Receipt and Payment Account Vs Income and Expenditure Account

Receipt and payment account and income and expenditure account both are prepared in not-for profit organisations. Both are useful for preparing financial statement in these organisation. But both are different features. We can show the difference between receipt and payment account and income and expenditure account on the following basis.

Basis of Difference		Receipt and Payment A/c		Income and Expenditure A/c
1. Definition		Receipt and payment account is the account which is made just like cash book.		Income and expenditure account is the account which is made just like profit and loss account.
2. Nature of Account		It is current asset account		It is nominal account for matching of incomes and expenditures of not-for-profit organisation.
3. Debit and Credit Side		Debit Side of this account shows receipts and credit side of this account shows only payments.		Debit side of this account shows different incomes like donation and subscription fees etc. Credit side of this account shows all the expenses.
4. Capital and Revenue items		We record both capital and revenue item in it but it must be in cash or through bank.		We record only revenue items. All capital nature income and expenditure will not show in it.
5. Balance after closing of account		If we close this account, balance at closing account will show the cash at hand and at bank or bank overdraft.		If we close this account, balance of this account will show the surplus (net profit or deficiency (net loss)
6. Cash Basis and Accrual Basis		Receipt and payment account follows only cash basis of accounting.		Income and expenditure account follows only accrual basis of accounting. It means, whether we pay or receive  in cash or these are still credit, we records only current year income and expenditures. We do all the adjustments of outstanding income and expenditures and advance incomes and expenditures in this account.

Income and Expenditure Account vs Profit and Loss Account

Income and expenditure account and profit and loss account both are prepared for finding net profit or net loss of organisation. Both are showing all the revenue expenditures and incomes for the year. But there are some fundamental differences between both which we are explaining with following basis.

Basis of Difference		Income and Expenditure  A/c		Profit and Loss  A/c
1. Definition		Income and expenditure account is account which is prepared for finding the excess of income over expenditures or excess of expenditures over incomes.		Profit and loss account is the account which is prepared for finding net profit or net loss.
2. Not for Profit organisation or Business		Income and expenditure account is prepared by not -for profit organisation whose aim is not to earn money.		Profit and loss account is prepared by business whose aim is to earn money.
3. Basis of Preparation		Income and expenditure account is prepared on the basis of receipt and payment account and some other information		Profit and loss account is prepared on the basis of trial balance and some other information.
4. Balance of Account		When we compare debit and credit side of this account, balance will be surplus or deficit.		The balance of profit and loss account will be net profit or net loss.

What is J Curve

In finance, J curve is curve which is made for showing trade deficit and private equity trend. It is J shaped diagram which simplified the trend. When the trend is small fall and then rise very fast, then the position is j curve.


1. Depreciation of Currency 

When the value of any country's currency is falling fastly, its import will be higher. Volume of import will decrease because we will buy less with same currency because our currency is depreciating fastly. At that time, our trade deficit will increase. Now foreigner can buy more from us because they can more at low price. So, our current account will go surplus. We can show this trend through j curve.

This position may be harmful for our economy. For example, in the area of medicine. Some important medicine are imported. When our currency will weak, we have to pay more. Due to this, life saving medicine cost will increase. So, devaluating own currency is not good policy.  Instead of decreasing the value of currency, every country's people do best for strong the value of their currency. For this, they have to decrease the level of corrupt and decreasing the cost of product. There are also other ways for improving trade deficit, we have to use other instead of devaluating own currency.

2. Private Equity

In the beginning time when we invest our money in private equity, our return on investment will be negative. We can show it in the graph paper. But after some time, our ROI will increase fastly because our cost of investment will decrease, so earning will increase on same level of investment. So, this trend can be shown in j curve.

What is Joint Bond

A joint bond is the bond which is guaranteed by two or more parties. We all know bond is the debt which is taken by company from bond-holder. When company issues the bond, it means, single company has given the guarantee to repay his taken debt. But when other his friend company will also give guarantee to repay the amount of bond, then this bond will become joint bond.


When is the Joint Bond Issued?

• Answer is very simple, when the creditor wants more security of his debt. At that time, other party than issuer will give his own guarantee for repayment of debt which is written in the bond plus interest. 
• When parent company gives the guarantee jointly with its subsidiary company for repayment of debt. 
• Sometime bank needs joint guarantors when it provides home loan. At that time, two or more parties will sign the join bond agreement. They have to repay the monthly installment. Any one or all together can repay this monthly installment of bank's home loan. 

What is the Joint Bond Agreement?

As per this agreement, all the parties who give guarantee will be liable to repay the debt jointly and severally. 

How to Better Understand Debits and Credits

If you understand the rules of debit and credit, you can better understand debits and credits. Rules will helpful to decide to write one account in the debit side and other account in credit side. This rules rules will also helpful to know, "why any account has been shown in the debit side of any other account and why any account has been shown in the credit side of any other account?"

These rules are collected on the basis of two approaches.

1. American Approach 

In american approach, debit and credits rules are following

A) Debit and Credit Rules for Assets Accounts

When there is any increase in the asset's value, it will be recorded in the debit side of journal entry and also same amount will be debited to same asset account account. If there is any decrease in the asset's value, same asset account will be credited in the journal entry and will go to credit side of same asset account account.

Example :

For example, we have nil furniture. We have bought the furniture of $ 10,000. Now, $ 10,000 is increase in the furniture asset. So, in the journal entry, furniture account will be debit because value of furniture asset has increased from zero. Cash account will be credited because cash asset has decreased. In the furniture account, cash account will be debited. In cash account, furniture account will be credited.

Remember

Asset Account
Dr.			Cr.
Increase in asset will be debited  at here		Decrease in asset will be credited at here

B) Debit and Credit Rules for Liabilities Accounts

When there is any increase in the liability's value, liability account will credited in the journal entry because by taking more loan or increasing in creditors, we have to include in the total liability account. Total liability account will always credit balance. In the ledger account, increase in the liability value will be credited in the liability account.

Decrease in the liability account will be debited in the journal entry because every decrease in the liability will also decrease the total value of our liabilities. So, we have to write in the debit side. It also will go to the debit side of liability account.

Example :

Mr. A borrows $ 10000 from joraj shamy. In the books of A, loan from joraj shamy is increase in our total liability. So, loan from joraj shamy will be credited and cash account will be debited in the journal entry. In the account of loan from joraj shamy, we will credited this loan's value by transferring cash account in its credit side.

Remember : 

Liability Account
Dr.			Cr.
Decrease in the liability will be debited at here		Increase in the liability will be credited at here

C) Debit and Credit Rules for Capital Account

Capital is also special type of liability. It is the liability which is taken from business's owner. So, liability account's debit and credit rules will apply on capital account.

Credit Rule :

Every increase in the capital by fresh capital will be credited in the journal entry. We will write the capital account credit and cash account debit in the entry. We also credited the increase value in the capital account.

Debit Rule :

Every decrease in capital by withdraw the money for personal use will be debit in the journal entry. In the journal entry, capital or drawing account will be debit and cash account or purchase (goods used for personal aim) will be credit. In the capital account, decrease in the value of capital will be debited.

Capital Account
Dr.			Cr.
Decrease in the capital will be debited at here		Increase in the Capital will be credited at here

D) Debit and Credit Rules for Income Accounts

 Credit Rule : 

Any increase in the income will be credited in the journal entry. For example, we have obtained dividend on our invested money in share. So, dividend income account will be credited and cash account will be debit. In the dividend income account, we also credit this increase in the income. We will show the cash account in the credit side of dividend income account.

Debit Rule :

Any decrease in the income will be debit. In journal entry, decrease in the income will be debited. In the income account, this decrease will also show in the debit side. For example, company has paid us over dividend than our actual dividend earned. So, we have returned the dividend. With this, our total income has decreased, so, this earning will be debited in the journal entry. In dividend account, we also this decrease in the debit side.

Income  Account
Dr.			Cr.
Decrease  in income  will be debited  at here		Increase  in income will be credited at here

E) Debit and Credit Rules for Expenses and Losses Accounts

Debit Rule : 

Every increase in the expense will be debited in the journal entry. Every increase in the value of expenses will also go to the debit side of expense account. For example, we have paid electricity bill of $ 200. Now, Electricity expense will be debited and cash account credited in the journal entry because $ 200 payment is the increase in the expenses. We also show $ 200 in the debit side of Electricity expense account.

Credit Rule 

Every decrease in the expense will be credited in the journal entry. Every decrease in the value of expense will also go to the credit side of same expense account.

Logic : Do, you know, how, we pay all the expenses. We pay all the expenses from our working capital. Working capital is the part of our total capital. It means, we pay all the expenses or suffer all the losses from our total capital. So, increase in the expenses is the decrease in the capital. Decrease in the capital is the increase in the capital. There is opposite relation between expense and capital. So, we show increase and decrease in opposite side in both account.

Expenses  Account
Dr.			Cr.
Increase in expenses and losses will be debited  at here		Decrease in expenses and losses  will be credited at here

2. Traditional Approach 

Learn traditional approach deeply through journal entries examples at here.

A) Debit and Credit Rules for Personal Accounts

i) Debit is the receiver

ii) Credit is the giver

B) Debit and Credit Rules for Real Accounts

i) Debit :  What comes in.

ii) Credit  : What goes out.

C) Debit and Credit Rules for Nominal Accounts

i) Debit : All the expenses and losses

ii) Credit : All the incomes and gains.

Debit vs Credit in Accounting

In this world, all the accounting software use debit and credit tools of accounting system. To know the debit and credit and their difference is necessary to pass correct journal entries in the your accounting software. If you still do not know the difference between debit and credit, there is chance of mistake of wrong debit or credit to any account. Due to this, your accounting statement will not show true financial results. So, today, we are trying to teach the differences between debit and credit in accounting.

Debit and credit is not just plus and minus. It is scientific way to pass the journal entries. On the basis of type of account, we debited any account and we credited any other account. In every journal entry, all the debit account's amount will equal to credit account's amount. On following basis, we can tell the differences in debit and credit.

1. On the Basis of Effect on Our Assets 

Whether we have current asset or fixed asset, when we debit any asset account, value of same asset will increase. We know, bank account represent our bank asset. If we debit bank account with $ 30,000, it means, our bank balance has increased by $ 30,000.

If we credit any asset account, value of asset will decrease. If we credit same bank account with $ 20,000. It means balance of bank will decrease by $ 20,000. So, it is very easy to understand the difference between debit and credit by knowing its effect on our assets.

2. On the Basis of Effect on Our Liabilities 

If we debit any liability, value of our liability will decrease. It will apply both on our current liability and long term liabilities. For example, we debit MR. A creditor by $ 10,000. It means, now our liability to Mr. A creditor has decreased by $ 10,000.

If we credit any liability account, it means, value of same liability will increase. We have credited Mr. B creditor account by $ 40,000, it means, value of Mr. B creditor has increased by $ 40,000.

3. On the Basis of Recording Expenses and Incomes 

For recording expenses, we debit the expenses. For recording, incomes, we credit the incomes.  By debit the expenses, we are decreasing our capital. By credit incomes, we are increasing our capital. For example, we have debited insurance premium fees of $ 1000, it means, our total capital will decrease by $ 1000. Capital is the part of our liability. So, if think deeply, by doing this, debit will decrease the value of our liability.

We have received commission of $ 2000  for business deal. So, this is our income. So, for recording this, we will credit commission account. It will increase our capital. So, by doing this, capital liability will increase.

Types of Annuity Settlements

When any customer has bought the an annuity plan from any insurance company, he has to fix, how will he get its benefit through annuity settlements. So, insurance company has divided his annuity settlements into 4 parts.

1st Type : Life Time Payment Option

If any customer will buy this annuity plan, insurance company will pay him its benefit life time. But if he dies, his beneficiaries will not get the principle amount which is invested by him.

2nd Type : Life Time Payment with Refund Option 

If any customer will buy this annuity plan, insurance company will pay him its benefits life time through annuity settlements but if he dies, his beneficiaries will get the principle amount of investment.

3rd Type : Life Time Payment Option with Certain Period 

As per this annuity plan, customer will get life time payments from insurance company. But if he dies before the certain period, same payment will start to his beneficiaries. For example, after starting payment, the certain period is is 6 year, if you die before six year, same life time payment will start to your beneficiary whose name is nominated by you.

4th Type :  Annuity Settlement in Certain Temporary Period 

In this type of annuity settlement, you will receive the payment for a set of period. It may be 10 years or 20 years. If you die before this period, your beneficiaries will get same period upto same set of period. For example, set of period is 20 years, after 14 years, you have died. Now, next 6 years, your beneficiaries will get the payment.

Important : In first type, there will be high rate of return because beneficiaries can not claim for refund or payment. In other types return will be low than first type.

Equivalent Annuity Method

Equivalent annuity method is the method of capital budgeting which is used when we have to evaluate two projects whose life time is not same. Life time means working time of asset. Suppose, if any asset's life time is 10 years and other asset’s life time is 6 years, then we can not compare these two projects with the help of NPV. To solve this problem, some of wise finance managers have made equivalent annuity method. This method tells us that we can convert total NPV of each project into annual NPV just by dividing total NPV by the present value of annuity factor. After this adding only NPV that it will equal to other’s cash inflows

Steps to Calculate Annuity Payments

To know the steps to calculate annuity payments is necessary for better decisions of investment in this type of insurance policy. For example, if you have estimated future per month earning is $ 1000 but your requirement is $ 2000, you can invest more in same annuity plan. So, here, we are teaching the simple steps to calculate annuity payments to you.


1st Step : Know the Different Types of Annuity 

There are 4 main types of annuity plan. One plan in which you have invested money and you get the guarantee of return. Second plan, in which, you get return on the basis of the performance of your investment. Third plan in which you get return after sometime. Fourth plan in which you get return and receive return immediately after investment. On all these types, amount of investment and rate of return may be different. Now, it is on you which plan you will buy. So, know all these plans and select any one is necessary for calculation of annuity payments which you will get from your investment.


2nd Step : Know the Different Types of Annuity Settlement

In previous content "Types of annuity settlement" I have explained, how will you get the annuity payment. In one plan, you will get life time payment with refund of principle to your family after death. But in other plan of annuity settlement, there is the provision of refund of principle. So, you have to choose best annuity settlement. On this basis, amount of investment may be different. So, for calculation of annuity payments, to know and select any one annuity settlement type is necessary.


3rd Step : Know total Amount of Principle Investment and Rate of Return

Now, after crossing above two steps, it is the time to study the proposal letter in which you will get the exact principle and rate of return on annuity plan.


4th Step : Manual Calculation of Annuity Payments

Just take the blank paper and ready to calculate the estimated amount of annuity payments.

Formula of Annuity Value

=  Annuity Payment Amount X Present Value of Annuity Factor (PVOAF)

Present value of annuity factor can be calculated on the basis of rate of interest and period of investment. Its also name is present value interest factor of annuity. There is its table from where you can find the factor value.



For example, you have invested $ 100,000 at 5% for 25 years. You can get its annuity payment with following ways.

1,00,000 = Annuity Payments X 14.096

1,00,000/14.096 = Annuity payments per year

$ 7094.21 =  Annuity payments per year


You can also use PMT formula of excel for calculating annuity payments.

What is K-Percent Rule

K-Percent is the rule which was given by Nobel prize winner and Economist Milton Friedman. As per this rule, Govt and central bank should increase the supply of money on the basis of Growth of GDP. It will help the country to solve the liquidity and lead country to control prices.


As per K-Percent rule, reserve bank should supply more money if there is critical position of weak economy. At that time, if reserve bank will tight the money supply, prices will increase and economy may be collapse.

How Does K-Percent Rule Work?

Every time, when central bank supplies more money in the market, interest rate will decrease. Public gets more cheap loan. So, they will start their business. They can keep low prices of their products because loan at low rate will help them to grow fastly by reducing their products cost. So, by this way, economy will grow.

One of important point, supply of money should increase which will equal to growth of real gross domestic product.


K-சதவீதம் நோபல் பரிசு பெற்றவரும், பொருளாதார வல்லுனர் மில்டன் ப்ரீட்மன் வழங்கப்பட்டது இது விதி. இந்த சட்டத்தின் பிரகாரம், அரசு மற்றும் மத்திய வங்கி மொத்த உள்நாட்டு உற்பத்தியில் வளர்ச்சி அடிப்படையில் பண வழங்கலை அதிகரிக்க வேண்டும். இது நாட்டின் விலை கட்டுப்படுத்த பணப்புழக்கம் மற்றும் முன்னணி நாட்டில் தீர்க்க உதவும். 

பலவீனமான பொருளாதாரம் விமர்சன நிலையில் இருந்தால் K-சதவீதம் ஆட்சியை படி, ரிசர்வ் வங்கி அதிக பணம் வழங்க வேண்டும். அந்த நேரத்தில், நீங்கள் ரிசர்வ் வங்கி இறுக்கமான பணம் வழங்கல், விலை அதிகரிக்கும் மற்றும் பொருளாதாரம் சரிவு இருக்கலாம். 

K-சதவீத விதி எப்படி வேலை செய்கிறது? 

  ஒவ்வொரு முறையும், மத்திய வங்கி சந்தையில் அதிக பணம் வினியோகம் போது, வட்டி விகிதம் குறையும். பொது மேலும் மலிவான கடன் கிடைக்கிறது. எனவே, அவர்கள் தங்கள் தொழிலை தொடங்க வேண்டும். குறைந்த விகிதத்தில் கடன் அவர்கள் தங்கள் தயாரிப்புகளை குறைப்பதன் மூலம் fastly வளர உதவும் என்பதால் அவர்கள் தங்கள் பொருட்களின் விலை குறைந்த வைத்திருக்க முடியும். எனவே, இந்த வகையில், பொருளாதாரம் வளரும். 

முக்கியமான புள்ளி ஒருவர், பணம் வழங்கல் உண்மையான மொத்த உள்நாட்டு உற்பத்தியில் வளர்ச்சி சமமாக இது அதிகரிக்க வேண்டும்.