Preparation of Receipts and Payments Account: 4 Steps

Here we detail about the four steps involved in preparation of receipts and payments account.

Steps in the Preparation of Receipts and Payments Account:

Step 1:

Take opening balance of cash in hand and cash at bank from the Cash Book and enter on the debit side of Receipts and Payments Accounts as its first item. Credit Balance, if any, of bank balance (i.e., Bank Overdraft) shall be shown on the credit side of Receipts and Payments Account as its first item.

Step 2:

Take item wise aggregate of various receipts and enter on the debit side irrespective of their nature (i.e., capital or revenue) and ignoring the period (past, current or future) to which these receipts pertain.

Step 3:

Take item wise aggregate of various payments and enter on the credit side irrespective of their nature (i.e., capital or revenue) and ignoring the period (past, current or future) to which these payments pertain.

Step 4:

Compute the difference between the total of debit side and total of credit side of the Receipts and Payments Account and put the difference on the side which is short.

Let us take an example through which we will explain how Receipts and Payments Account can be prepared from the given cash book.

Example:

Step 1:

Put opening balance of bank and cash on the debit side of the Receipts and Payments Account as its first item.

Step 2:

Now we shall move to take item wise aggregate of various receipts.

Step 3:

Take aggregate of various payments and put them on the payments side of Receipts and Payments Account.

Step 4:

Compute the difference between debit side and credit side of the Receipts and Payments Account and put the same on the side which is short.