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.