Difference Between Receipt and Payment Account and Income and Expenditure Account

Edited by Diffzy | Updated on: May 31, 2023

       

Difference Between Receipt and Payment Account and Income and Expenditure Account

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Introduction

We often come across terms like income and expense account and receipt and payment account. We don't give much attention to understanding and identifying these terms and their distinctions, but from an accounting and economics point of view, it is a very important term.

These terms lie in specific functions. These two financial terms are frequently used to report and monitor the financial transactions of an organization.

The receipt and payment account is mostly used for recording and tracking the inflow of cash and outflows of an NPO. In contrast, the Income and Expenditure Account is prepared to show the surplus or deficit of an NPO. These are basic differences, but we still get confused by these terms. This article will help you understand the difference between these terms.

Receipt and payment accounts vs. Income and expense accounts

There are differences between the revenue and receipt account and the income and expenditure account, but the most evident and important difference between the receipt and payment account and the income and expenditure account can be seen is that the former is a cash flow statement and the latter is a statement of income. We should consider that the receipt and payment account shows the outflow and inflow of cash that take place, but on the other hand, the income and expense account shows the revenues and expenses that the organization has made during a particular period.

Both the Receipt and Payment Account and the Income and Expenditure Account are accounts that are used to supervise the financial activities of a non-profit organization. While an income and expense account is a type of statement that depicts the revenues and expenses of an entity in a particular period, regardless of whether the cash is received or not.

Difference between receipt and payment accounts and income and expense accounts in tabular form.

Parameters of comparisonReceipt and payment accountIncome and expenditure account
NatureReceipt and payment accounts, by their nature, are real accounts. It is the simplified summary of the Cash Book, which represents the receipts and payments of cash in different headsIncome and Expenditure A/C is called the nominal account. It is a type of profit and loss account for a non-profit organization.  
Prepared based onA receipt and payment account is prepared on a cash-book basis, which is different from the accrual basis of the account.An income and expenditure account is Prepared basis of receipt and payment account.
Objective of preparationThe objective of receipt and payment accounts is to know the cash balance available in hand and the cash balance available at the bank, and the difference between the two sides shows the difference.The objective of the income and expense account is to know the firm's position for the present year by calculating the surplus or deficit from the net results.
  Purpose of the preparation of these accountsThe purpose of preparing these accounts is to know the bank and cash balancesThe purpose of the preparation of this account is to know about the surplus of income over expenditure and the surplus of expenditure over income.  
form of the accountsReceipt and Payment A firm's account includes all the payments on the credit side and receipts on the debit side.  The income and expenditure account includes all income and gains on the credit side and expenses and losses on the debit side.  
Capital and Revenue Items  The receipt and payment account includes items of revenue and capital nature during the year. It differentiates it from the income and expenditure account.The income and expense account includes transactions of a revenue nature that are related to that particular accounting period

What are receipt and payment accounts?

It is an important term used in economics and finance. The Receipt and Payment Account is a simplified gist of the Cash Book and shows the receipt and payment under the appropriate accounts. Receipt and payment accounts, by nature, are real accounts. It is a cash receipts and cash payments summary.

It records all the events and transactions that are related to cash. It may be of either a capital or revenue nature. Receipt and payment accounts are made for a specific period. Also, it is not based on the accrual accounting system. Receipt and payment accounts are prepared on a specific accounting system, which is the cash accounting system. In this case, all receipts that occurred are written on the debit side of the account, and all payments made by the organization are written on the credit side of that account.

The opening balance of receipt and payment presents cash at the bank and cash in hand at the beginning of the accounting period, and the closing balance of this account represents cash at the bank and cash in hand at the accounting period's end. The closing balances of such type of accounts reflects cash in hand and cash at the bank at the closure of the accounting period.

A receipt and payment account starts with the opening balance of cash at the bank and cash in hand. But it does not include items that are not cash, such as bad debt, depreciation, income written off, etc.

A receipt and payment account closes with a closing balance of cash at the bank and cash in the bank. Here, it doesn't consider unpaid expenditures or accrued income. No net loss is represented by this account. Therefore, no adjustments are made.

There are important points that we need to remember while discussing receipts and payment accounts.

When we talk about receipts and payments, it is important to know that the account does not consider any difference between:

Revenue receipt and capital receipt,

Revenue expenditure and capital expenditure, non-recurring items of receipts and payments, and recurring items of receipts and payments The items that are considered in the receipt and payment accounts are of the current period and subsequent periods of the preceding period.

It also does not consider the outstanding account and dues.

What is an income and expenditure account?

An income and expense account is an account that is equivalent to the profit and loss account of a business making a profit. The income and expenditure account is derived from the trial balance, in which the complete sets of accounts are prepared, or from the receipts and payments account and various other information. The Income and Expenditure account is a type of nominal account and records all expenses and income that are revenue by nature in the account on an accrual system. It also records all expenses and income, whether paid or not, related to the ongoing accounting period. An Income and Expenditure account is maintained for the appropriate period at the end. All of those incomes that are related to revenue and are revenue by nature are credited to this account. All of the expenses that are revenue-generating by nature are debited.

Income and Expenditure accounts show a surplus (if the credit side total is more than the debit side total) or deficit (if the debit side total is more than the total of the credit side). The deficit or surplus of the Income and Expenditure account is deducted or added, respectively, from the Capital Fund in the Balance Sheet.

Features of the income and expenditure account

In this account, losses and expenses appear on the debit side of the account, whereas income and gains are mentioned on the credit side.

It considers only those items that are revenue-generating.

This only records the ongoing period items. If expenditure involves a sum of expenditure that belongs to the subsequent year,

It records both non-cash and cash items.

The closing balance shows a surplus, i.e., income is more than expenditure, when the debit side is less than the credit side, or a deficit, i.e., expenditure is more than income. We mix the surplus with the capital fund. This capital fund is deducted from the deficit in the balance sheet.

Some important points to remember in the income and expenditure account

It encompasses all adjustments related to the prepaid or outstanding items. This account is maintained based on the same rules that are applied to the profit and loss account. It considers the income and expenses related to the current period. They may be received or not, or they may be paid or not.

It doesn't cover those items that are related to the subsequent and preceding years.

It also does not include those items that are of a capital nature. At the time of preparation of the expenditure and income account, the income of repetitive nature is addressed, but the income of all other types is not addressed.

Difference between receipt and payment accounts and income and expense accounts In Points

  • The expenditure and income account takes into consideration items that are associated with the current accounting year. But, on the other hand, it does not go the same way with receipts and payment accounts. The reason is that it takes into account all those items that are related to the current year and next year.
  • Receipts and Payment Account starts with the bank balance and opening cash and closes with the closing bank and cash balance. On the other hand, the Income and Expenditure Account has no this type of starting balance. However, it ends with a deficit of surplus items
  • The system of receipts and payment accounts is such that they are prepared on a cash basis. Whereas it is prepared on an accrual basis.
  • In receipt and payment, account adjustments are based on the cash system with no adjustment. The income and expense account is completely based on the accrual system but with adjustments.
  • The Receipt and Payment Account does not consider non-cash items, for example, depreciation, but the Income and Expenditure Account considers non-cash items, such as depreciation.
  • When we talk about a receipt and payment account, record receipts and payments that were incurred during the year concerned with the preceding and succeeding years. But the income and expense account includes transactions that are from the current year only.
  • In a receipt and payment account, the opening balance reflects cash at the bank, cash in hand, and balance at the end, whereas the income and expense account has no opening balance, but when it represents the closing balance, it represents it in either deficit or surplus.
  • In the aspect of capital and revenue items, the receipt and payment accounts maintain both revenue and capital nature items throughout the year. But the Income and Expenditure account records transactions that are of a revenue nature.
  • Receipt and Payment Account: An account is prepared to comprehend the balance of the bank and cash in hand, and this distinction between these two indicates the cash or bank balance at last. On the other hand, the income and expense account is made to know the firm's financial position for the ongoing year by the deficit and surplus net results of the undertaken activities.
  • In terms of the accounting period, the receipt and payment account is a form of real account. But the income and expense account is a type of nominal account.
  • The basis for the preparation of the receipt and payment accounts is that they are prepared based on cash, and the income and expenditure accounts are prepared based on accrual principal.

Conclusion

To conclude the difference between the revenue and receipt account and the income and expenditure account, we can say that we have covered a lot of important points of difference. It includes various points, such as In the receipt and payment accounts, any adjustment is based on a system of cash and consists of no adjustment. But the income and expense account is based on an accrual system, but the twist is that it is with adjustments. The Receipt and Payment account does not involve non-cash items in consideration, for instance, depreciation, but the Income and Expenditure account includes non-cash items in consideration.

Other distinctions are receipt and payment accounts, which take into consideration the receipts and payments incurred during the year concerned with the preceding and succeeding years. But the income and expense account includes those that are current-year transactions only.

We hope that these points are enough to understand the difference between the revenue and receipt account and the income and expenditure account. We have covered every aspect that can help you understand the difference.


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"Difference Between Receipt and Payment Account and Income and Expenditure Account." Diffzy.com, 2024. Mon. 13 May. 2024. <https://www.diffzy.com/article/difference-between-receipt-and-payment-account-and-income-and-expenditure-account>.



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