Difference between receipts and payments account and cash book
Both cash book and receipts and payments account show the same balance of cash at the end of the year. The receipts and payments account is actually a classified form of cash book.
The two accounts can however be differentiated on the basis of the following characteristics:
Application of double entry system
- Cash book:
The double entry system of accounting must be followed while making entries in a cash book. - Receipts & payments a/c:
The rules of double entry system are not applicable for the preparation of receipts and payments account.
Chronological recorded
- Cash book:
The transactions are recorded in the cash book in a chronological order (i.,e in the order in which they occur). - Receipts & payments a/c:
The transactions are recorded in the receipts and payments account in a classified manner at the end of the accounting period which usually consists of one year.
Narration
- Cash book:
A narration is usually written after each entry in the cash book. The use of narration is however optional. - Receipts & payments a/c:
Narration is not written in receipts and payments account.
Posting reference
- Cash book:
A posting reference (abbreviated as PR) column is used in cash book to refer the ledger accounts to which various entries relate. - Receipts & payment a/c:
Posting reference column is not used in receipts and payments account.
Ascertainment of daily or monthly cash balance
- Cash book:
In case of a cash book, the cashier or some other relevant person can ascertain the cash balance at the end of each day, month or another period. - Receipts and payment a/c:
It is mostly prepared at the end of the period so there is no question of ascertainment of daily or monthly cash balance.
Preparation by entities
- Cash book:
A cash book is prepared by both trading and non-trading concerns. - Receipts and payments a/c:
It is mostly prepared by non-trading concerns. Trading concerns don’t need to prepare it.
Nature of account
- Cash book:
The nature of cash book is like a current account in which transactions are recorded whenever they occur. - Receipts & payments a/c:
Receipts and payments account is a periodical account which is prepared at the end of a certain period which is usually one year.
Importance and need
- Cash book:
Trading concerns maintain either a cash account or a cash book. It is a need of every business and its preparation is therefore essential.
Receipts & payments a/c:
It is used for preparing income and expenditure account and for other purposes. Its preparation is optional because it is not a part of the formal double entry system of non trading concerns. The income and expenditure account and balance sheet can be prepared directly from trial balance and some additional information.
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