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,

ACCOUNTING - RECEIPTS AND PAYMENTS, AND INCOME AND EXPENDITURE ACCOUNTS

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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.

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.

Rent and Hire of Room

General Expenses.

Postages and Stationery Sundries

100

Cash in Hand

Cash at Bank

c/d

183

£356

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

120

ཡ་ྔ?

SUBSCRIPTIONS

Balance, outstandings (begin-

Cash

ning).

b/d

40 Outstandings (end)

c/d

1333

520

Income and Expenditure

Account

517

£557

Balance, outstandings

b/d 37

EXPENSES

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Cash

Outstandings (end)

c/d

པཎྞ?

317

Balance, outstandings (begin- ning)

h/d

120

Income and Expenditure

Account

236

£356

Balance, outstandings

bd.

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

120

ཡ་ྔ?

SUBSCRIPTIONS

Balance, outstandings (begin-

Cash

ning).

b/d

40 Outstandings (end)

c/d

1333

520

Income and Expenditure

Account

517

£557

Balance, outstandings

b/d 37

EXPENSES

Cash

Outstandings (end)

c/d

པཎྞ?

317

Balance, outstandings (begin- ning)

h/d

120

Income and Expenditure

Account

236

£356

Balance, outstandings

bd.

ACCOUNTANCY

INCOME AND EXPENDITURE ACCOUNT

236 Subscriptions

281

Surplus transferred to Capital

Fund

£517

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

557

356

Less Outstandings at be-

120

ginning

Surplus transferred to

Capital Fund

236

517

281

£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

Salaries Stationery Rates

416

120

422

Telephone

Investment in £250 4%

446

Stock (6th Dec.) at par

250

310

Sundry Expenses

185

200

Balance

£1.161

£1,161

hid

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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ACCOUNTING - RECEIPTS AND PAYMENTS, AND INCOME AND EXPENDITURE ACCOUNTS

CHAPTER 12
RECEIPTS AND PAYMENTS, AND INCOME AND EXPENDITURE ACCOUNTS

ACCOUNTANCY

RECEIPTS, PAYMENTS. INCOME, EXPENDITURE ACCOUNTS

ACCOUNTANCY

INCOME AND EXPENDITURE ACCOUNT

RECEIPTS. PAYMENTS, INCOME. EXPENDITURE ACCOUNTS

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ACCOUNTING - RECEIPTS AND PAYMENTS, AND INCOME AND EXPENDITURE ACCOUNTS

CHAPTER 12RECEIPTS AND PAYMENTS, AND INCOME AND EXPENDITURE ACCOUNTS

ACCOUNTANCY

RECEIPTS, PAYMENTS. INCOME, EXPENDITURE ACCOUNTS

ACCOUNTANCY

INCOME AND EXPENDITURE ACCOUNT

RECEIPTS. PAYMENTS, INCOME. EXPENDITURE ACCOUNTS

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CHAPTER 12
RECEIPTS AND PAYMENTS, AND INCOME AND EXPENDITURE ACCOUNTS