5.4 Clubs and societies (3)
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1.
The details of the assets and liabilities of a small business as at 31st December 2023 are as follows:
- Cash: £3,500
- Debtors: £4,200
- Inventory: £1,800
- Fixtures & Fittings: £5,000
- Loan from the bank: £2,000
- Accounts Payable: £1,500
Required: Prepare a Statement of Financial Position as at 31st December 2023.
Statement of Financial Position as at 31st December 2023
| Assets | Amount (£) |
| Cash | 3,500 |
| Debtors | 4,200 |
| Inventory | 1,800 |
| Fixtures & Fittings | 5,000 |
| Liabilities | Amount (£) |
| Loan from the bank | 2,000 |
| Accounts Payable | 1,500 |
Total Assets = £3,500 + £4,200 + £1,800 + £5,000 = £14,500
Total Liabilities = £2,000 + £1,500 = £3,500
Therefore, the Statement of Financial Position shows total assets of £14,500 and total liabilities of £3,500 as at 31st December 2023.
2.
Question 1
On 1st January 2023, the balance of the Receipts and Payments account was £2,500. During the year, the following transactions occurred:
- Receipts: £5,800
- Payments: £4,200
Prepare the Receipts and Payments account for the year ended 31st December 2023.
Answer 1
Receipts and Payments Account
| Item | Amount (£) |
| Opening Balance | 2,500 |
| Receipts | 5,800 |
| Payments | 4,200 |
| Closing Balance | 4,100 |
3.
Explain the key differences between a Receipts and Payments account and an Income and Expenditure account. Include examples of what each account records.
A Receipts and Payments account is used to record all cash inflows (receipts) and cash outflows (payments) during a specific period. It's primarily used for organisations where cash is the only basis of accounting, such as small businesses or charities. It focuses on the movement of cash in and out.
- Receipts: Cash received from customers, donations, grants, etc. Example: £50 cash received from a customer for goods sold.
- Payments: Cash paid out for expenses, salaries, purchases, etc. Example: £200 cash paid to a supplier for materials.
The main purpose is to track cash flow. The account shows the difference between total receipts and total payments, which indicates whether the organisation had a cash surplus or deficit during the period.
An Income and Expenditure account, on the other hand, is used to record all income and expenses during a specific period, regardless of whether the transactions involve cash. It's commonly used by larger organisations, including charities, to provide a more comprehensive financial picture. It follows accrual accounting principles.
- Income: Revenue earned from sales, fees, interest, etc. Example: £1000 revenue earned from sales of services.
- Expenses: Costs incurred in running the organisation, such as salaries, rent, utilities, etc. Example: £300 rent expense.
The Income and Expenditure account calculates the profit or loss by subtracting total expenses from total income. It provides a more accurate reflection of the organisation's financial performance than a Receipts and Payments account, as it considers all financial transactions, not just those involving cash.
Key Difference Summary:
| Feature | Receipts & Payments Account | Income & Expenditure Account |
| Basis of Accounting | Cash | Accrual |
| Transactions Recorded | Only cash inflows and outflows | All income and expenses, regardless of cash flow |
| Typical Use | Small businesses, charities with cash-based transactions | Larger organisations, charities with accrual accounting |