Receipts and Payments Account

The Receipts and Payments Account is the starting point of an NPO's accounting record for the year — in practice, it is simply a classified summary of the cash book (cash and bank columns combined) prepared at the end of the year.

Meaning

It is a real account that begins with the opening balance of cash and bank and ends with the closing balance of cash and bank, recording every cash and bank receipt and every cash and bank payment that actually occurred during the year.

Features

• A summary of the cash book. It simply reclassifies every entry from the cash and bank columns of the cash book under suitable headings (subscriptions, salaries, rent, and so on) — no new information is created.
• A real account. It follows the rule 'debit what comes in, credit what goes out' — receipts are recorded on the debit (left) side and payments on the credit (right) side.
• Records ALL cash transactions of the year, without regard to which accounting period they relate to. A subscription received this year for last year, or for next year, is still recorded this year, because the cash was actually received this year.
• Does not distinguish between capital and revenue items. The purchase of a building (capital expenditure) and the payment of salaries (revenue expenditure) both appear on the payments side; a donation for a specific capital purpose and an ordinary annual subscription both appear on the receipts side.
• Opens with the opening balance of cash/bank (debit side, first line) and always ends with the closing balance of cash/bank (the balancing figure, credit side) — the closing balance simply carries forward as next year's opening balance. …