Theory Questions · Q2
Q.State the meaning of a Receipts and Payments Account and explain any four of its features.
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Meaning: The Receipts and Payments Account is a real account prepared by a not-for-profit organisation that classifies and summarises every receipt and payment of cash and bank made during the accounting year, opening with the balance of cash/bank brought forward from the previous year and closing with the balance of cash/bank carried forward to the next year.
Features:
- A summary of the cash book — it simply reorganises the cash book's entries under suitable headings such as subscriptions, salaries, and rent; it creates no new financial information.
- A real account, following 'debit what comes in, credit what goes out' — receipts on the debit side, payments on the credit side.
- Records every cash/bank transaction of the year, regardless of which period it relates to — a subscription received this year for last year, or in advance for next year, is still recorded this year because the cash moved this year.
- Makes no distinction between capital and revenue items — the purchase of a building and payment of salaries both appear as payments; a specific donation and an ordinary subscription both appear as receipts.
- Excludes all non-cash adjustments (outstanding expenses, accrued income, prepaid expenses, depreciation) and therefore cannot reveal a surplus or deficit for the year on its own.
✓Final answer
The Receipts and Payments Account is a real account summarising all cash/bank receipts and payments of the year (opening balance to closing balance), covering both capital and revenue items without regard to period, and excluding all non-cash adjustments — so it cannot show a surplus or deficit by itself.
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