September 2016 – accountingexplained

Receipts and Payments Accounts

This should be an easy topic with not much anticipated issues. Receipts and payments accounts are used for non-profit making organisation. Since their purpose of existence is not supposed to be profit-making, there is no need to prepare for an income statement. Instead, you are required to open either receipts and payments accounts or income and expenditure accounts.

Receipts and Payments Accounts is basically a new name for your cash book. The format is basically similar to cash book, with cash received being a debit entry and cash paid being a credit entry.

receipts-and-payments-accounts

The only concern with the above is the subscription amount. You will need to refresh your memory on accrued/prepaid revenue. As a club, their main revenue will be from collecting subscription fee from their members. Remember that accrued subscription means owing from members (or the members owe the club) and prepaid subscription means advances from members (or the club owes the members). This will definitely get tested, so do remember or understand it properly.

I will spend a little more time to explain this so do spend some time thinking through the examples below:

subscription-account-accrued-and-prepaid-revenue

At year end, your subscription account will look like this. (I showed this because I think most people will get confused on which entry should you put owing b/d or prepaid b/d).

If you bring forward the ending balance, then the subscription account will now looks like this.

subscription-account-2

Now, you have the format for subscription account! Remember that note 1 is actually your last step. In the exam, you will be given all the figures for owing b/d, owing c/d, prepaid b/d, prepaid c/d and bank except income and expenditure. After you have calculated this, you will need to put this figure into income and expenditure account.

Instead of calling profit and loss account, the name for profit and loss account has been changed to income and expenditure account. There are the same thing, but you will need to use income and expenditure account for non-profit organisation.

If you are still in doubt, do visit back previous chapter for Adjustment for Final Account.

Partnership Dissolution

This will be the last sub-topic for partnership account and will be relevant to GCSE ‘A’ Level.

You will need to be able to realise that any profit or loss on dissolution should be shared by all the partners in their profit and sharing ratios. If there are circumstances where the partner’s final balance on his capital and current accounts is in deficit, the partner will have to pay that amount into the partnership bank account.

When dissolving the business, you will need to get rid of the assets by either 1) disposing it or 2) the partner(s) to take it. All these entries will need to be made into realisation account.

realisation-account

Net realisable amount is the amount that you will receive in disposing assets. You will need to use this amount because it will be the actual amount that the business will receive.

Do not forget about dissolution costs! You must include them in the realisation account (debit) and bank account (credit).

T-accounts for disposing the assets are only recommended if the question asks you to do so! Otherwise, there is no need to do so! Here is an example of how to do it.

disposing-assets-in-dissolution-of-partnership

Next, you will need to open up capital account for each partner. This is to calculate how much each partner will receive or pay the business as a result of the dissolution. Remember that all partners have unlimited liability, if the business runs out of cash in dissolving the business, all the partners will have to settle the additional liabilities from their own pockets.

Here is the format for capital account.

partner-capital-account-in-dissolution-of-partnership

Finally, you will need to open a bank account. Bank account will be your last step in dissolution because there are no more extra calculations required, you only need to put all the numbers in the right places. It therefore act as your check if you have done everything correctly.

bank-account-in-dissolution-of-partnership

Things to note in order to score well,

You must include dissolution costs.
You must be able to remember all the formats (including the bank account).
Remember to use only net book value in the debit side and net realisable amount in the realisation account.
Do remember to include asset taken by partner into their respective capital account.
You must pay your creditors from your bank account.