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Question

Difficulty: MediumNature and Features of Non-Profit Organizations

The Receipts and Payments Account of a non-profit organization is prepared on an accrual basis to incorporate outstanding expenses and accrued income at the end of the accounting period.

Answer: Answer

Answer

False. The Receipts and Payments Account is prepared strictly on a cash basis, recording actual cash receipts and disbursements without adjusting for accruals or prepayments.
The Receipts and Payments Account serves as a summary of cash and bank entries during the period and is prepared strictly on a cash basis. Items such as accrued income, outstanding expenses, and depreciation are not recognized in this account; they are adjusted only when preparing the Income and Expenditure Account.

Step-by-Step Solution

1
Identify the fundamental accounting basis governing the Receipts and Payments Account.
The Receipts and Payments Account functions as a summarized Cash Book, operating strictly on a cash basis of accounting.
Only transactions involving actual movement of cash or bank funds are recorded.
2
Evaluate the treatment of accruals, prepayments, and non-cash items in this account.
Outstanding expenses, accrued income, and non-cash adjustments (e.g., depreciation) are excluded from the Receipts and Payments Account.
Accrual adjustments are made exclusively in the Income and Expenditure Account to determine the surplus or deficit for the period.

Key Concept

Cash Basis of Receipts and Payments Account in Non-Profit Organizations
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Topics

Nature and Features of Non-Profit Organizations