Match each transaction or financial item of a youth sports club with its correct accounting treatment in the Receipts and Payments Account.
- Life membership fees received in cashDebited as a cash receipt
- Depreciation of clubhouse equipmentExcluded because it is a non-cash item
- Outstanding wages at the end of the yearExcluded because it is an unpaid accrued item
- Purchase of new sports equipment paid by chequeCredited as a cash payment
Answer
Life membership fees received in cash is debited as a cash receipt; Depreciation of clubhouse equipment is excluded because it is a non-cash item; Outstanding wages at the end of the year is excluded because it is an unpaid accrued item; Purchase of new sports equipment paid by cheque is credited as a cash payment.
The Receipts and Payments Account is prepared strictly on a cash basis. All actual cash receipts (whether capital or revenue, such as life membership fees) are debited, while all cash payments (whether capital or revenue, such as purchasing sports equipment) are credited. Non-cash expenses (such as depreciation) and unpaid accruals (such as outstanding wages) are completely excluded.
Step-by-Step Solution
Key Concept
Receipts and Payments Account Scope and Cash Basis Accounting