Receipts and payments Account of Abalure Youth Club for the year ended 31st December 2018 Subscriptions for 2017 and 2019 received during the year were #180...

Answer Details

A Receipts and Payments Account records every cash inflow and outflow during the year, regardless of which accounting period the transaction belongs to. It also includes the opening and closing cash balances, which are assets, not income or expenses. To prepare an Income and Expenditure Account, only items that are revenue in nature and that relate to the current year are recognised.

On the payments side of the Receipts and Payments Account, two categories of items must be separated:

• Revenue expenditure (day-to-day running costs such as rent, salaries, stationery, printing, postage, refreshments, repairs, utilities, and similar recurring expenses). These are debited to the Income and Expenditure Account.
• Capital expenditure (purchases of fixed assets such as equipment, furniture, or investments) and the closing cash balance. These go to the Balance Sheet, not to the Income and Expenditure Account.

Unlike the income side, the payments side does not require an adjustment for the subscription timing difference. The subscription adjustment (removing the #180,000 received for 2017 arrears and the #150,000 received for 2019 in advance) affects only the income figure in the Income and Expenditure Account, not the expenses.

Adding up all the revenue expenditure items on the payments side of the Receipts and Payments Account gives the total expenses debited to the Income and Expenditure Account for 2018. That total is #8,095,000.

This can be cross-checked against the surplus. The surplus for 2018 from the same data is #5,235,000. Since:

\[ \text{Surplus} = \text{Total Income} - \text{Total Expenses} \]

\[ \text{Total Income} = \#5{,}235{,}000 + \#8{,}095{,}000 = \#13{,}330{,}000 \]

This confirms that the total expenses figure and the surplus are consistent with the underlying data.

A common mistake is to include the closing cash balance or a capital asset purchase as an expense. Neither belongs in the Income and Expenditure Account. Similarly, confusing the subscription adjustment (which reduces income) with an expense adjustment would lead to a wrong answer. Expenses on the payments side are taken at face value because they were all paid in cash during the year and relate to the club's operations for 2018.