Sunday 5 June 2011

PREPARATION OF RECEIPTS AND PAYMENTS ACCOUNT AND INCOME AND EXPENDITURE ACCOUNT



LESSON – 3

PREPARATION OF RECEIPTS AND PAYMENTS ACCOUNT
AND INCOME AND EXPENDITURE ACCOUNT

 Objective

To meet socially desirable goal or to kinder services to its members.
·        Service is primary profit sis secondary.
·        Applicable to institution like clubs, hospitals trade unions ,sports clubs , libraries ,   
·        educational institution
·        It is the persuit of some interest.
·        Democratic management

 Structure
  3.1 Introduction
3.2 Special features.
3.3 Income & Expenditure Account
3.4 Distinction between Receipt and payments Account and Income and Expenditure Account
3.5 Forms of the Problems.
3.6 Special items of receipts
3.7 Some Income and Expenditure with taken to income and Expenditure of account.
3.8 When Receipts and payments account is required.
3.9  Procedure for finding out payment from expenses
3.10 When Balance sheets are required.
Unit Questions
3.1 INTRODUCTION
            People join together in voluntary organizations like sports clubs, trade unions, consumer co-operatives, political associations, automobile associations, medical associations, educational institutions, hospitals, and so on for various reasons: for mutual entertainment, for protection, for professional reasons, or for the promotion of art and culture. The aim of such organizations is the pursuit of some interest other than financial gain. Nevertheless, these organizations must have money to promote their activities and money must be honestly accounted for. The officer elected for the purpose, the treasurer, collects subscriptions from the members and spends money on such activities as are needed for achieving the aim of the organisation. At the Annual General Meeting, the treasurer submits suitable final accounts to the members.        It is prepared at the end of the year from the cash book. The receipts and payments account is merely a summary of cash transactions under important beadings. Receipts and payments account gives a summary picture of the various receipts and payments, the details of which can be seen in the cash book.

3.2 SPECIAL FEATURES


(i)                It is a real account
(ii)             Receipt are recorded on the debit side because in case of a real account receipts are debited.
(iii)           Payments are recorded on the credit side because in case of a real account payments are credited.
(iv)           It starts with the balance in the beginning, and ends with the balance at the end which means balance of cash in hand in the beginning and at the end, respectively.
(v)              It records amounts received during the year and amounts paid during the year whether they belong to past, current or subsequent year.
(vi)           It records all receipts and all payments without they are of capital or revenue nature.

Example 1: The Manager of Madras Sports Club requests you to prepare Receipts and Payments Account for the year ending 31st March, 2000 from the following information:

    Rs.
Entrance fees
500
Subscription collected
2,000
Salary paid
1,000
Donation for club pavilion
20,000
Construction for Club pavilion
15,000
Rent paid
800
Periodicals and newspapers
1,000
Miscellaneous expenses
400
Tournament expenses
2,000
Furniture purchases
1,000
Salaries and rent outstanding
300
Cash in hand (opening)
1,000
Solution:
Madras Sports Club

RECEIPT AND PAYMENTS ACCOUNT

Dr.                                           for the year ending March 31, 2000                                  Cr.
Receipts
Rs.
Payments
Rs.
To Balance b/d
1,000
By Salary
1,000
To Entrance fees
 500
By construction for Club pavilion
15,000
To Subscriptions
2,000
By Rent
880
To Donation for Club pavilion
20,000
By Periodicals & newspapers
1,000


By Miscellaneous expenses
400


By Furniture purchased
1,000


By Tournament expenses
2,000


To Balance b/d

By Balance c/d
2,220
23,500
23,500
2,200

Note: Students should observe that:
(i)                Purchase of furniture, though it is a transaction of capital nature, is credited to Receipts and payments account.
(ii)             Salary and rent outstanding at the end of the year is not taken to Receipts and payments account as they have not actually been paid.

3.3 INCOME AND EXPENDITURE ACCOUNT
Income and expenditure account is the summary of incomes and expenditures of the complete year. It is like a profit and loss account. It is prepared at the end of the year and includes only revenue items (not capital items) Its balance at the end represents surplus of the income over the expenditure or vice versa. The following points about income and expenditure account are worth noting:
a)     Income and expenditure account is a nominal account.
b)     Expenditure is recorded on the debit side as in the case of a nominal account losses and expenses are debited.
c)     Income is recorded on the credit side because in the case of a nominal account gains and incomes are credited.
d)     It shows income and expenditure of current year only on accrual basis.
e)     It shows items of revenue nature only. Items of capital nature are not shown in this account.
Example 2: The following is the summary of cash transactions for the year 1997:  
Dr.


Cr.
Receipts
Rs.
Payments
Rs.
To Balance b/d
6,000
By Salaries
6,200
To Entrance fees

By Additions to Library
13,500
To Subscriptions:
            1996    3,000
            1997  13,000
            1998    1,000

17,000
By Payments to creditors
By Repairs
By Electric fittings
By Printing & Stationery
By Misc. expenses
1,300
500
9,000
1,900
300
To Sale of furniture
1,200
By Balance c/d
6,900
To Sale of old papers
120


To Rent of Library hall
2,080


To Proceeds from Entertainment (net)
6,000


To Special Subscription for Governor’s party
2,000



39,600

39,600
From the above Receipts and Payments Account prepare Income and Expenditure account.
Solution:
INCOME AND EXPENDITURE ACCOUNT
Dr.
for the year ending … 1997
Cr.
Expenditure
Rs.
Income
Rs.
To Salaries
6,200
By Entrance fees
5,200
To Repairs
500
By Subscription
13,000
To Printing
1,900
By Sale of old papers
120
To Miscellaneous expenses
300
By Rent of Library hall
2,080
To Excess of Income over Expenditure

17,500
By Proceeds from entertainment (net)

6,000

26,400

26,400
Note:
Only revenue receipts and revenue expenses are taken into account while preparing income and expenditure account.
Capital receipts and capital expenditure are not recorded in this account.
The income and expenditure account includes the incomes or expenses pertaining to current year only.
Opening and closing balances of cash will not be recorded in income and expenditure account.
Example 3:
Prepare an Income and Expenditure Account relating to 1997 from the figures given below:
Receipts
Rs.
Payments
Rs.
To Opening Balance
1,800
By Salaries
4,800
To Subscriptions
9,000
By Rent
500
To Sale of Investments
2,000
By Stationery
200
To Sale of old furniture
300
By Defence Bonds
3,000
            (Book value Rs.400)

By Furniture purchased
2,000
To Donations
100
By Bicycle purchased
By Balance c/d
300
2,400

13,200

13,200


Solution:
INCOME AND EXPENDITURE ACCOUNT
Dr.                               for the year ended 31st Dec., 1997
Cr.
Expenditure
Rs.
Income
Rs.
To Salaries
4,800
By Subscriptions
9,000
To Rent
500
By Donations
100
To Stationery
200


To Loss on Sale of Furniture
100


To Excess of Income over Expenditure

3,500



9,100

9,100
Example 4: From the following Receipts and Payments Account of a Cricket Club and the additional information, prepare an Income and Expenditure Account for the year ended on 31st December 1996:
RECEIPTS AND PAYMENTS ACCOUNT
                                    for the year ending 31st December 1996


Rs.

Rs.
To Balance:
            Cash
            Bank

3,500
27,380
By Crockery Purchased
By Maintenance
By Match Expenses
2,650
6,820
13,240
To Fixed Deposit at 6%
30,000
By Salaries
11,000
To membership Subscription (including Rs.6,000 for 1997)
40,000
By Conveyance
By Upkeep of Lawn
820
4,240
To Entrance Fees
2,750
By Postage Stamps
1,050
To Donation
5,010
By Purchase of Cricket Goods
9,720
To Interest on Fixed Deposit
900
By Sundry Expenses
2,000
To Tournament Fund
20,000
By Investments
5,700
To Sale of Crockery
     (Book Value Rs.1,200)

2,000
By Tournament Expenses
By Balance:
            Cash
            Bank
            Fixed Deposits
18,800

2,200
23,320
30,000

1,31,560

1,31,560

Information:                          
a)     Monthly salary is Rs.1,000.
b)     The value of unused postage stamps is as follows: 31st December 1995 Rs.750; 31st December 1996 Rs.900
c)     Stock of Cricket equipment is as follows: 31st December 1995 Rs. 3,210; 31st December 1996, Rs.2,800
d)     Arrear of membership subscription: 1995 Rs.6,600; 1996 Rs.8,000
e)     Donation and Entrance Fees are not to be capitalised.



Solution.
INCOME AND EXPENDITURE ACCOUNT
Dr.                               for the year ended 31st Dec., 1996
Cr.
Expenditure
Rs.
Income
Rs.
To Maintenance
6,820
By Subscription     40,000

To Match Expenses
13,240
Less: Received for

To Salaries                            11,000

            last year         6,600

Add: Outstanding                   1,000
12,000
                                 33,400

To Conveyance
To Upkeep of lawn
To Postage Stamps Purchased  1,500
Add: In hand (op.)                     750
                                                  1,800
Less: In hand (end)                   900
To Cricket expenditure
                                                  9,720
Add: in hand (op.)                  3,210
                                                12,930
Less: In hand (end)                2,800
To Sundry Expenses
820
4,240



900




10,130
2,000
Less: Received
In Advance                6,000
                                 27,400
Add:Outstanding
(end)                           8,000

By Entrance Fees
By Donation
By Interest on fixed
            Deposits         900
Add: Outstanding     900
By Profit on sale
of crockery(2000-1200)
By Excess of Expenditure
            over Income





35,400
2,750
5,010


1,800

800

4,840

50,150

50,150

3.4 RECEIPTS AND PAYMENTS ACCOUNT AND INCOME AND EXPENDITURE ACCOUNT DISTINGUISHED
The difference between the two has been summarized as follows:
Receipts and payments account
Income and expenditure Account
1.      It is a real account.
It is a nominal account.
2.      It is a cash account of a non-trading concern
It is like a profit and loss account of a trading concern.
3.      Debit side of this account records receipts
Debit side of this account records expenses and losses.
4.      Credit side of this account records payments
Credit side of this account records incomes.
5.      Balance in the beginning represents cash in hand in the beginning
There is no balance in the beginning
6.      Balance at the end represents cash in hand at the end
Balance at the end represents excess of income over the expenditure or vice versa.
7.      It records receipts and payments of both capital and revenue nature.
It records income and expenditure of only revenue nature.
8.      It shows the receipts and payments made during the year whether they belong to past, current or subsequent year.
It shows income and expenditure of the current year only whether received or not received/paid
9.      Expenses not yet paid, ie., outstanding expenses and incomes not yet received or incomes due but not received are not included in this account.
If they expenses or income relate to the current year, they will be recorded in this account even if they are not paid or received
10. Depreciation, bad depts., etc. are not received in this account.
Depreciation, bad debts, etc. are losses to the institutions and therefore these losses are recorded in the account.
11. It is not essential that balance sheet should accompany this account.
Balance sheet must accompany this account.
12. As this is a cash account, it always has a debit balance.
This account may have a debit balance representing a debit (Loss) or a credit balance representing a surplus (Profit)

3.5 FORMS OF THE PROBLEMS

            There are three forms of problems.
1.      When receipts and payments account with accompanying notes is given and income and expenditure account and balance sheet are required:
2.      When income and expenditure account with accompanying notes is given and receipts and payments is required; and
3.      When receipts and payments and income and expenditure accounts are given and balance sheets both in the beginning and at the end are required.

Income and Expenditure Account is Required

            Income and expenditure account is prepared from receipts and payments account and additional information. In order to do so debit side of receipts and payments account is posted to credit side of income and expenditure account and credit side of receipts and payments account is posted to the debit side of income and expenditure account. First, we shall discuss the posting from the debit side of the receipts and payments account and then posting from its credit side.

Posting From Debit Side of Receipts and Payments A/c

            All the items appearing on the debit side of receipts and payments account are not posted to the credit side of income and expenditure account. Only such receipts are posted as can be said incomes. Income, when used in this context, is said to accrue only when item under discussion satisfies both conditions:
It is recurring in nature, and
It is not earmarked for a particular use.

3.6 SPECIAL ITEMS OF RECEIPTS

1. Legacy. It is like a donation. It appears on the debit side of the receipts and payments account but is not treated income.
2. Donations. Donation is the amount received from some person, firm, company or any other body by way of gift. It appears on the debit side of the receipts and payments account in the year of receipt. Whether or not it is to be posted to the credit side of income and expenditure account depends upon its nature.
(i)                Specific donation of a small or a big amount is taken to the balance sheet on the liability side, i.e., specific donation is always capitalized.
(ii)             General donation of large amount is capitalised.
(iii)           General donation of small amount is treated as income.
3. Endowment fund. Endowment fund is a fund which provides permanent means of support for any person or institution. Since the fund provides a permanent means of support it is a receipt of capital nature. It is recorded on the debit side of receipts and payments account in the year of receipt. From there it is taken to the liability side of balance sheet where it appears year after year. It is not treated as income.
4. Entrance fee. It appears on the debit side of receipts and payments account and should be taken to income and expenditure account on the income side.
5. Sale of old asset. Receipt from the sale of old asset appears on the debit side of the receipts and payments account in the year in which the asset is sold. It is not taken to income and expenditure account. But any income or loss on the sale of asset is taken to the income and expenditure account.
6. Sale of newspapers. Selling the old newspapers is a regular feature of any non-trading concern it is justified to treat it as income.
7. Sale of sports materials. Sale of sports materials are shown in the receipts and payments account on the debit side and are posted to the credit side of income and expenditure account.
8. Amount received on account of subscription, games fees, interest on general investments received are examples of incomes because they are recurring in nature and they are not earmarked for a particular purpose.

What amount is posted?

            After having decided as to which item is to be treated as income the next step is the calculation of the amount which is to be posted to the credit side of income and expenditure account. This has been explained with the help of an example-subscription.
TABLE SHOWING CALCULATION OF SUBSCRIPTION
Total Subscriptions received during the year (whether in respect of previous, current or future period) as shown in receipts and payments account
-
Add Subscriptions outstanding at the end of the year
-
Less Subscriptions outstanding at the beginning of the year
-
Add Subscription received in advance at the beginning of the year
-
Less Subscriptions received at the end of the year
-
Subscriptions to be shown in Income and Expenditure Account        
            Rs.
-
Example 5:

   Rs.
Subscription income for 1996-97 as per Income & Expenditure Account
82,000
Advance subscription received in 1995-96
4,000
Subscriptions outstanding at the end of 1996-97
(Including 1,000 for 95-96)

9,500
Advance subscriptions received for 1997-98
2,000
Subscription written off during 1996-97
500
Subscription receivable on 1.4.96
5,000
Subscription collected (1996-97) by the Secretary but not deposited
1,000
Prepare a statement showing subscription received in 1996-97 as per Receipts & Payments Account.
Solution:
Details
Amount
Rs.
Subscription income as per income and Expenditure account
82,000
Add     Subscription receivable on 1.4.96:
            Advance subscriptions
            Received for 1997-98

5,000
2,000

  7,000
89,000
Less    Advance subscription received in 1995-96
            Subscription written off
Subscription outstanding at the end of 1996-97
4,000
500
9,500
14,000
Subscriptions received as per Receipts and Payments Account

75,000
Posting From Credit Side
            All items appearing on the credit side of receipts and payments account are NOT posted to the debit side on income and expenditure account. Only such payments are posted as can be said to be expenditures. An item is labeled as expenditure only when it satisfies one condition: “The item is useful only for the current year”. In other words, amount spent on an item is to be labeled as an expenditure only when it is not usefil for the future period.
            Amount spent on the purchase of library books, crockery, curtains, furnishings, investments and electric installation are examples of capital expenditures because these items are useful for more than one year. These are, thus, shown on the asset side of balance sheet. In other words, they are not expenditures.
Payment of honorarium. It is the amount paid to the person who is not employee of the organisation paying the amount. For example, if a payment is made to a radio artist for giving a performance at the club then the payment so made is termed as honorarium. Payment of honorarium is shown on the credit side of receipts and payments account and from there it is posted to the debit side of income and expenditure account.

What amount is posted?

            Expenses paid appear on the credit side of receipts and payments account and from there they are posted to the debit side of income and expenditure account. Before the posting is made, the amount is adjusted in the light of additional information given. The procedure relating to the calculation of actual expenditure incurred is made clear from the following illustration:

Example 6:
            Calculate what amount will be posted to income and expenditure account for the year ending 31st December, 1996:
(a)  Amount paid for stationery during the year 1996 Rs.1,080; Stock of stationery in hand on 31st Dec., 1996 Rs.50.
(b)  Stock of stationery in hand on 1st Jan., 1996 Rs.300; Payment made for stationery during the year 1996, Rs.1,080; Stock of stationery in hand on 31st Dec., 1996 Rs.50.
(c)  Stock of stationery on 1st Jan., 1996 Rs.300
      Creditors for stationery on 1st Jan., 1996 Rs.200
      Amount paid for stationery during the year 1996 Rs.1,080.
      Stock of stationery on 31st Dec., 1996 Rs.50.
Solution:                                                                                                          Rs.
(a)  Payment made during the year 1996                                             1,080
      Less Stock in hand as on Dec. 31, 1996                                            50
      Stationery actually used                                                          Rs. 1,030*
(b)  Stock of stationery already in hand on Jan. 1, 1996                     300
      Add Payment made during the year 1996                                                1,080



                                                                                                                  1,380
      Less Stock in hand on 31st Dec., 1996                                               50
                                                                                                            Rs.1,330*
(c)  Stationery already in hand on 1st Jan., 1996                                   300
      Add Payment made during the year 1996                                                1,080
                                                                                                                  1,380
      Less Stock of stationery on Dec., 31 1996                                        50
                                                                                                                  1,330
      Less Creditors for stationery on Jan., 1 1996                                200
Stationery actually used                                                                             Rs. 1,130

3.7 Some income and expenditure not taken to income and expenditure Account.
When expenditure is not taken to income and expenditure account?

            As a general rule all expenses of a concern are taken to profit and loss account at the end of the year. In the case of a non-trading concern they are taken to income and expenditure account. but this general rule is nor a fund. In all such cases, expenses incurred are not taken to the income and expenditure account but are shown by way of deduction from the respective fund. Examples are: match expenses are deducted from account of prizes distributed are deducted from prize fund. But, match expenses incurred, charity paid, prized distributed must be debited to income and expenditure account if there is no match fund, charity fund or prize fund respectively.

When income is not taken to income and expenditure account?

            All incomes normally are taken to income and expenditure account but if there is an income coming out of a certain fund then in that case it is added to that fund and is not credited to income and expenditure account. For example, if match fund is raised and is kept separately by investing in securities outside the business, then interest so received on such securities will not be credited to income and expenditure account but will be added to the match fund.
Example 7:
How will you deal with the following cases:
Case 1
Dr.
Cr.
Case 2
Dr.
Cr.
Prize fund
           
Rs. 5,000
Match fund

Rs.10,000
Prizes paid
Rs.1,200

Match expenses
Rs. 3,500

Match expenses
500

Investment of match fund
6,000




Interest on investments of match fund

300



Prizes paid
900

Solution:
            Case 1. Prizes paid Rs.1,200 will be deducted from the prize fund. The balance of prize fund Rs. 3,800 will appear on the liability side of the balance sheet.

            Match expenses will be debited to income and expenditure account balance there is no special fund maintained to meet this expense.

            Case 2. Interest on match fund investments will be added to match fund (because it is the income of a particular fund). From the total fund match expenses will be deducted and the balance will appear on the liability side of the balance sheet. Presentation will be as follows:

                                                Liabilities
                        Match fund                            Rs. 10,000
                        Add Interest                                     300
                                                                              10,300
                        Less Match express                     3,500
                                                                          Rs. 6,800
            Prizes paid Rs. 900 will be debited to income and expenditure account because there is no fund to meet this expense.
Note  In case fund is smaller than the expense then the balance of expenses not covered by the
fund is taken to income and expenditure account.

Example 8:
The following is the summary of cash transactions of the melody club for the year ended 31st December, 1997:
Receipts
Rs.
Payments
Rs.
Balance from last year
319
Rent and rates
168
Entrance fees
255
Wages
245
Subscriptions
1,600
Lighting charges
72
Donations
165
Lecturer’s fees
435
Life membership fee
250
Books
213
Interest
14
Office expenses
450
Profit on entertainment
42
Placed on 3 per cent
fixed deposit 1st July 1997
800


Cash at bank
242


Cash in hand
20

2,645

2,645
In the beginning of the year the club possessed books worth Rs.2,000 and Furniture worth RS.8.50. Ordinary subscription in arrears at the beginning of the year amounted to Rs.35 and at the end of the year Rs.45, and six months rent Rs.60 was due both at the beginning of the year and at the end of the year.
Prepare Income and Expenditure Account of the club for the year ended 31st December, 1997 and its Balance Sheet on that date after writing off Rs.50 and Rs.113 on furniture and books respectively.
Solution:
Melody Club
INCOME AND EXPENDITURE ACCOUNT
    Dr.                                     for the year ended 31st December, 1997                             Cr.

Expenditure
   Rs.
Income
     Rs.
To Rent and Rates
168
By Entrance Fees
255
To Wages
To Lighting Charges
To Lecturer’s Fees
To Office Expenses
245
72
435
450
By Subscriptions         1,600
   Less for last year           35
                                    1,565
   Add Outstanding          45
1,610
To Depreciation:
            Books              113
            Furniture           50
163
By Donations
165
By Interest                       14

Add Accrued on

To Excess of Income
    Over Expenditure
565
Fixed Deposit                  12
By Profit on Entertainment
26
42

2,098

2,098

Melody Club
BALANCE SHEET
as at 31st December, 1997
Liabilities
Rs.
Assets
Rs.
Rent Outstanding
Capital on 1.1.97                     3,144
  Add Surplus of the year          565
Life membership fee
60

3,709
250
Cash in hand
Cash at bank
Fixed Deposit
Interest outstanding
Subscriptions outstanding
Books in the beginning           2,000
Add Purchased during
the year                                       213
                                                 2,213
Less Depreciation                      113
Furniture                                     850
Less Depreciation                        50
20
242
800
12
45




2,100

800

4,019

4,019

Working Notes:
(i) Calculation of Capital in the beginning:
                                                   Rs.
Books                                     2,000
Furniture                                   850
Cash balance                            319
Subscription outstanding         35
                                                3,204
Less Rent Outstanding             60
Capital                             Rs.3,144
(ii) Life membership is capitalised.
Example 9: From the following Receipts and Payments Account of a club and from the information supplied, prepare an Income and Expenditure Account for the year ended 31st December, 1997 and the Balance Sheet as on that date:
RECEIPTS AND PAYMENTS ACCOUNT
For the year ended 31st Dec., 1997

Income
  Rs.
Expenditure
  Rs.
To Balance
To Subscriptions:
1996                                250
1997                                1,000
1998                                200
To Rent received from the use of hall
To Profit from entertainment
To Sale of Newspapers
350



1,450
700
400
100
By Salaries
By General expenses
By Electric charges
By Books
By Newspapers
By Balance
1,400
300
200
500
400
200

3,000

3,000
a)     The club has 50 members each paying an annual subscription of Rs.25, subscriptions outstanding on 31st December, 1997 were Rs.300.
b)     On 31st December, 1997 salaries outstanding amounted to Rs.100. salaries paid in 1997 included Rs.300 for the year 1996.
c)     On 1.1.1997, the club owned Building valued at Rs.10,000; Furniture Rs.1,000 and Books Rs.1,000.
d)     Provide depreciation on Furniture at 10 per cent.
Solution:
….Club
INCOME AND EXPENDITURE ACCOUNT
            Dr.                                           for the year ending 31st December, 1997                    Cr.
Expenditure
Rs.
Income
Rs.
To salaries                             1,400
  Add outstanding Salary        100
                                                1,500
Less Salaries paid for 1996               300
To General expenses                      
To Electric charges
To Newspaper purchase
To Depreciation on furniture
To Excess of Income over Expenditure             
Rs.



1,200
300
200
400
100
250
               
400
2,450
By Annual Subscription of 50 members @ Rs.25
By Rent of Hall
By Profit from entertainment
By Sale of Newspapers

1,250
700
400
100






2,450

BALANCE SHEET
as at 31st December. 1997
Liabilities
Rs.
Assets
Rs.
Salaries outstanding
Subscription received in advance
Capital Fund(1.1.97)
                                    12,350
Add Surplus                   250





Rs.
100
200


12,600





12,900
Cash
Outstanding Subscription:
1996           50
1997         250
Furniture                    1,000
Less Dep.                      100
Books                         1,000
Add Purchased during
        the year                 500
Buildings
Rs.
200


300

900


1,500
10,000
12,900

Capital Fund on 1st Jan., 1997 is calculated as follows:
BALANCE SHEET
as at 31st December, 1996
Liabilities
Rs.
Assets
Rs.
Salaries Outstanding
Capital Fund
(balancing figure)
300

12,350
Cash
Furniture
Books
Buildings
Subscription Due
350
1,000
1,000
10,000
300
Rs.
12,650
Rs.
12,650

Example 10:
The following is the Receipts and Payments Account of the Punjab Bagh Club. For the year ended on 31st Dec., 1997:



Receipts
Rs.
Payments
Rs.
To Balance b/d
To Entrance fees
To Subscription            1996-
                                    1997-
                                    1998-
To Locker’s Rent
To Special subscription for L.G’s Party
1,500
2,750
1,000
84,500
1,500
2,500

17,250
By Rent
By Stationery
By Wages
By Billiard’s Table
By Repairs
By Miscellaneous expenses
By Balance c/d
26,000
15,340
26,650
19,500
4,030
7,500
11,980
Rs.
1,11,000
Rs.
1,11,000

  The following adjustments are to be made:
a)     Locker’s Rent include Rs.300 for 1996 and Rs.550 is still owing for year 1997.
b)     Subscription unpaid for 1997 Rs.2,400 and Rs.260 for Stationery were outstanding.
c)     Entrance fees is to be capitalised.
d)     The club’s other Assets on 1.1.1997 were Rs.39,000
From the above information, prepare an Income & Expenditure A/c for the year ending on 31st Dec., 1997 and a Balance Sheet as on that date.
Solution:
Punjab Bagh club
INCOME AND EXPENDITURE ACCOUNT
                        Dr.                               for the year ended 31st December, 1997              Cr.
Expenditure
Rs.
Income
Rs.
To Rent
To Stationery                   15,340
Add outstanding       260
To Wages
To Repairs
To Misc. Expenses
To Excess of Income over Expenditure
26,000

15,600
26,650
4,030
7,500

9,870
By Subscription        84,500
Add Unpaid                 2,400
By Locker’s Rent       2,500
Less for 1996                             300
                                      2,200
Add for 1997                             550

86,900



2,750

89,650

89,650
Punjab Bagh club
BALANCE SHEET
as on January 1, 1997
Liabilities
Rs.
Assets
Rs.
Capital Fund
(bal. Fig.)
41,800
Cash
Other Assets
Locker Rent due
Subscriptions due
1,500
39,000
300
1,000

41,800

41,800

BALANCE SHEET
as on December 1, 1997
Liabilities
Rs.
Assets
Rs.
Entrance fees
Subscriptions received in Advance
Stationery outstanding
Speicla subscription for L.G.’s Party
Capital fund:
Balance                      41,800
Add Surplus              9,870
2,750
1,500
260
17,250


51,670
Cash
Other Assets
Billiards Table
Locker Rent due
Subscriptions due
11,980
39,000
19,500
550
2,400

73,430

73,430

3.8 When Receipts and Payments Account is Required
            In the type of questions being given students are required to prepare receipt and payments account from income and expenditure account and additional information.
Procedure for finding out Receipts from Income
REGARDING SUBSCRIPTION OR OTHER INCOMES
Procedure adopted for calculating income from receipt. (This technique was used in previous type of questions)
Procedure adopted for calculating receipt from income. (This technique will be used in this type of questions)
1. Subscription received during the current year                                 4,000
Subscriptions pertaining to the             current shown in the income and             expenditure account                        3,850
2. Add Outstanding at the                              end of the current year         200
                                                         4,200
Less Outstanding at the                               end of the current year           200
                                                            3,650
3. Less Outstanding at the                              end of the previous year         100
                                                         4,100
Add Outstanding at the                               end of the previous year        100
                                                            3,750
4. Less Subscriptions              received in advance at              the end of the current year    300
                                                         3,800
Add Subscriptions                           received in advance at                    the end of the current year    300
                                                            4,050
5. Add Subscriptions              received in advance at the       end of the previous year          50
Subscriptions to be shown in  
     the income and expenditure
     account                                     3,850*
Less Subscription                             received in advance at                    the of the previous year          50
Subscriptions received during the
current year to be shown in receipts
and payments account                                4,000+

* This figure is taken as a starting point in questions where receipts and payments account is required.
+ This figure is taken as a starting point in questions where income and expenditure account is required.

3.9  Procedure for finding out Payment from Expenses
REGARDING ANY EXPENSE

Procedure adopted for calculating expenditure from payment. (This technique was used in previous type of questions)
Procedure adopted for calculating Payment from expenditure. (This technique will be used in this type of questions)
1.      Payment during the year       
(regarding a particular expense) 700
Expense shown in the income and expenditure account                                    750
2.      Add outstanding at the          
end of the previous year             50
                                                         750
Less Outstanding at the end
of the current year                             50
                                                            700
3.      Less Outstanding at the
end of the previous year          30
                                                         720
Add Outstanding at the
end the previous year                                    30
                                                            730
4.      Less Prepaid at the end of the
current year                                10
                                                   710
Add prepaid at the end of the
Current year                                        10
                                                            740
5.      Add Prepaid at the end of the
Previous year                             40
Expense to be
shown in the income and
expenditure account               750
Less Prepaid at the end of the
Previous year                                                  40
Payment to be shown in the receipts
and payment account                                  700+

Example 11: The income and expenditure account of Madurai City Sports Club for the year ended 31st March, 1997 is as follows:
To Salaries
To Printing and stationery
To Rent
To Repairs
To Sundry expenses
To Annual dinner expenses
To Interest to bank
To Dep. On sports equipments
To Excess of income over exp.
Rs.60,000
3,000
6,000
5,000
4,000
15,000
3,000
3,000
6,000
By Subscriptions
By Entrance fees
By Contribution for annual dinner
By Profit on annual sports meet
Rs.80,000
5,000
10,000
10,000

1,05,000

1,05,000
            The account had been prepared after the following adjustments:
            Subscription outstanding on 31.3.1996                                                    Rs.6,000
            Subscription received in advance on 31.3.1996                                     Rs.4,500
            Subscription received in advance on 31.3.1997                                     Rs.2,700
            Subscription outstanding on 31.3.1997                                                    Rs.7,500

            Salaries outstanding at the beginning and the end of the financial year were Rs.4,000 and Rs.5,000 respectively. Sundry expenses include insurance prepaid Rs.600.

            The club owned a freehold ground valued Rs.1,00,000. The club has sports equipment on 1.4.96 valued at Rs.26,000. At the end of the year, after depreciation, the sports equipments amounted to Rs.27,000. The club raised a loan from bank Rs.20,000 on 1.1.1996 which was not paid on 31.3.1997. On 31st march 1997, cash in hand amounted to Rs.16,000.

            Prepare the Receipts and Payments Account of the club for the year ended 31st March 1997 and Balance Sheet as on March, 1997.
Madurai City Sports Club
RECEIPTS AND PAYMENTS ACCOUNT
    Dr.                                                   For the year ended 31st March, 1997                                       Cr.
Receipts
Rs.
Payments
Rs.
To Balance b/d (Bal.figure)

To Subscription (See Note 1)

To Entrance fees     
To Contribution for Annual Dinner
To Profit on Annual Sports meet
13,900

76,700

5,000
10,000
10,000
By Salaries
(60,000-5,000+4,000)
By Printing & Stationery
By Rent
By Repairs
By Sundry expenses(4,000+600)
By Annual Dinner Expenses
By Interest to Bank
By Sports equipment (See Note 2)
By Balance c/d

59,000
3,000
6,000
5,000
4,600
15,000
3,000
4,000
16,000


1,15,600

1,15,600
BALANCE SHEET
as at 31st March, 1997
Liabilities
Rs.
Assets
Rs.
Capital Fund: Balance                                    Rs. 1,17,400
Add Excess of Income over
            Expenditure    6,000
Bank Loan

Salaries Outstanding  
Subscription in advance



1,23,400
20,000

5,000
2,700
Freehold Ground
Sports Equipment:
Bal.                              26,000
Additions                      4,000
                                    30,000
Less Depreciation         3,000
Subscription outstanding
Insurance prepaid
Cash in hand





27,000
7,500
600
16,000

1,51,000

1,51,000

Working notes: 1. Statement showing subscription collected during 1996-97:

Subscription for 1996-97 (as per Income & Expenditure A/c)                         80,000
Add Subscriptions outstanding on 31.3.96                                                                        6,000
Add Subscriptions received in advance on 31.3.97                                                         2,700
                                                                                                                                    88,700
Less Subscriptions outstanding on 31.3.97                                             Rs.7,500
Less Subscriptions  received in advance on 31.3.96                                   4,500         12,000
                                                                                                                                    76,000
2. Sports Equipment Account
            Dr.                                                                                                                                           Cr.

Rs.

Rs.
To Balance b/d
To Bank (Bal.fig)
26,000
4,000
By Depreciation
By Balance c/d
3,000
27,000

30,000

30,000

4.      Opening balance of Capital fund has been found out as follows:
BALANCE SHEET
as at 31st March 1996
Liabilities
Rs.
Assets
Rs.
Bank Loan
Salaries Outstanding
Subscriptions received in advance
Capital fund (Bal.fig)
20,000
4,000
4,500
1,17,400
Freehold Ground
Sports Equipment
Subscriptions outstanding
Cash in hand
1,00,000
26,000

6,000
13,900

1,45,900

1,45,900

3.10  When Balance Sheets are Required

            In the third type of problems to prepare opening and closing balance sheets from income and expenditure and receipts and payments accounts.
Example 12:
From the following information given in the books of a sports club prepare the Balance Sheet as on December 31, 1996:
RECEIPTS AND PAYMENTS ACCOUNT
For the year ended 31st December, 1996
Receipts
Rs.
Payments
Rs.
To Balance b/d
To Entrance fees
To Subscriptions
            1995
            1996
            1997
To Interest received
8,400
4,000

1,200
50,000
800
4,000
By Salaries
By Investment
By Advertising
By Printing and stationery
By Insurance premium
By Balance b/d
16,000
40,000
1,000
3,600
2,400
5,400

68,400

68,400
INCOME AND EXPENDITURE ACCOUNT
For the year ended 31st December, 1996
Expenditure
Rs.
Income
Rs.
To Salaries
To Advertising
To Printing and Stationery
To Audit fees
To Insurance premium
To Depreciation:
            on Sports Equipments
            on Furniture
To Excess of income over expenditure
16,800
1,000
3,000
2,000
2,000

15,000
800

18,400
By Subscription
By Entrance fees
By Interest received
51,000
4,000
4,000

59,000

59,000
Assets of the club on 1.1.96 included sports equipment Rs.50,000; Ground and Pavilion Rs. 80,000; and Furniture Rs.8,000. Subscriptions received in advance were Rs.500.
Show your workings neatly.

Solution:
BALANCE SHEET
as at 1.1.1996

Liabilities
Amount
Rs.
Assets
Amount
Rs.
Subscriptions received in advance
Outstanding for printing & Stationery
Capital Fund (Balancing fig.)
500

600
1,46,900
Sports Equipments
Club Grounds & Pavilion
Furniture
Subscription in Arrears
Cash balance
50,000
80,000
8,000
1,600
8,400

1,48,000

1,48,000

BALANCE SHEET
as at 31.12.1996

Liabilities
Amount
Rs.
Assets
Amount
Rs.
Audit fees payable
Subscriptions received in advance
Salaries outstanding
Capital Fund
Balance                      1,46,900
Add Surplus                 18,400
2,000

800
800



1,65,300
Sports Equipments
Balance                                                        50,000
Less Depreciation   15,000
Club Grounds & Pavilion
Furniture                    8,000
                                       800
Cash
Subscriptions in Arrears:
            For 1995
            For 1996
Investments
Prepaid Insurance



35,000
80,000

7,200
5,400

400
500
40,000
400

1,68,900

1,68,900

Unit Questions:
1.      What is the difference between Receipts and Payments account and Income and Expenditure account?
2.      What is a Income and Expenditure account? Who prepares it? Why and how is it prepared?
3.      Following is the Cash Account of Kalai Library for the year ending 31st December 1996.

Rs.

Rs.
To Balance
To Entrance fees
To Subscriptions
To Hire charges for Lecture Hall
To Miscellaneous
To Interest on investments
2,250
1,750
9,750
1,250
175
300
By Salaries & Wages
By Rent
By Investments
By Postage
By Stationery
By Electric charges
By Books
By Outstanding expenses
By Balance
3,400
4,125
1,750
125
500
365
3,000
350
1,860
You are required to prepare an Income and Expenditure Account for the year 1996. The following further information are give:
a)     Subscriptions received in advance this year amounted to Rs.300 and outstanding liabilities on 31.12.1996 are for Salaries and wages Rs.600 and for Rent Rs.375.
b)     On 31.12.1995, the Library had the following Assets also: Furniture Rs.2,750; Books valued at Rs.22,500 and Investments at a cost of Rs.10,000.
c)     60% of the Entrance fees should be capitalised.
d)     Furniture and Library Books are to be depreciated at 6% and 10% p.a. respectively.
[Ans: Excess of Expenditure over Invome Rs.180]
11. From the following particulars of the L.T. Association, prepare an Income & Expenditure Account for the year ended 31st December 1995:
RECEIPTS & PAYMENTS A/C for the year ended 31st December 1995

Rs.

Rs.
To Balance b/d:
Cash    1,000
Bank    5,500
To Subscriptions:
   For    1994                  1,000
   For    1995                20,000
For       1996                  2,000
To Hall Rent
To Govt. Grant:
   For Building              30,000
   Maintenance               5,000
To fees from members
To Donations(revenue)
To Entrance Fees
To Sale of old newspapers
To Interest on Investments
To Bank Interest
To Locker Rent
To Telephone Receipts


6,500



23,000
3,000


35,000
7,000
4,000
5,000
100
900
600
400
100
By Salaries
By Furniture
By Building Construction
By Printing & Stationery
By Electricity
By Telephone
By Misc. Expenses
By Investments
By Office Expenses
By Repairs
By Insurance
By Billiards Table
By Sports Equipment
To Tournament Expenses
By Entertainment Expenses
By Establishment Expenses
By Balance c/d:
            Cash      7,000
            Bank    17,400
3,000
12,000
10,000
500
700
2,400
1,600
16,000
1,000
500
1,000
4,000
5,000
1,200
800
1,500


24,400

85,600

85,600
Additional information:
i)                   Outstanding subscription for 1995 amounted to Rs.3,000
ii)                Hall rent includes Rs.1,000 for 1994 and Rs.1,500 still owing.
iii)              Bank interest accrued amounted to Rs.500
iv)              Salaries include Rs.500 for 1994 and Rs.1,000 is still outstanding
v)                 Depreciate Furniture by 10% p.a. and Sports Equipment by 20% p.a.
vi)              Establishment expenses outstanding amounted to Rs.200.
[Ans. Excess of Income over Expenditure Rs.26,750]
Notes: (i) Depreciation on furniture and sports equipment has been charged for 6 months on an average basis.
            (ii) Fees from members have been assumed to be ‘life membership fees’ and so it has not been shown in Income & Exp. A/c
4. From the following information relating to Ding Dong Club, Salem, prepare Income & Expenditure account and Balance Sheet for the year ending 31.12.97
RECEIPTS & PAYMENTS A/C
For the year ending 31.12.1997
Receipts
Rs.
Payments
Rs.
To Balance b/d
            Cash
            Bank
To Subscriptions
            1996 -   5,000
            1997 - 20,000
            1998 -   1,000
To Legacies
To Sale of old sports material
To Interest on investment
To Sundry income

1,000
4,000



26,000
4,000
1,000
1,500
500
By Salaries
By Printing & Stationery
By Rent
By Honorarium
By Postage
By Sports Materials
By Investments
By Conveyance
By Furniture
By Balance c/d
            Cash
            Bank
3,000
4,000
8,000
5,000
100
2,900
5,000
1,000
6,000

1,500
1,500

38,000

38,000
Adjustments:
1.      Subscription still outstanding for 1997 Rs.2,000 and subscription received in advance in 1996 for 1997 Rs.800
2.      Interest on investments includes Rs.500 relating to 1996 and sundry income still accrued Rs.700.
3.      Rent pre-paid Rs.2,000 and stationery outstanding Rs.1,000
4.      Depreciate buildings and Furniture by 10%
5.      The ledger account balances as on 1.1.97 were
Building - Rs.40,000
Furniture - Rs.10,000
& Sports materials - Rs.5,000
(Ans: Excess of Income over Expenditure Rs.300; Opening capital fund Rs.64,700; Balance sheet total Rs.71,000)
[Hint: Depreciation on furniture Rs. 1,000 + 600 = Rs.1,600]
6.      From the following information relating to Youth club, prepare the Balance sheet as on 1st April, 1997 and as on 31st March, 1998:
(i)
Club’s Assets as on 1.4.97:
Club Grounds and Pavilion
Sports Equipment
Furniture
Stock of Staioenry
Subscription Due
Rs.
50,000
30,000
7,000
1,000
1,200
(ii)  RECEIPTS AND PAYMENT ACCOUNT for the year ending March 31, 1998
Receipts
Rs.
Payments
Rs.
To Balance b/d
To Subscriptions-
1996-97                   900
1997-98       18,000
1998-99                   500
To Sale of Newspapers
To Rent Received
To Entrance Fees
5,000



19,400
300
2,200
12,000
By Stationery
By Salaries
By Audit Fees
By Advertising
By Fire Insurance
By Furniture
By Investments
By Balance c/d
3,000
10,000
1,000
2,000
1,500
2,000
18,000
1,400

38,900

38,900
INCOME AND EXPENDITURE ACCOUNT
for the year ending March 31, 1998
Expenditure
Rs.
Income
Rs.
To Salaries
To Stationery
To Audit Fees
To Fire Insurance
To Depreciation on:
Sports Equipment
Furniture
To Surplus, i.e., excess
of income over expenditure
11,000
2,800
1,500
3,000

5,000
800

8,400
By Subscriptions
By Entrance Fees
By Rent Received
By Sale of Newspapers
19,000
12,000
2,400
300
Rs.
33,700
Rs.
33,700
[Ans. Capital (Op.Bal.) Rs.94,200; Balance Sheet (op.) Total Rs.94,200; Balance Sheet (closing) total Rs.1,05,600]
6. The following Income and Expenditure Account of the club is given for the year ended 31st December 1996:
            Dr.                                                                                                                                           Cr.

Rs.

Rs.
To Opening Stock of provisions
To Purchase of Priovisions
To Salaries
To Printing and Stationery
To General Expenses
To Depreciation on equipment
To Excess of Income over Expenditure

10,000
40,000
15,000
5,000
3,000
38,000

By Sub scriptions
By Donations
By Entrance Fees
By Sale of provisions
By Closing Stock of Provisions
26,000
30,000
8,000
43,000

5,000


1,12,000

1,12,000
The following Balance Sheets are available:
BALANCE SHEET as on
Liabilities
31.12.95
Rs.
31.12.96
Rs.
Assets
31.12.95
Rs.
31.12.96
Rs.
Creditors
General Fund
8,000
47,0000
10,000
85,000
Equipments at written down value
Stock of Provisions
Cash ans bank balance
Subscription receivable

10,000
10,000
30,000
5,000

15,000
5,000
55,000
20,000

55,000
95,000

55,000
95,000
Prepare Receipt and Payments account for the year ended 31st December 1996.
            [Ans. : Receipts & Payments A/c total Rs.1,22,000; Subscriptions Rs.11,000(26,000-20,000+5,000); Creditors for Provisions (paid) Rs.38,000(8,000+40,000-10,000); Equipments purchased Rs.6,000 for eash]

1 comment:

  1. very good job. It is very useful to students and to those who keeps accounts of service oriented concerns. thanks.

    ReplyDelete