Accounting – 5.4 Clubs and societies | e-Consult

A Receipts and Payments account is used to record all cash inflows (receipts) and cash outflows (payments) during a specific period. It's primarily used for organisations where cash is the only basis of accounting, such as small businesses or charities. It focuses on the movement of cash in and out.

• Receipts: Cash received from customers, donations, grants, etc. Example: £50 cash received from a customer for goods sold.
• Payments: Cash paid out for expenses, salaries, purchases, etc. Example: £200 cash paid to a supplier for materials.

The main purpose is to track cash flow. The account shows the difference between total receipts and total payments, which indicates whether the organisation had a cash surplus or deficit during the period.

An Income and Expenditure account, on the other hand, is used to record all income and expenses during a specific period, regardless of whether the transactions involve cash. It's commonly used by larger organisations, including charities, to provide a more comprehensive financial picture. It follows accrual accounting principles.

• Income: Revenue earned from sales, fees, interest, etc. Example: £1000 revenue earned from sales of services.
• Expenses: Costs incurred in running the organisation, such as salaries, rent, utilities, etc. Example: £300 rent expense.

The Income and Expenditure account calculates the profit or loss by subtracting total expenses from total income. It provides a more accurate reflection of the organisation's financial performance than a Receipts and Payments account, as it considers all financial transactions, not just those involving cash.

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