Treatment of Interest on Bank Balance in Receipts and Payments Account
Understanding the treatment of interest on bank balance is essential while preparing a Receipts and Payments account. Here is a detailed explanation:

Interest on Bank Balance
- Interest earned on bank balance is considered as a receipt in the Receipts and Payments account.
- It is treated as income for the organization and should be included in the total receipts.

Recording Interest Earned
- When recording the interest earned on bank balance, it should be included on the receipt side of the account.
- The amount of interest earned should be added to the total receipts for the period.

Impact on Cash Balance
- The interest earned does not impact the cash balance of the organization as it is already reflected in the bank balance.
- It is important to differentiate between cash transactions and non-cash transactions in the Receipts and Payments account.

Proper Classification
- Interest on bank balance should be clearly labeled in the Receipts and Payments account to distinguish it from other receipts.
- Proper classification ensures accurate financial reporting and analysis of the organization's income sources.
By following these guidelines, you can accurately reflect the interest earned on bank balance in the Receipts and Payments account, providing a clear picture of the organization's financial activities.