Preparation of Receipts and Payments Account from the Income and Expenditure Account commences with the opening Lash and bank balances, shows all receipts and payments made during the year, and ends with the closing cash and bank Balances. While recording the receipts and payments in this account, no distinction is made between capital and revenue items as both are to be included. Similarly, whether the amount received or paid relates to the current year the preceding years or the following years, it is fully recorded in the Receipts and Payments Account. You know it is prepared normally with the help of Cash Book and Ledger (or the Trial Balance). But, sometimes, you may be asked to prepare it from the Income and Expenditure Account and some additional information. In such a situation, you must remember that the Income and Expenditure Account shows those items which are of revenue nature and records only such amounts which relates to the current year. The capital items and the receipts and payments relating to the preceding and the following years are to be excluded. Then, it also includes the amounts of expenses and incomes which are yet to be paid or received (outstanding). Hence, while calculating the amount of each receipt and payment on the basis of the respective income and expenditure as given in the Income & Expenditure Account, you will have to make necessary adjustments in their amounts.

Suppose, the Income and Expenditure Account for the year ending December 31,1988 shows the income from subscriptions as Rs.9,000 which includes Rs.800 for subscriptions outstanding at the end and Rs.600 for subscriptions received in advance during 1987. It is also observed that during 1988 Rs.700 was received for subscriptions related to 1989 and Rs.400 for subscriptions outstanding at the end of 1987. Now the amount received on account of subscriptions during 1988 will be worked out as follows:

Thus, you will notice that for calculating the amount of subscriptions received we make adjustments in the income from subscriptions which are just the reverse of what we would do while calculating the income from subscriptions with the help of the figure given in the Receipts and Payments Account and the additional information. This applies to all items of receipts and payments.