CSR and Social Governance · Financial and Non-financial Reporting of Different Non-Corporate Entities

Receipts and Payments and Income and Expenditure Account for NPOs

Updated 11 October 2026 · Fact-checked

A receipts and payments account is a summary of cash and bank transactions of a non-profit entity for a period. An income and expenditure account is its revenue statement on accrual basis, showing surplus or deficit. To solve questions, adjust receipts and payments for accruals, prepayments and capital items, then prepare the balance sheet.

Understand Financial Statements: Receipts and Payments, Income and Expenditure

Trusts, societies, clubs and other non-profit organisations do not aim to earn profit. So they do not prepare a trading and profit and loss account. They prepare a receipts and payments account, an income and expenditure account and a balance sheet.

The receipts and payments account is a summary of the cash book. It starts with opening cash and bank balances and ends with closing balances. It records actual receipts and payments, whether they relate to the current year, earlier years or later years. It also includes capital items, such as sale of investments or purchase of furniture. It does not show surplus or deficit.

The income and expenditure account is the revenue statement. It follows the accrual basis. It shows only income and expenses that belong to the current year, whether or not cash has moved. It excludes capital receipts and capital payments. Its balancing figure is a surplus (excess of income over expenditure) or a deficit. The surplus or deficit is added to or deducted from the capital fund in the balance sheet.

The balance sheet shows assets, liabilities and the capital fund (also called general fund) at the year end. The capital fund is the excess of assets over liabilities. Special funds, such as a legacy fund or a specific-purpose fund, are shown separately.

The skill tested is conversion. You take the receipts and payments account plus adjustments, and you build the income and expenditure account and balance sheet from it. Remember: if the question gives a receipts and payments account, you must remove everything that is capital or belongs to another year, and add everything that is due or accrued for this year.

Key rules to remember

Surplus or deficit: Surplus or Deficit = Total revenue income of the year − Total revenue expenditure of the year; Both on accrual basis. A surplus increases the capital fund; a deficit reduces it.
Accrual adjustment for an expense: Expense for the year = Amount paid in the year − Opening outstanding − Closing prepaid + Closing outstanding + Opening prepaid; Opening prepaid relates to the current year, so it is added. Opening outstanding was already charged earlier, so it is deducted.
Accrual adjustment for an income: Income for the year = Amount received in the year − Opening accrued + Closing accrued − Closing received in advance + Opening received in advance; Opening accrued income was earned last year, so deduct it. Opening advance relates to this year, so add it.
Capital fund: Capital fund = Total assets − Total outside liabilities (excluding special funds shown separately); Use this to find the opening capital fund from the opening balance sheet when it is not given.
Consumption of stock: Consumed = Opening stock + Purchases − Closing stock; Used for stationery, medicines and canteen items. Take purchases on accrual basis.
Treatment of items: Revenue items → Income and Expenditure Account; Capital items → Balance Sheet; Entrance fees, legacies and general donations may be capitalised or treated as income depending on the facts or the stated policy. Follow the question.

How to solve Financial Statements: Receipts and Payments, Income and Expenditure questions

Use the same sequence for any question that gives a receipts and payments account with adjustments and asks for the income and expenditure account and balance sheet.

1Read the adjustments first and note which items are capital and which are revenue.
2Start with the receipts side. Copy only revenue receipts into the income side. Leave out opening balances, sale of assets, investments, loans, and capital receipts.
3Adjust each income for accruals and advances, using the formulas, so that it shows the current-year figure.
4Take the payments side. Copy only revenue payments into the expenditure side. Leave out purchase of assets, repayment of loans and investments.
5Adjust each expense for outstanding and prepaid amounts. Add depreciation on fixed assets and write off any other given losses.
6Total both sides. The balancing figure is the surplus or deficit. Check that no capital item has slipped in.
7Prepare the opening balance sheet if needed to find the opening capital fund. Then build the closing balance sheet with updated assets, liabilities, special funds and the capital fund after adding the surplus or deducting the deficit.
8Check that the balance sheet totals tally. If not, recheck accruals, depreciation and opening balances.

Quickest way: Three-column sweep

When to use it: Use when the question has many adjustments and little time. It keeps you from missing a capital item or an accrual.

Make three tick marks beside each line of the receipts and payments account: I and E, balance sheet, or ignore.
Write the adjustment figures directly beside the line they affect, so you see the final figure at once.
Build the income and expenditure account from the I and E ticks only.
Compute the closing balance of each asset and liability from the balance sheet ticks and adjustments.
Take the capital fund as the balancing figure only after you have worked it out independently, and use any difference as a signal to recheck.

Common mistakes in Financial Statements: Receipts and Payments, Income and Expenditure

Copying the whole receipts and payments account into the income and expenditure account.
Both accounts look alike and students assume one is a rearrangement of the other.
Fix: Include only revenue items of the current year. Opening and closing balances and capital items never go in.
Showing subscriptions on cash basis.
Students forget the outstanding and advance subscription adjustments.
Fix: Adjust for subscriptions outstanding and in advance, both opening and closing, using the income formula.
Treating purchase of assets as an expense.
It appears on the payments side along with ordinary expenses.
Fix: Add it to the asset in the balance sheet and charge only depreciation to the income and expenditure account.
Ignoring opening outstanding or prepaid items.
Students adjust only closing figures.
Fix: Use the opening balance sheet. Opening outstanding expenses reduce this year's expense; opening prepaid ones increase it.
Showing a specific fund's income and expenses in the general account.
The question says a fund exists, but the student does not link the items to it.
Fix: Follow the instruction. Income from a specific fund is usually added to that fund and its expenses deducted from it, unless the question says otherwise.
Treating sale of old assets as income.
Sale proceeds appear on the receipts side.
Fix: Remove the asset at book value. Show only the profit or loss on sale in the income and expenditure account.

Worked examples

Example 1

Greenleaf Welfare Society had subscriptions received of ₹80,000 during the year. Subscriptions outstanding were ₹6,000 at the start and ₹10,000 at the end. Subscriptions received in advance were ₹2,000 at the start and ₹5,000 at the end. Find the subscription income to be shown in the income and expenditure account.

Show the solution

Start with subscriptions received: ₹80,000.
Deduct opening outstanding, earned last year: ₹80,000 − ₹6,000 = ₹74,000.
Add closing outstanding, earned this year but not received: ₹74,000 + ₹10,000 = ₹84,000.
Deduct closing advance, relating to next year: ₹84,000 − ₹5,000 = ₹79,000.
Add opening advance, received last year for this year: ₹79,000 + ₹2,000 = ₹81,000.

Answer: Subscription income = ₹81,000.

Example 2

Shubham Sports Club's receipts and payments account for the year shows: receipts: opening cash ₹20,000, subscriptions ₹90,000, donation for building ₹50,000, interest ₹10,000; payments: salaries ₹40,000, sports equipment purchased ₹30,000, rent ₹15,000, closing cash ₹85,000. Adjust: salaries outstanding ₹5,000 at the end; no opening balances. Depreciation on sports equipment ₹3,000. Prepare the income and expenditure account and find the surplus.

Show the solution

Check the receipts total: ₹20,000 + ₹90,000 + ₹50,000 + ₹10,000 = ₹1,70,000. Payments total: ₹40,000 + ₹30,000 + ₹15,000 + ₹85,000 = ₹1,70,000. It tallies.
Income: subscriptions ₹90,000 and interest ₹10,000. Total ₹1,00,000. The building donation is a capital receipt and is excluded. Opening cash is excluded.
Expenditure: salaries ₹40,000 + ₹5,000 outstanding = ₹45,000.
Rent: ₹15,000.
Depreciation: ₹3,000. Equipment purchase of ₹30,000 is capital and is excluded.
Total expenditure: ₹45,000 + ₹15,000 + ₹3,000 = ₹63,000.
Surplus = ₹1,00,000 − ₹63,000 = ₹37,000.

Answer: Surplus = ₹37,000. The building donation of ₹50,000 is shown as a capital item in the balance sheet, not in the income and expenditure account.

Exam tips

Write one line first: which items are capital and which are revenue. This earns marks even if arithmetic slips.
Show working notes for subscriptions, salaries and other adjusted items. Examiners award marks for the working.
Follow the question's instruction on donations, legacies and entrance fees. If it is silent, state your assumption.
Start with the opening balance sheet when the capital fund is not given. Many students lose marks by skipping it.
After preparing the statements, add a short line on the difference between the two accounts if the question asks for a comparison.

Practice questions from Financial and Non-financial Reporting of Different Non-Corporate Entities

Financial Statements: Receipts and Payments, Income and Expenditure in other exams

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

Financial Statements: Receipts and Payments, Income and Expenditure: frequently asked questions

What is the main difference between a receipts and payments account and an income and expenditure account?

The receipts and payments account is a summary of cash and bank transactions and includes capital and revenue items of all periods. The income and expenditure account includes only revenue items of the current year on accrual basis. It shows a surplus or deficit; the receipts and payments account does not.

Does an income and expenditure account start with opening cash?

No. Opening and closing cash and bank balances appear in the receipts and payments account and the balance sheet. The income and expenditure account has only income and expenses.

Where does the surplus of a non-profit organisation go?

It is added to the capital fund (general fund) in the balance sheet. A deficit is deducted from the capital fund.

How are donations treated in the accounts of an NPO?

It depends on the nature and the terms. Donations for a specific purpose, such as a building, are usually treated as capital receipts. General donations are usually treated as income. Follow the question's instructions or state your assumption.