Accounting is an integral part of any business and that is the reason why companies operating for profit makes various financial statements and if you are thinking that not for profit organizations does not have to make any statement or account then you are wrong as these organizations also maintain accounts. Receipt and payment account is prepared by not for profit organizations at the end of the accounting year and basically, it is a summary of cash transactions done by the not for profit organizations. In order to understand this concept better let’s look at some of the important features of receipt and payment account –
Characteristics of Receipt and Payment Account
Similar to Cash Book
The first and foremost feature of receipt and payment account is that it is similar to cash book because all cash and bank transactions are recorded in this account statement, while all cash and bank receipts are recorded on the debit side and all cash and bank payments are recorded on the credit side. The only difference between the two is that in this account there are no separate columns for the bank as well as discount received and discount paid.
Time Period is not considered
In this, all the cash receipt, as well as payment transactions, are recorded irrespective of the time period in which they happened. Hence for example if the company has not paid rent for past 2 years and is paying rent for those 2 years than it will be recorded in the payment side of receipts and payment account even though rent payment is of past 2 years.
Includes all Items of Capital and Revenue Nature
It includes all receipts as well as payments made by the organization whether they are of capital nature or revenue nature which in turn can distort the cash figure of a particular financial year to a great extent. Hence for example suppose organization has purchased machinery worth $100000 which can be used for 5 to 10 years than it will lead to drastic decrease in cash figure of the organization even though this expense is of capital nature or for that matter if organization has sold land worth $200000 then it will lead to drastic increase in cash figure of the organization even though this revenue is of capital nature.
Closing Balance of Cash
After preparation of receipt and payment account the closing balance of cash is an important figure because if there is debit balance than it implies that the company has cash balance at the end of the year or in simple terms receipt of the organization are more than payment of the organization and if there is credit balance than it implies that an organization has negative cash balance or bank overdraft.
Non Cash Items are Excluded
In this account, all non-cash items are excluded and hence items like depreciation, outstanding expenses, accrued incomes and so on will not be there in the receipts and payments account.
Receipt and Payment side Items
In the receipt side of the receipts and payments account items such as donations, sale of fixed assets, sale of investments, life membership fees, sale of a newspaper, proceeds from charity shows, interest from fixed deposits and so on will appear. In the payment side of the receipts and payments account items such as the purchase of fixed assets, purchase of an investment, wages paid to workers, advertisement expenses, taxes paid to the government, audit fees, electricity expense, telephone charges and so on will appear.
As one can see from the above features that receipt and payment account is unique and different from other financial statements prepared by companies in their normal course of business and that is the reason why one should be aware of the unique features of receipts and payment account.