What is it?

The Receipts and Payments Account is a summary of all cash and bank transactions during the accounting year. It is prepared on a cash basis, meaning it records only actual receipts and payments – not amounts owed or earned.

Key features

• Records all cash receipts and cash payments regardless of whether they relate to the current year, previous year, or next year
• No distinction is made between capital and revenue items
• Non-cash items (like depreciation) are not recorded
• Receivables and payables are not recorded
• The opening balance shows cash in hand or at bank at the start of the year
• The closing balance shows cash in hand or at bank at the end of the year

Format

What is it?

The Income and Expenditure Account is similar to the Trading and Profit & Loss Account of a business. It shows the surplus (income exceeds expenditure) or deficit (expenditure exceeds income) for the year. It is prepared on the accrual basis, meaning it records income earned and expenses incurred during the year, not just cash paid or received.

Key differences from Receipts and Payments

How to prepare it

1. Start with the Receipts and Payments Account as the base
2. Adjust for prepaid expenses (expenses paid in advance) and outstanding expenses (expenses incurred but not yet paid)
3. Adjust for accrued income (income earned but not yet received) and prepaid income (income received in advance)
4. Exclude capital receipts (like life membership fees, donations for specific purposes) – show these in the Balance Sheet
5. Exclude capital payments (like purchase of assets) – show these in the Balance Sheet
6. Add non-cash expenses like depreciation

Format

Understanding how to treat different types of receipts and payments is essential:

What is it?

The Statement of Financial Position (formerly called the Balance Sheet) shows the financial position of the organisation at the end of the year. It lists:

• Assets – what the organisation owns (cash, equipment, buildings, receivables)
• Liabilities – what the organisation owes (payables, loans)
• Capital/Funds – the accumulated surplus/deficit and specific funds

The basic equation is:

$Assets = Liabilities + Capital Funds$

Format

Example: Mwanza Youth Sports Club

The following Receipts and Payments Account was prepared for the year ended 31 December 2023:

Additional information as at 31 December 2023:

• Subscriptions owing by members: Tsh 80,000 (2022: Tsh 50,000)
• Insurance prepaid: Tsh 15,000
• Equipment: Cost Tsh 400,000; depreciation to be charged at 10% per annum
• The equipment sold had a book value of Tsh 60,000

Required:

Prepare the Income and Expenditure Account for the year ended 31 December 2023.

Solution

Step 1: Calculate subscription income

Subscriptions received = Tsh 1,420,000
Add: Subscriptions owing (end of year) = Tsh 80,000
Less: Subscriptions owing (beginning of year) = Tsh 50,000
Subscription income = Tsh 1,450,000

Step 2: Calculate depreciation

Equipment cost = Tsh 400,000
Depreciation = 10% × 400,000 = Tsh 40,000

Step 3: Calculate profit/loss on sale of equipment

Sale proceeds = Tsh 80,000
Book value = Tsh 60,000
Profit on sale = Tsh 20,000

Step 4: Adjust insurance expense

Insurance paid = Tsh 70,000
Less: Prepaid = Tsh 15,000
Insurance expense = Tsh 55,000

Income and Expenditure Account for the year ended 31 December 2023

When preparing accounts for not-for-profit organisations:

1. Start with the Receipts and Payments Account – this is your starting point
2. Prepare the Income and Expenditure Account by:
   • Taking receipts and adjusting for capital items
   • Adding non-cash items (depreciation)
   • Adjusting for receivables, payables, prepayments, and accruals
3. Prepare the Statement of Financial Position by:
   • Showing the capital fund (opening balance + surplus or - deficit)
   • Listing all assets and liabilities
   • Ensuring assets equal liabilities plus capital

In Tanzania, sports clubs like Simba SC, Young Africans, or community welfare groups (such as the Mwanza Women Development Organisation) must prepare these financial statements annually. For example, a local * chama cha wanawake* in Arusha would use a Receipts and Payments Account to track member subscriptions and donations, then prepare an Income and Expenditure Account to show whether their activities for the year resulted in a surplus or deficit. This helps members understand how their contributions were used and whether the organisation remains financially healthy.