How to prepare a receipts and payments account

Step by step

1. Bring down the opening balance. Start with the opening cash and bank balance.
2. List all receipts. Record every amount received during the year, whatever it relates to.
3. List all payments. Record every amount paid during the year, capital or revenue.
4. Balance the account. The closing balance is the cash and bank held at the year end.
5. Use it as a basis. Adjust this cash summary to prepare the income and expenditure account.

Worked example

Opening RM1,000 + receipts RM9,000 − payments RM7,500 = closing RM2,500 of cash and bank.

Understanding the method

This account is a summary of the club's cash book for the period. It starts with the opening cash and bank balance.

It lists every amount actually received on the debit side and every amount actually paid on the credit side, then ends with the closing balance. It treats capital and revenue items alike, and it ignores accruals, prepayments and depreciation.

A club treasurer often prepares it first. It is simple and it can be checked directly against the bank statement. It works because money in, minus money out, equals the change in the balance.

Every receipt increases the money held, so it is a debit. Every payment reduces it, so it is a credit. The opening balance goes on the debit side when the club holds money.

A bank overdraft at the start would go on the credit side. The closing balance is the balancing figure, and it must agree with the actual cash and bank at the year end.

Sometimes the closing balance is given and one figure is missing. Opening balance RM1,200, known receipts RM5,400, known payments RM4,900 and closing balance RM1,300. The total payments must be 1,200 + 5,400 − 1,300 = RM5,300, so the missing payment is 5,300 − 4,900 = RM400.

Here is a full example for a chess club. It starts the year with RM800 at the bank and RM50 in cash, which is RM850.

It receives subscriptions of RM3,600, tournament fees of RM740 and a donation of RM200. It pays RM1,900 for new sets and boards, RM620 for room hire, RM310 for refreshments and RM150 for stationery.

Receipts total 850 + 3,600 + 740 + 200 = RM5,390. Payments total 1,900 + 620 + 310 + 150 = RM2,980.

The closing balance is 5,390 − 2,980 = RM2,410. The RM1,900 for equipment stays in full, because this account does not depreciate assets.

To check, compare the closing balance with the cash in hand plus the bank statement balance, allowing for items not yet cleared. Re-add both sides and make sure the opening balance is on the correct side.

The usual mistakes come from using habits from the income and expenditure account. Do not add accruals for subscriptions owing, do not charge depreciation, and do not spread a capital payment over years.

Also show every receipt and payment in full. For a fundraising event, show the gross takings and the gross costs, not only the profit.

If you are unsure when to use this account and when to move on to income and expenditure, we can help. One of our teachers can take you through the conversion with a worked past-paper question. Book a trial class

Related skills

• How to prepare an income and expenditure account

The methods here are standard accounting practice, with original figures. For your exam board's exact requirements, see exam boards and Sources.