Hello, I have a query regarding Unit 1/2 statement of receipts and payments.
I've been given this question where I have to create a statement of R & P (that's all that's required). I've already recorded the payment for the supplies the owner bought during the period (worth $4000).
However the question also states as additional information that the owner has used up some supplies (worth $2000) during the period and believes that it should be recorded as an expense. I understand that this would be true in an income statement (please correct me if I'm wrong) but would that make any changes to my supplies listed as $4000 in the statement of R & P?
Thank you in advance for the help!
Good Question.
The short answer is it would not make any changes to the supplies listed at $4000.
The longer answer is, Statement of receipts and payments simply shows the CASH that is flowing to the business (Received) and the CASH that is flowing away from the business (Paid). You are correct to say that the cash paid to a supplier is payment recorded in the Statement of R&P.
The using up of those supplies does not result in CASH flowing to or from the business, rather it results in SUPPLIES moving from the business because they are being used up. And you are again correct in saying it should be recorded as an expense in the income statement.
Whenever you have a Statement of Receipts and Payments question, just ask yourself this simple question. Did the transaction cause CASH to be received by the business OR to be paid by the business? If the answer is Yes, then it goes in the Statement of R&P, if the answer is No, then it doesn't.
Ultimately it just shows the bank balance of the business, ie. how much is in the bank account.