The correct answer is option 4- None of 1 and 2 is correct.
- Receipts and Payments accounts contain only revenue receipts. This is incorrect. Receipts and payments account contains both revenue and capital receipts.
Receipt and Payment Account is prepared at the end of the accounting year on the basis of cash receipts and cash payments recorded in the cash book. It is a summary of cash and bank transactions under various heads. Thus, Receipt and Payment Account gives summarised picture of various receipts and payments, irrespective of whether they pertain to the current period, previous period or succeeding period or whether they are of capital or revenue nature.
- Income and expenditure account contains items of Capital nature. This is incorrect. In income and expenditure statement, only items of revenue nature are included.
Income and Expenditure Account is the summary of income and expenditure for the accounting year. It is just like a profit and loss account prepared on accrual basis in case of the business organisations. It includes only revenue items and the balance at the end represents surplus or deficit. All the revenue items relating to the current period are shown in this account, the expenses and losses on the expenditure side and incomes and gains on the income side of the account. It shows the net operating result in the form of surplus (i.e. excess of income over expenditure) or deficit (i.e. excess of expenditure over income), which is transferred to the capital fund shown in the balance sheet.
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