It is similar to the profit and loss account of a profit-seeking entity and is prepared to ascertain whether the current incomes are in excess of current expenditure or vice versa.
In other words, it reveals the surplus or deficit arising out of the organization’s activities during a particular period. It is prepared in the same manner in which a Trading and profit and loss account are prepared in the case of a trading organization.
Hence, all expenses and losses of a revenue nature are recorded on its debit side while all incomes and gains of a revenue nature, on its credit side. The end product of this account is Surplus or deficit.
If the credit side of this account exceeds the debit, it is known as an excess of income over expenditure or surplus and on the contrary, if the debit side exceeds the credit, it is excess of Expenditure over income or deficit.
Special Features of Income and Expenditure Account :
1. Nature of Account: It is a nominal account and hence the rule of nominal account, i.e., ‘Debit all expenses or losses and credit all incomes and gains’ is followed while preparing it.
2. Nature of items recorded in it: Only items of revenue nature are recorded in it. All items of capital nature are ignored while preparing it. For example, the amount received from the sale of furniture will not be recorded in it but the profit earned or loss suffered on the sale of furniture will be recorded in it.
3. Omission of opening and closing balance of cash: No opening and closing balance of cash and bank are recorded in it.
4. Adjustments: This account is prepared in the same manner in which a Profit and Loss Account is prepared. As such, all adjustments relating to the current year such as depreciation, outstanding expenses, prepaid expenses, earned income, etc. are taken into consideration while preparing the income and expenditure account.
5. It records income and expenditure of the current period: It excludes all items of income and expenditure which do not pertain to the current period. In other words, all items relating to the previous year and future years are excluded while preparing it.
6. Purpose: The closing balance of this statement reveals a surplus or deficit. If the credit side exceeds the debit, it reveals surplus and on the other hand, if the debit side exceeds the credit, it reveals deficit. The surplus is added to the capital fund and the deficit is deducted from it.
Format of Income and Expenditure Account
for the year ended……………
|To Consumable Materials|
To Salary and Wages
To Expenses paid on Specific Show
To Entertainment Expenses
To Printing and Stationery
To Newspaper and Periodicals
To Upkeep of Lawns
To Municipal Taxes
To Loss on Sale of Fixed Assets
To Depreciation on Fixed Assets
To Audit Fees
To Miscellaneous Expenses
To Surplus ( Excess of Income over Expenditure )
By Grants Received
By Entrance Fees
By General Donations
By Interest on deposits
By Collection for specific Show
By Profit on Sale of Fixed Assets
By Lockers Rent
By Cloak Room Rent Received
By Hall Rent Received
By Receipts from Sale of Newspaper and Magazines
By Miscellaneous Incomes
By Deficit ( Excess of Expenditure over Income )
Steps for prepare Income and Expenditure Account
- Include all items of receipts and expenditure, on the respective side of the account.
- Avoid entering capital incomes and expenses.
- Make adjustments of Prepaid and Outstanding expenses and incomes.
- Further, items included in receipts and payment account, depreciation, provisions, and profit or loss on sale of assets will have to be included in this account.
- Finally, after putting down all items of revenue and expenses, you will get a balance. The resulting balance will reveal the surplus or deficit.
Advantages of Income and Expenditure Account
1. Revenue Information: One of the major advantages of this account is that it helps the concerned to know about its revenues. It gives the concern about their past records and the current trends. Moreover, it will provide the concern relevant information for their futuristic course of act profits tells them their major source of profits and their loopholes where they are spending a lot. It helps them to control the extravagant expenditure approach.
2. Beneficial for the Investors: Investors are very much interested in the profit and losses of the concern. In the case of non-trading concerns, it is especially the government that is interested in the statement of the concern. It is because they provide the concern with many facilities in the form of subsidies and donations. They want to analyze the working and the position of the concern. It helps them to decide the number of futuristic grants and donations.
Distinction between Receipts and Payments Account and Income and expenditure Account
- Receipt and payment account is a summary of the cash book where as income and expenditure account is like a profit and loss account of a profitsseekingeentity.
- Debit side of Receipts and Payments account records receipts and credit side records payments whereas debit side of income and expenditure account records expenses and losses and credit side records incomes and gains
- Recipient and payment account is a real account where as income and expenditure account is a nominal account.
- Receipts and payment account start with the opening balance of cash and Bank where as income and expenditure has no opening balance.
- Closing balance of receipt and payment account represents the closing cash in hand and at bank overdraft at bank whereas Closing balance of income and expenditure account indicates either excess of income over expenditure surplus or excess of Expenditure over income deficit.
- Receipts and Payments account records receipts and payments both of capital and revenue nature whereas Income and Expenditure account records income and expenditure of only revenue nature.
- Receipt and payment account record all receipts and payments made during the year whether they relate to current, previous or next year whereas income and expenditure account records incomes and expenditure of the current year only.
- Receipt and payment account need not necessarily be accompanied by a balance sheet because all revenue as well as capital items are included in it where as balance sheet must accompany income and expenditure account because it includes only revenue items, whereas the balance sheet contains the remaining balances.