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Question

Difficulty: HardReceipts and Payments Account

Match each financial transaction of a trade union welfare society with its corresponding entry or treatment in the Receipts and Payments Account.

  • Annual depreciation charged on union motor vehiclesExcluded completely because it is a non-cash allocation
  • Life membership subscriptions received by bank transferDebited on the receipts side as a capital cash receipt
  • Subscriptions for the current year still outstanding at year-endExcluded completely because no cash was received during the period
  • Honorarium paid to legal advisor by chequeCredited on the payments side as a revenue cash payment

Answer

Annual depreciation charged on union motor vehicles matches with 'Excluded completely because it is a non-cash allocation'; Life membership subscriptions received by bank transfer matches with 'Debited on the receipts side as a capital cash receipt'; Subscriptions for the current year still outstanding at year-end matches with 'Excluded completely because no cash was received during the period'; Honorarium paid to legal advisor by cheque matches with 'Credited on the payments side as a revenue cash payment'.
The Receipts and Payments Account acts as a summarized cash book for non-profit organizations. Therefore, actual cash and bank inflows (such as life membership fees) are debited on the receipts side, while actual cash and bank outflows (such as honorarium payments) are credited on the payments side. Non-cash charges like depreciation and uncollected accrued revenues like outstanding subscriptions do not involve any cash movement and are excluded entirely.

Step-by-Step Solution

1
Understand the scope of the Receipts and Payments Account.
The Receipts and Payments Account is a classified summary of cash and bank transactions. It records all actual cash inflows on the debit side and cash outflows on the credit side regardless of whether they are capital or revenue in nature.
This establishes the rule that only actual cash flow transactions are included.
2
Evaluate non-cash transactions and accruals.
Depreciation of motor vehicles is a non-cash expense. Outstanding subscriptions represent accrued income not yet received in cash. Both are completely excluded from the Receipts and Payments Account.
Cash basis accounting strictly ignores non-cash items and accrued balances.
3
Classify actual cash inflows and outflows.
Life membership subscriptions received by bank transfer represent a capital cash inflow (debited as a receipt). Honorarium paid by cheque represents a revenue cash outflow (credited as a payment).
All cash received is debited and all cash disbursed is credited.

Key Concept

Classification of cash and non-cash items in the Receipts and Payments Account
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Topics

Receipts and Payments Account

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