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Financial Accounting · Financial Statements of Not-for-Profit Organisations

Preparing Balance Sheet from Receipts and Payments Account

Updated 10 October 2026 · Fact-checked

A receipts and payments account is a summary of cash and bank only. To get final accounts, first derive the opening balance sheet and capital fund, then convert each item to an accrual basis for the income and expenditure account. Put capital items on the balance sheet. Closing capital fund is opening capital fund plus surplus plus capitalised receipts.

Understand Preparing Balance Sheet from Receipts and Payments Account

A not-for-profit organisation (NPO) such as a club or society keeps a receipts and payments account. It lists cash and bank receipts and payments of the year, whatever year they relate to. It also includes capital items like purchase of furniture or receipt of a loan. It shows no outstanding amounts and no depreciation.

The income and expenditure account is the NPO's profit and loss account. It follows the accrual basis and shows only revenue items of the current year. Its balance is a surplus (income more than expenditure) or a deficit.

The balance sheet shows assets, liabilities and the capital fund. The capital fund is the NPO's equivalent of owner's capital. It is the net worth of the organisation, and the surplus or deficit is added to it or deducted from it.

Exam questions rarely give you the opening balance sheet. The opening cash and bank balances are in the receipts and payments account. The other opening assets and liabilities are hidden in the notes, such as opening outstanding subscriptions or opening furniture. You collect them, and the balancing figure is the opening capital fund.

The whole job is sorting each line into one of three groups: revenue items for the income and expenditure account, capital items for the balance sheet, and special items such as funds that need specific treatment.

Key rules to remember

Opening capital fund
Opening capital fund = Opening total assets − Opening outside liabilities
Opening cash and bank come from the receipts and payments account. Add every other opening asset given in the notes. Include opening outstanding income as an asset and opening prepaid expenses as an asset. Deduct opening outstanding expenses and income received in advance as liabilities.
Closing capital fund
Closing capital fund = Opening capital fund + Surplus (or − Deficit) + Capitalised receipts
Capitalised receipts are items such as entrance fees, general donations or legacies when the question says to capitalise them. Add them directly to the capital fund. They do not go through the income and expenditure account.
Subscription income for the year
Subscriptions = Received − Opening outstanding + Closing outstanding + Opening advance − Closing advance
Opening advance means received last year for this year. Closing advance means received this year for next year.
Expense for the year
Expense = Paid + Closing outstanding − Opening outstanding + Opening prepaid − Closing prepaid
The same pattern works for salaries, rent, insurance and similar items.
Balance sheet check
Total assets = Outside liabilities + Closing capital fund (and any specific funds)
If this does not tally, recheck the opening capital fund and the adjustments.

How to solve Preparing Balance Sheet from Receipts and Payments Account questions

Use this order for any question. Do not start with the income and expenditure account. Start with the opening position.

  1. 1List the opening assets and liabilities. Take opening cash and bank from the receipts and payments account. Take the rest from the notes or the opening data given.
  2. 2Find the opening capital fund as total opening assets minus outside liabilities.
  3. 3Go through each line of the receipts and payments account. Tick revenue items for the income and expenditure account. Mark capital items such as asset purchases, investments, loans and capitalised receipts for the balance sheet.
  4. 4Adjust each revenue item to the accrual basis using the paid, outstanding and prepaid pattern. Add depreciation on assets and any other adjustment given.
  5. 5Prepare the income and expenditure account with expenditure on one side and income on the other. Find the surplus or deficit.
  6. 6Prepare the closing balance sheet. Take closing cash and bank from the payment side of the receipts and payments account. Value assets after purchases and depreciation. Show outstanding and advance items.
  7. 7Compute the closing capital fund and check that the balance sheet tallies.

Quickest way: One-pass tally method

When to use it: Use this when time is short and the question has many adjustments. It works best when you must still show a full balance sheet.

  1. Write the opening capital fund first. Keep the opening balance sheet as a small rough table.
  2. Beside each receipts and payments item, write R (revenue), C (capital) or S (special fund). Do this before any calculation.
  3. Calculate the adjusted figure for each revenue item in one line in the margin, using paid, outstanding and prepaid.
  4. Write the final accounts straight from your margin figures.
  5. Do a quick tally check. Closing assets minus liabilities should equal opening capital fund plus surplus plus capitalised receipts.

Common mistakes in Preparing Balance Sheet from Receipts and Payments Account

  • Treating opening cash and bank balances as income

    They appear on the receipts side of the receipts and payments account, so students copy them across.

    Fix: Opening balances are never income. They are opening assets. Use them only to find the opening capital fund.

  • Taking the whole amount paid as expenditure

    Students forget that the amount paid may include earlier-year or next-year amounts.

    Fix: Always apply the paid, outstanding and prepaid adjustment. Find the amount for the current year only.

  • Showing purchases of assets in the income and expenditure account

    Payments look like expenses on the payment side.

    Fix: Purchases of furniture, equipment and investments are capital payments. Show them as assets on the balance sheet. Charge only depreciation to income and expenditure.

  • Forgetting opening outstanding amounts in the capital fund

    Students use only cash and bank as opening assets.

    Fix: Include all opening assets and liabilities given in the notes, then take the balancing figure.

  • Putting capitalised receipts through the income and expenditure account

    Entrance fees and general donations are receipts, so students treat them as income.

    Fix: Follow the question. If it says to capitalise them, add them directly to the capital fund. Otherwise follow the treatment stated.

  • Depreciating an asset on the opening value only

    Students ignore additions made during the year.

    Fix: Depreciate on the opening balance plus additions at the rate and basis given. State your assumption if the date of purchase is unclear.

Worked examples

Example 1

Sunrise Club's receipts and payments account for the year ended 31 March 2027 is: Receipts: Opening cash ₹20,000; Opening bank ₹80,000; Subscriptions ₹3,00,000; Entrance fees ₹20,000; Interest on investments ₹12,000. Payments: Salaries ₹1,20,000; Rent ₹36,000; Sports equipment purchased ₹60,000; Miscellaneous expenses ₹24,000; Closing cash ₹30,000; Closing bank ₹1,62,000. Additional information: (a) On 1 April 2026, subscriptions outstanding were ₹15,000, outstanding salaries ₹8,000, sports equipment ₹1,00,000 and investments ₹1,50,000. (b) On 31 March 2027, subscriptions outstanding are ₹25,000, subscriptions received in advance ₹5,000 and salaries outstanding ₹10,000. (c) Depreciate sports equipment at 10% on the total value including the new purchase. (d) Entrance fees are to be capitalised. Prepare the income and expenditure account and closing balance sheet.

Show the solution
  1. Opening assets: cash 20,000 + bank 80,000 + subscriptions outstanding 15,000 + sports equipment 1,00,000 + investments 1,50,000 = ₹3,65,000. Opening liability: outstanding salaries ₹8,000.
  2. Opening capital fund = 3,65,000 − 8,000 = ₹3,57,000.
  3. Subscriptions for the year = 3,00,000 − 15,000 + 25,000 − 5,000 = ₹3,05,000.
  4. Salaries for the year = 1,20,000 + 10,000 − 8,000 = ₹1,22,000.
  5. Depreciation = 10% of (1,00,000 + 60,000) = 10% of 1,60,000 = ₹16,000.
  6. Income: subscriptions 3,05,000 + interest 12,000 = ₹3,17,000. Entrance fees are not income here.
  7. Expenditure: salaries 1,22,000 + rent 36,000 + miscellaneous 24,000 + depreciation 16,000 = ₹1,98,000.
  8. Surplus = 3,17,000 − 1,98,000 = ₹1,19,000.
  9. Closing capital fund = 3,57,000 + 1,19,000 + 20,000 (entrance fees) = ₹4,96,000.
  10. Closing assets: cash 30,000 + bank 1,62,000 + subscriptions outstanding 25,000 + sports equipment (1,60,000 − 16,000) 1,44,000 + investments 1,50,000 = ₹5,11,000.
  11. Liabilities side: capital fund 4,96,000 + outstanding salaries 10,000 + subscriptions received in advance 5,000 = ₹5,11,000. The balance sheet tallies.

Answer: Surplus ₹1,19,000. Opening capital fund ₹3,57,000. Closing capital fund ₹4,96,000. Balance sheet total ₹5,11,000.

Example 2

Green Valley Society's receipts and payments account for 2026-27 shows: opening cash ₹15,000; opening bank ₹45,000; subscriptions received ₹2,10,000; general donation received ₹30,000 (to be capitalised); rent paid ₹48,000; insurance paid ₹6,000. On 1 April 2026: furniture ₹90,000, subscriptions due ₹10,000, outstanding rent ₹6,000, prepaid insurance ₹2,000. On 31 March 2027: subscriptions due ₹14,000, outstanding rent ₹4,000, prepaid insurance ₹3,000. Depreciate furniture at 10% on the opening value. Find the opening capital fund, the surplus and the closing capital fund.

Show the solution
  1. Opening assets: cash 15,000 + bank 45,000 + furniture 90,000 + subscriptions due 10,000 + prepaid insurance 2,000 = ₹1,62,000.
  2. Opening liability: outstanding rent ₹6,000. Opening capital fund = 1,62,000 − 6,000 = ₹1,56,000.
  3. Subscriptions = 2,10,000 − 10,000 + 14,000 = ₹2,14,000.
  4. Rent = 48,000 − 6,000 + 4,000 = ₹46,000.
  5. Insurance = 6,000 + 2,000 − 3,000 = ₹5,000.
  6. Depreciation on furniture = 10% of 90,000 = ₹9,000.
  7. Surplus = 2,14,000 − (46,000 + 5,000 + 9,000) = 2,14,000 − 60,000 = ₹1,54,000.
  8. Closing capital fund = 1,56,000 + 1,54,000 + 30,000 (general donation capitalised) = ₹3,40,000.

Answer: Opening capital fund ₹1,56,000. Surplus ₹1,54,000. Closing capital fund ₹3,40,000.

Exam tips

  • Spend the first two minutes on the opening balance sheet. A wrong opening capital fund spoils the final balance sheet, even if every other figure is right.
  • Show your working for each adjusted figure, such as subscriptions and salaries. Step marks are given for working even if the final surplus is wrong.
  • Read the capitalisation instructions word by word. Entrance fees, donations and legacies are treated differently depending on what the question says.
  • Always tally the balance sheet. If it does not tally, check opening items first, then the depreciation base.
  • For MCQs, the usual traps are the sign of the opening outstanding adjustment and whether a payment is capital or revenue. Check both before choosing.

Practice questions from Financial Statements of Not-for-Profit Organisations

Preparing Balance Sheet from Receipts and Payments Account in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Preparing Balance Sheet from Receipts and Payments Account: frequently asked questions

How do I find the opening capital fund of an NPO?

Add all opening assets, including opening cash and bank from the receipts and payments account and any other opening balances given. Deduct opening outside liabilities. The balancing figure is the opening capital fund.

Is the opening balance in the receipts and payments account part of income?

No. It is only the opening cash or bank balance, which is an asset. Use it to find the opening capital fund and never show it in the income and expenditure account.

How is closing capital fund calculated?

Add the surplus to the opening capital fund, or deduct the deficit. Also add capitalised receipts such as entrance fees or general donations when the question directs that treatment. The result is the closing capital fund.

Where do purchases of assets go?

They are capital payments, so they appear as assets on the balance sheet. Only the depreciation for the year is charged to the income and expenditure account.