports Meeting Profit
Dividends on Investments
Balance
In addition to information contained in the above account the following additional facts are ascertained:
1. There are 451 members each paying an annual subscription of £1, £9 being in arrears for 20.1 at the beginning of 20.2.
2. Stock of Stationery at 31st December 19.1, was £10; at 31st December 19.2. £18.
3. At 31st December 19.2, the rates were prepaid to the following 31st March, the yearly charge being £120. A quarter's charge for telephone is outstanding, the amount accrued being £10 Expenses accruing at 31st December 19. 1, £14.
4. At 31st December 19. 1, the Buildings stood in the books at £2,000 and it is required to write off depreciation at 5 per cent per annum. Investments at 31st December 19.1, were £4,000.
It is required to prepare an Income and Expenditure Account in respect of the year ended 31st December 19.2, and a Balance Sheet as at that date.
Y. G. CLUB
INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR ENDED 31ST DECEMBER 19.2
£
Salaries Stationers
416
Subscriptions
450
Profits on Sports Meetings
310
Rates
Dividends received
ΣΙΚΙ
Telephone
Sundry Expenses [£185 - £14]
171
Depreciation of Buildings
100
Surplus for year transferred
to Capital Fund
ང།
1960
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