Whats the best way to describe Receipt & Payment Account in three words......,
answer is Easy, simple and useful.
Receipt & Payment Account (lets name it 'R&P' in this discussion) is often confused with Profit & Loss Account whereas both accounts are completely different in nature, purpose or even preparation methodology, although looks alike.
In simple words, we can say that R&P Account is our 'running cash register' where all the actual receipts recorded one side and expenses or payments on another side, difference of these two sides is 'Cash-in-hand'. a simple and easy tool cashiers, shop-keepers, business owners or even for home-makers.
Even good for students who are living away from families, for them R&P A/c can be their guided tool to manage their case flow.
IF you look at your bank book where all receipts on one column (as credit) and payment/withdrawals/expenses on another column (as debits) and the balance of two column is 'CASH IN BANK' so it means banks are preparing R&P A/c for us and if by reviewing it month by month, we can ascertain coming months earning & expenses, not a difficult deal.
My suggestion is to use 'R&P' technique to manage your daily expenses, it is useful for students, home-makers, retired persons, even for the people who has some 'passive income' such as from rentals from investments.
BY updating R&P each time we have any receipt or expense, it become a running cash flow which can be used for planning major expenses. Once we start reviewing expenses on a monthly or weekly basis, we will be aware of our financial behaviour or 'pattern of expense' which eventually became a guided tool to reach our saving targets. Slight adjustment in expense will create a pocket-of-saving and when few of such small pocket-of-saving accumulated, it give us a bit of financial freedom so we can start thinking towards bigger investment targets.
All we need a stronger grip on our expense pattern and this can be achieved by using R&P model in our favour. We need to turn it into a saving tool technique and we can do it only if all receipts and payment or expenses are recorded in timely manner.
All our future expenses or financial liabilities can be planned based on actual or past expenses which are recorded on regular basis (by using R&P model), to give us an insight of 'expense pattern' so that future needs can be defined.
Same concept is used for businesses or outlets, if 'pattern of expense' of few months are compared then any monthly trend line will tell us, where to look and what to look..... this is where every financial analysis starts. Financial analysis is more to understand trend-lines whether it is for business, outlets or personal finance.
NO one is born analyst, but anyone can be analyst. Only skill is needed to understand the 'trend-line' of earning or expenses. So, if someone question is 'how do I prepare for my retirement?' then, answer is simple, first understand your financial behaviour. And financial behaviour is 'expense pattern' ...its all around R&P preparation.
Readers, take a sheet and start preparing R&P and after few months, with previous months historical data, can start planning for future expenses or potential savings. Try using it methodology or few weeks or a month and then we can discus, how you feel about it. I will suggest this tool for all non-finance background persons because if someone wants to be investor or plan for retirement or may be accumulating money for dream business then need to start at some point and getting into 'R&P' model is such a experience will help in future.
Good Luck to all of you, first step towards financial wizard....
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