Which statement is true for Receipt and Payment Account ?

Question

Accepted Answer

The correct option is 2:
It does not includes depreciation.

The Receipt and Payment Account is fundamentally a summary of all cash and bank transactions recorded in the Cash Book of a non-profit organisation during a specific accounting period. It adheres strictly to the **cash basis** of accounting, which means it records only actual cash inflows (Receipts) and cash outflows (Payments). Depreciation is a non-cash expense; it is merely an accounting adjustment that allocates the historical cost of a fixed asset over its useful life and does not involve any current movement of cash. As the account's purpose is to summarise the flow of physical cash and bank funds, all non-cash items, including depreciation, outstanding expenses, and accrued income, are deliberately excluded.

The incorrect option is 1:
It includes depreciation.
This option is incorrect because the inclusion of depreciation would fundamentally violate the **cash basis** on which the Receipt and Payment Account is prepared. Depreciation, along with other non-cash transactions such as bad debts or amortisation, represents an expense that does not involve an actual disbursement of cash. Its inclusion would distort the true picture of the organisation's cash position. Non-cash expenses like depreciation are correctly accounted for in the **Income and Expenditure Account**, which follows the accrual basis to determine the actual surplus or deficit for the period.

The incorrect option is 3:
It has no opening balance.
This statement is factually incorrect for the Receipt and Payment Account. Since it is a classified summary of the Cash Book, the account must begin with the opening balance of cash in hand and cash at bank at the start of the accounting period, which is shown on the receipts (debit) side. This opening balance is the essential starting point that all subsequent cash inflows and outflows are measured against. An account that records all cash movements *must* track the cash position from one period to the next, which is done via the opening and closing balances.

The incorrect option is 4:
It include income and expenditure items related only to the current period.
This is a defining characteristic of the **Income and Expenditure Account** (the accrual-based account), not the Receipt and Payment Account. The Receipt and Payment Account is not concerned with the period to which the cash relates, but only with whether the cash was physically received or paid during the *current* accounting period. Therefore, it will include cash received for a past year or in advance for a future year, provided the cash transaction itself occurred during the current period.