Receipts and Payments vs Income and Expenditure Account

For clubs and non-profit societies, two accounts confuse many SPM Prinsip Perakaunan students: the Receipts and Payments Account and the Income and Expenditure Account. Their names are long and almost identical, yet their purpose, accounting basis and contents are very different. Without understanding this distinction, it is hard to prepare a society's financial statements correctly.

This article explains what each account means, what goes in and what is left out, how one is converted into the other through adjustments, and the common mistakes to avoid. Everything here follows the KSSM Prinsip Perakaunan syllabus (code 3756) for non-profit organisations.

What is the Receipts and Payments Account?

The Receipts and Payments Account is a summary of a society's Cash Book. It records all receipts (money in) on the debit side and all payments (money out) on the credit side, beginning with the opening cash and bank balance and ending with the closing cash and bank balance.

Its defining feature is that it is cash-based. Every amount received or paid in cash is included, regardless of whether it relates to the past, current or future period. It also does not distinguish between revenue and capital items, so buying an asset such as furniture and receiving a capital donation are both recorded here.

What is the Income and Expenditure Account?

The Income and Expenditure Account is the non-profit equivalent of a Profit and Loss Account. It records income on the credit side and expenditure on the debit side for one accounting period only.

This account is accrual-based. Only revenue items belonging to the current period are included, after adjusting for arrears and amounts paid in advance. Capital items such as asset purchases are excluded entirely. The final result is a surplus (when income exceeds expenditure) or a deficit (when expenditure exceeds income), not a profit or a loss.

The main differences

The first difference is the basis. The Receipts and Payments Account is cash-based, while the Income and Expenditure Account is accrual-based. The second is the period: the first includes all cash transactions even from other periods, while the second includes only current-period items.

The third is the type of item: the first covers both revenue and capital items, while the second covers only revenue items. The fourth is the balance: the first opens and closes with cash and bank balances, while the second ends with a surplus or deficit. Knowing these four differences is enough to answer most questions on the topic.

How to prepare the Income and Expenditure Account

Typically a question gives you the Receipts and Payments Account and asks you to prepare the Income and Expenditure Account. The first step is to remove all capital items, for example asset purchases, loans received and capital donations, because they do not belong in the second account.

The second step is to adjust revenue items to the current-period basis. For subscriptions, subtract last year's arrears and subscriptions received in advance for next year, then add this year's arrears and advances received last year. For expenses, adjust for accrued and prepaid amounts. The final step is to bring in depreciation and write-offs, which never appear in the cash account but must appear in the Income and Expenditure Account.

Common student mistakes

The most common mistake is putting capital items such as furniture purchases into the Income and Expenditure Account. The second is forgetting to adjust members' subscriptions for arrears and advances, and using the cash figure as it is.

The third is leaving out depreciation and bad debts because they are absent from the cash account. Students also confuse whether a balance is a surplus or a deficit. Remember: income above expenditure gives a surplus, and the reverse gives a deficit.

Tips to master this topic

Train yourself to question every item with three questions: is it revenue or capital, does it belong to the current period, and does it need an adjustment. If you can answer these quickly, you will place every figure correctly.

Build your own comparison table and work through several complete society examples, from the Receipts and Payments Account all the way to the Statement of Financial Position. Since the SPM paper is set in Bahasa Melayu, get comfortable with official terms such as lebihan, kurangan, terakru and prabayar.

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FAQ

Is the Receipts and Payments Account the same as the Cash Book? It is a summary of the Cash Book, so the contents are the same but arranged as one concise account for a single period.

Why is depreciation absent from the Receipts and Payments Account? Because depreciation is not a movement of cash. It appears only in the Income and Expenditure Account as a non-cash expense. For guided practice, contact us on WhatsApp.