Receipts and Payments Account

According to J. R. Batliboi, "A Receipt and Payment Account is summary of actual cash receipts and payments extracted form the cash book covering a particular period."

From the above definition, it can be concluded that receipts and payments account is summary of cash transactions. It is prepared on the basis of cash book. It also records the banking transactions. It starts with opening balance of cash and bank. All the cash or cheque receipts are entered on the debit side where as all incomes through cash or cheques are credited. It ends with closing balance. It records all the cash transactions whether they relate to current, past or coming year and whether they are of capital or revenue nature. However, it fails to record the outstanding amount of incomes and expenditure. It is generally prepared to find out the closing balance of cash. Receipts and Payments is the basis of preparing Income and Expenditure Account.

Features of Receipts and Payments Accounts:

1. It is a summary of cash book where the cash and bank transactions are grouped, classified and analyzed under suitable heading.
2. It begins with opening balance and ends with closing balance of cash and bank.
3. All the cash and cheque receipts are recorded on the debit side where all cash and cheques payments are recorded on the credit side.
4. It does not records non-cash items like depreciation, outstanding expenses and incomes, prepaid expenses etc. Only actual receipts and payments are entered.
5. All the cash receipts and payments relating to current, past and coming years are entered in it.
6. All the cash receipts and payments whether they are capital or revenue nature, are recorded in it.

Limitations of Receipts and Payments Account:

1. It does not show profit and loss of the organization.
2. It does not disclose the positions of assets and liabilities other than cash and bank.
3. It fails to distinguish between capital and revenue payment and receipts.
4. It does not follow "accrual concept" of accounting as a result it does not show the outstanding incomes and expenses, prepaid expenses, depreciation or appreciation of fixed assets etc.

Accounting Procedures of Non-Trading concern

Like trading organization, non-trading concerns also maintain some usual books of account like, journal, ledger cash books, trial balance etc. However, it is difficult to keep full set of books by a small organization. Therefore, most of the non-trading organization, prepare cash book only before the preparations of final accounts. These organizations have to prepare the final accounts more or less similar to that of trading organization by following double entry book keeping systems to answer on the following three points.

1. What is the summary of the cash transactions of particulars period?
2. Is the income of the year sufficient to meet the expenditures?
3. What is the financial position of the organization?
   

The final accounts of non-trading concerns are as follows:

• Receipts and Payments Account.
• Income and Expenditure Account.
• Balance Sheet.

Non-Trading Concern

Non-trading concerns are also called as non-trading institutions or organizations which are established for rendering services to the society or its members. Their aim is not to earn profit but to promote and to provide the recreational facilities in the field of sports, are and culture, education, health etc.

Examples of non-trading concerns are:

• Educational institutions as colleges, schools.
• Clubs as Lion Club.
• Societies as Red Cross Society.
• Charitable hospitals.
• Unions as trade union, labour unions.
• Libraries, hostels.
• Associations etc.

Features of Non-trading organization;

1. The main aim of such organization is not to earn profit but to render services to the society or its members.
2. Non-trading organization may have excess of income over expenditures (surplus) but they are not distributable among the members; the surplus (profit) is used for the strengthening the organizational goal.
3. Most of the transactions are dealt with cash rather than credit.
4. The main sources of income of such organizations may be subscription from members, donation from general public, grants from other government etc.
5. They do not prepare Trading and Profit and Loss Account.

Provision for Discount on Debtors

Discount is allowed to debtors if they make quick and prompt payment. At the end of the accounting year, there may be certain debtors to be allowed discount which is an expected loss. to meet such discount, a provision is created form the profit of current year which is called provision for discount on debtors.

Note: New provisions for discount on debtor is to be calculated on the good debtors because discount is allowed to good debtor but not to bad and doubtful debts.

Provision for Bad and Doubtful Debts

Doubtful debt denotes the amount of debtors which may not be recoverable. It is an expected loss. To meet such loss, some amount set aside as provisions which is called provision for doubtful debts. It is calculated a fixed percentage of sundry debtors. While posting it, provision for bad or doubtful debt is shown on the debit of profit and loss account and also shown as a deduction from debtor on the assets side of the balance sheet.