A receipts and payments account is a summarization of actual cash receipts and payments retrieved from the cash book for a given time period. This account includes all funds received and paid during the time, whether capital or revenue.
Receipts are recorded on the receipts and payments account’s debit side. This is how receipts are recorded in the cash book.
Expenses such as entrance fees and annual or lifetime memberships are all classed. Personnel costs, printing and stationery, office expenses, and rental costs are all credited.
It starts the receipts and payments account. It closes with the cash balance at the end of time. Due to its nature, the receipts and payments account does not cover unpaid revenue or expenses. It also fails to represent actual revenue or expenditures for the period covered.
A receipts and payments account has many features. First, a receipts and payments account is a cash book condensed. It starts with a cash and bank balance (which is sometimes combined) and ends with them.
Receipts are recorded on the left (debit) and payments on the right (credit). The account records both capital and revenue transactions. For the current fiscal year, it also includes all cash and bank receipts and payments, regardless of when they occurred.
A receipts and payments account only tracks cash and bank transactions. No non-cash items allowed. The double entry system excludes receipts and payments. No period surpluses or deficits are shown in these records.
They normally indicate a debit balance, while an overdraft shows a credit. Rarely, a receipts and payments account will show a zero balance. Finally, receipts and payments accounts are always prepared at the end of each accounting month.
- At a glance, a receipts and payments account displays total receipts and total payments under various sections.
- A receipts and payments account can be utilised to validate the cash book.
- The account keeps track of different types of receipts and payments and categorises them.
- It makes data readily available for producing an income and expenditure account.
Preparations of Accounts
The complete year’s receipts and payments are extracted from the cash book. A cash book records each transaction separately and chronologically. Items in a receipts and payments account are organised and titled separately.
Follow these steps to create a receipts and payments account:
Step 1: Write the account’s title in the format given in the specimen.
Step 2: Write the opening cash and bank balances at the top of the left-hand side.
Step 3: Add up all the receipts with different dates filed under the same heading.
Step 4: Add up all payments made on different dates under the same heading. You can alternatively use a separate sheet for this.
Step 5: Write the total of each category of receipts on the left side and the total of each category of payments on the right side.
Step 6: Subtract all payments from all receipts to arrive at the final total.
We hope that this post has helped you understand the significance of a receipts and payments account. Although it is not where we determine a company’s income, it is extremely useful in establishing its financial position.
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