A Receipts and Payments Account is best described as:

A summarised cash book, and therefore a real account

A nominal account like the Profit and Loss Account

A summarised cash book, and therefore a real account

A statement of assets and liabilities

A record of only revenue items of the current year

Life membership fees received by a club should be:

Added to the Capital Fund on the liabilities side

Credited to the Income and Expenditure Account

Added to the Capital Fund on the liabilities side

A Tournament Fund shows ₹80,000. During the year it earns ₹5,000 interest and ₹30,000 is spent on the tournament. The Balance Sheet will show the fund at:

₹80,000, with ₹30,000 debited to Income and Expenditure

Furniture costing ₹60,000 (book value ₹45,000) is sold for ₹50,000. What enters the Income and Expenditure Account?

Profit on sale of ₹5,000 on the income side

Sale proceeds of ₹50,000 on the income side

Profit on sale of ₹5,000 on the income side

Loss of ₹10,000 on the expenditure side

The Capital Fund of a not-for-profit organisation is closest in nature to:

The capital of a sole trader or the owners' equity of a business

A specific donation received during the year

A club's Income and Expenditure Account shows a deficit of ₹12,000 while its cash balance rose by ₹25,000 during the year. The most likely explanation is that:

Capital receipts such as a legacy or life membership fees were collected during the year

An arithmetical error has been made, since the two must agree

Capital receipts such as a legacy or life membership fees were collected during the year

All subscriptions were received in cash

Accounting for Not-for-Profit Organisations

A club, a school, a hospital or a charitable trust does not exist to earn profit, so it cannot prepare a Profit and Loss Account — there is no profit to report. It prepares an Income and Expenditure Account instead, and the surplus or deficit it shows belongs to the members collectively rather than to any owner. The whole chapter turns on one conversion: you are handed a Receipts and Payments Account, which is nothing more than a summarised cash book, and asked to convert it into an Income and Expenditure Account. Every mark in this chapter is earned or lost in that conversion, because the two statements answer different questions — what cash moved versus what the year actually cost.

Receipts and Payments versus Income and Expenditure

Hold these two side by side until the difference is automatic. A Receipts and Payments Account records cash, whenever it moved and whichever year it belonged to. An Income and Expenditure Account records this year's income and expense, whether or not the cash has moved. That single distinction generates almost every adjustment in the chapter.

The comparison that answers most one-mark questions
Point	Receipts & Payments	Income & Expenditure
Nature	A summarised cash book — a real account	Like a Profit & Loss Account — a nominal account
Sides	Receipts on the debit side, Payments on the credit	Expenditure on the debit side, Income on the credit
Period covered	All years — last year's and next year's cash included	Current year only
Capital items	Included — buying furniture appears as a payment	Excluded — only the depreciation on it appears
Non-cash items	Never appear (no depreciation, no outstanding)	Must appear — depreciation, outstanding, prepaid
Opening / closing balance	Starts and ends with cash and bank balances	No opening balance; closes as surplus or deficit

⚠️ Surplus is not the closing cash balance

Students routinely assume that a club with ₹40,000 of closing cash had a ₹40,000 surplus. It does not follow, and the exam tests exactly this. Cash can be high because a large donation was received or a loan taken, neither of which is this year's income; cash can be low because a building was bought, which is not an expense at all. The surplus is the excess of this year's income over this year's expenditure and is added to the Capital Fund; the closing cash is a balance-sheet asset. They are different numbers answering different questions, and they coincide only by accident.

Capital or Revenue — the Decision Behind Every Item

Before an item can be placed, it must be classified. The examiner's favourite items are the ones whose treatment depends on a condition rather than on the item's name, so learn the condition, not the label.

The items that are asked again and again
Item	Treatment	The reason
Entrance / admission fees	Revenue — credit the Income & Expenditure Account	Recurring, since members join every year
Life membership fees	Capital — add to the Capital Fund	A one-time receipt buying rights for many years
Legacy	Capital, unless small and of a recurring nature	A bequest under a will is not earned income
General donation	Revenue — credit Income & Expenditure	The organisation may spend it as it likes
Specific donation	Capital — shown as a liability/fund on the Balance Sheet	Given for a named purpose, so it is not free income
Sale of old newspapers / grass	Revenue income	Small recurring receipts from ordinary activity
Sale of a fixed asset	Only the profit or loss on sale enters Income & Expenditure	The proceeds are a conversion of one asset into cash

🧠 The fund-based rule: match the expense to its fund

When a donation is received for a specific purpose — a Tournament Fund, a Prize Fund, a Building Fund — the expense on that purpose is never debited to the Income and Expenditure Account. It is deducted from the fund itself on the Balance Sheet, along with any income the fund earns. So a Tournament Fund of ₹80,000 that earns ₹5,000 interest and spends ₹30,000 on the tournament appears on the Balance Sheet at 80,000 + 5,000 − 30,000 = ₹55,000. Only if the expense exceeds the entire fund does the excess go to the Income and Expenditure Account, and even then only the excess. The logic is simple once stated: the donor's money, and whatever it earned, must be spent on the donor's purpose before members' general funds are touched.

Subscriptions — the Most Examined Single Item

Subscription is the main income of most clubs and the single item most likely to carry marks. The Receipts and Payments Account tells you the cash received; the Income and Expenditure Account needs the amount due for the current year. Getting from one to the other is a four-step adjustment, and the direction of each step is where candidates go wrong.

Start with subscriptions received during the year as per the Receipts and Payments Account.
Subtract last year's outstanding now received, and subtract amounts received in advance for next year — neither is this year's income.
Add this year's subscription still outstanding — earned, though not received.
Add the amount that was received in advance last year and relates to this year — received earlier, earned now.

A worked example — subscription for the year ended 31 March 2025
Particulars	₹	Why
Subscriptions received during 2024–25	1,00,000	The starting figure from Receipts & Payments
Less: outstanding on 1.4.2024, received this year	(8,000)	Belongs to 2023–24
Less: received in advance for 2025–26	(6,000)	Not yet earned
Add: outstanding on 31.3.2025	10,000	Earned this year though unreceived
Add: advance received in 2023–24 for this year	4,000	Received earlier, earned now
Credited to Income & Expenditure	1,00,000	Coincidence here — the adjustments happen to net off

🎯 Why the worked total is a deliberately chosen trap

The example ends at exactly the figure it started from, and that is on purpose. A candidate who never adjusts anything writes ₹1,00,000 and scores the same mark as one who does all four steps — but only on this data set. Change the outstanding at the end to ₹15,000 and the answer becomes ₹1,05,000, at which point the two candidates separate. Examiners build questions where the wrong method sometimes gives the right number precisely because it exposes who is following a rule and who is copying a figure. The safe habit is to write the four adjustment lines every time, even when you suspect they cancel.

The Capital Fund and the Closing Balance Sheet

A not-for-profit organisation has no proprietor, so what a business would call Capital is here the Capital Fund (or General Fund) — the accumulated surplus of all past years plus the capitalised receipts. Building the closing Balance Sheet is mechanical once the Income and Expenditure Account is done.

Opening Capital Fund + surplus (or − deficit) for the year + life membership fees + capitalised legacies = Closing Capital Fund.
Specific funds appear separately, each adjusted for its own income and its own expenditure.
Assets are opening balances + purchases during the year − sales − depreciation for the year.
Outstanding expenses and subscriptions received in advance are liabilities; prepaid expenses and subscriptions outstanding are assets.
If the opening Capital Fund is not given, prepare an opening Balance Sheet first: the fund is simply assets minus liabilities on that date.

⚠️ Consumables: consumed is not the same as purchased

Stationery, sports material, medicines and provisions are consumables, and the Income and Expenditure Account must be debited with the amount consumed, not the amount bought. Consumption = opening stock + purchases − closing stock, where purchases themselves may need adjusting for opening and closing creditors. A club that bought ₹20,000 of medicines, opened with ₹3,000 of stock and closed with ₹5,000 consumed ₹18,000. Debiting the ₹20,000 purchase figure is the standard error, and it also leaves the closing stock missing from the assets side, so one careless step costs marks twice.

Key takeaways

Receipts and Payments is a summarised cash book covering all years; Income and Expenditure is a nominal account for the current year only.
Surplus is not the closing cash balance — the two answer different questions and coincide only by accident.
Entrance fees and general donations are revenue; life membership fees, legacies and specific donations are capital.
A specific fund absorbs its own income and its own expenditure on the Balance Sheet; only an excess over the whole fund reaches Income and Expenditure.
For subscriptions: subtract last year's arrears received and next year's advance; add this year's arrears and last year's advance for this year.
Consumables are charged at the amount consumed: opening stock + purchases − closing stock.
On the sale of a fixed asset only the profit or loss enters Income and Expenditure, never the whole proceeds.
Closing Capital Fund = opening fund + surplus + life membership fees + capitalised legacies.

Practice questions (8)

Attempt each one before opening the answer. Every explanation names the tempting wrong option as well as the right one, because that is where marks are lost.

A Receipts and Payments Account is best described as:
1. A nominal account like the Profit and Loss Account
2. A summarised cash book, and therefore a real account
3. A statement of assets and liabilities
4. A record of only revenue items of the current year
Show answer
Answer: B — A summarised cash book, and therefore a real account
It records every cash and bank receipt and payment, regardless of year and regardless of whether the item is capital or revenue, which makes it a real account and a summary of the cash book. Option 4 describes the Income and Expenditure Account instead — that is the statement restricted to current-year revenue items, and confusing the two is the commonest error in this chapter.
Life membership fees received by a club should be:
1. Credited to the Income and Expenditure Account
2. Added to the Capital Fund on the liabilities side
3. Shown as an asset
4. Ignored altogether
Show answer
Answer: B — Added to the Capital Fund on the liabilities side
A life member pays once for rights extending over many years, so treating the whole receipt as one year's income would overstate that year's surplus. It is capitalised by adding it to the Capital Fund. Option 1 is the tempting choice because ordinary annual subscription is credited to Income and Expenditure — the distinction is the period the payment buys, not the fact that both are membership money.
Subscriptions received during 2024–25 were ₹90,000. Outstanding on 1.4.2024 ₹7,000 and on 31.3.2025 ₹12,000; advance received on 31.3.2025 for next year ₹5,000. The amount credited to Income and Expenditure is:
1. ₹85,000
2. ₹90,000
3. ₹1,02,000
4. ₹95,000
Show answer
Answer: B — ₹90,000
90,000 − 7,000 (last year's arrears collected now) + 12,000 (this year's arrears still due) − 5,000 (next year's advance) = ₹90,000. Each wrong option is exactly one adjustment step done wrongly: ₹1,02,000 adds both outstanding figures instead of subtracting the opening one, ₹95,000 forgets the advance received, and ₹85,000 subtracts the closing arrears that should have been added.
A Tournament Fund shows ₹80,000. During the year it earns ₹5,000 interest and ₹30,000 is spent on the tournament. The Balance Sheet will show the fund at:
1. ₹80,000, with ₹30,000 debited to Income and Expenditure
2. ₹55,000
3. ₹50,000
4. ₹85,000
Show answer
Answer: B — ₹55,000
80,000 + 5,000 − 30,000 = ₹55,000. A specific fund absorbs both the income it earns and the expenditure on its purpose, so nothing touches the Income and Expenditure Account. Option 1 is the classic error of routing the expense through Income and Expenditure, and ₹50,000 comes from deducting the expense but forgetting to add the interest the fund itself earned.
Opening stock of stationery ₹3,000, purchases ₹20,000, closing stock ₹5,000. The amount debited to the Income and Expenditure Account is:
1. ₹20,000
2. ₹18,000
3. ₹22,000
4. ₹5,000
Show answer
Answer: B — ₹18,000
Consumption = 3,000 + 20,000 − 5,000 = ₹18,000, and only consumption is an expense of the year. Debiting the ₹20,000 purchase figure is the standard error; ₹22,000 reverses the stock adjustment by adding the closing stock instead of deducting it. The ₹5,000 closing stock separately appears as an asset in the Balance Sheet.
Furniture costing ₹60,000 (book value ₹45,000) is sold for ₹50,000. What enters the Income and Expenditure Account?
1. Sale proceeds of ₹50,000 on the income side
2. Profit on sale of ₹5,000 on the income side
3. Loss of ₹10,000 on the expenditure side
4. Nothing at all
Show answer
Answer: B — Profit on sale of ₹5,000 on the income side
Only the gain over book value is a revenue item: 50,000 − 45,000 = ₹5,000 profit. The full ₹50,000 is merely one asset turning into another, which is why option 1 is wrong even though the cash genuinely came in. Option 3 compares the sale price with the original cost of ₹60,000 rather than the depreciated book value — the depreciation has already been charged in earlier years.
The Capital Fund of a not-for-profit organisation is closest in nature to:
1. The bank balance
2. The capital of a sole trader or the owners' equity of a business
3. A specific donation received during the year
4. An outstanding expense
Show answer
Answer: B — The capital of a sole trader or the owners' equity of a business
It is the accumulated surplus of all past years plus capitalised receipts, standing in the position that Capital occupies in a business balance sheet. It is not the bank balance, which is an asset, and not a specific donation, which is shown as a separate fund precisely because its use is restricted while the Capital Fund is not.
A club's Income and Expenditure Account shows a deficit of ₹12,000 while its cash balance rose by ₹25,000 during the year. The most likely explanation is that:
1. An arithmetical error has been made, since the two must agree
2. Capital receipts such as a legacy or life membership fees were collected during the year
3. Depreciation was not charged
4. All subscriptions were received in cash
Show answer
Answer: B — Capital receipts such as a legacy or life membership fees were collected during the year
Cash can rise while the year runs a deficit because capital receipts — a legacy, life membership fees, a loan, the sale of an asset — bring in cash without being income. There is no requirement that the two figures agree, so option 1 misstates the relationship. Option 3 would push the account the other way: omitting depreciation reduces the deficit rather than explaining a cash rise.