Q.Receipts and Payments Account is prepared on a ______ basis.
The correct option is (b) Cash basis.
The Receipts and Payments Account is, by definition, a summarised Cash Book — it records a transaction only when actual cash or bank movement takes place, regardless of which accounting period the amount relates to. This is exactly what 'cash basis' means: income and expense are recognised only on actual receipt/payment of cash, not when they are earned or incurred.
Option (a), Accrual basis, is wrong because the Receipts and Payments Account makes no adjustment at all for outstanding, prepaid, or advance amounts — that adjustment is precisely what the Income and Expenditure Account does, on the accrual basis, not the Receipts and Payments Account. Options (c) and (d), a 'hybrid' or 'mixed' basis, do not describe any recognised basis used for this account — the Receipts and Payments Account is purely, and only, cash-based.
(b) Cash basis — the Receipts and Payments Account records transactions only on actual receipt or payment of cash, with no accrual adjustment at all.
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