Income and Expenditure Account

Income and Expenditure Account

Income and expenditure account is a summary of income and expenditure of a not–for–profit organisation prepared at the end of an accounting year. It is prepared to find out the surplus or deficit pertaining to a particular year.

It is a nominal account in nature in which items of revenue receipts and revenue expenditure, relating to the current year alone are recorded. It is prepared following the accrual basis of accounting.

It is just like preparing a profit and loss account. In this account, incomes are shown on the credit side and expenses are shown on the debit side. Apart from cash items, non-cash items such as income accrued but not received, loss or gain on sale of fixed assets, depreciation, etc. will also be recorded.

It helps to enable the members to know the working of the organisation and to know whether its income is sufficient to meet its expenses. It can be prepared from a given receipts and payments account.

1. Steps in preparation of income and expenditure account from receipts and payments account

Following are the steps to be followed in preparing income and expenditure account from receipts and payments account:

i.            Opening and closing balances of cash and bank accounts in receipts and payments account must be excluded.

ii.            Capital receipts and capital expenditures must be excluded.

iii.            Only revenue receipts pertaining to the current year should be taken to the credit side of income and expenditure account. Due adjustments should be made for income received in advance, income accrued for the current year and for the amount relating to the previous year or years.

iv.            Similarly, revenue expenditure relating to the current year only must be taken in the debit side of income and expenditure account. Adjustments must be made for outstanding expenses of the previous year and current year and for the prepaid expenses of the previous year and current year.

v.            Any income or expense relating to specific fund must not be taken to income and expenditure account.

vi.            Non-cash items such as bad debts, depreciation, loss or gain on sale of assets, etc., which are not recorded in receipts and payments account must be recorded in income and expenditure account.

vii.            The balancing figure of income and expenditure account is either surplus or deficit and will be transferred to capital fund in the balance sheet. If the total of credit side of income and expenditure account is more than the total of debit side (excess of income over expenditure), the difference represents surplus. If the total of debit side of income and expenditure account is more than the total of credit side (excess of expenditure over income), the difference represents deficit.

2. Format of Income and Expenditure Account

Name of the club / Institution

Illustration 6

From the following Receipts and Payment Account of Ooty Recreation Club, prepare Income and Expenditure Account for the year ended 31.03.2018.

Solution

In the books of Ooty Recreation Club

Illustration 7

From the following Receipts and Payment Account of Trichy Recreation Club, prepare Income and Expenditure Account for the year ended 31.03.2018.

Solution

3. Differences between receipts and payments account and income and expenditure account

4. Treatment of revenue receipts

(a) Treatment of subscription in the final accounts of not–for–profit organisation

(A) Treatment in Income and Expenditure Account

When subscription received for the current year, previous years and subsequent period are given separately, subscription received for the current year will be shown on the credit side of Income and Expenditure Account after making the adjustments given below:

i.            Subscription outstanding for the current year is to be added.

ii.            Subscription received in advance in the previous year which is meant for the current year, is to be added.

When total subscription received during the current year is given, that total subscriptions received during the current year will be shown on the credit side of Income and Expenditure Account after making the following adjustments:

i.            Subscription outstanding in the previous year which is received in the current year will be subtracted. Subscription outstanding for the current year is added.

ii.            Subscriptions received in advance in the previous year which is meant for the current year, is added and subscriptions received in advance in the current year which is meant for the subsequent year must be subtracted.

(B) Treatment in Balance Sheet

i.            Subscriptions outstanding for the current year and still outstanding for the previous year will be shown on the assets side of the balance sheet.

ii.            Subscriptions received in advance in the current year will be shown on the liabilities side of the balance sheet.

Dr. Income and Expenditure Account for the year ended… Cr.

Illustration 8

From the following details calculate the amount that will be shown as subscription in Income and Expenditure Account for the year ending 31st March, 2017.

Subscription outstanding for the year 2016-17 is ₹ 2,400. Subscription for 2016-17 received in 2015-16 was ₹ 1,000.

Solution

Tutorial note

(i) Subscription for the year 2015-16 ₹ 7,500 and for the year 2017-18 ₹ 1,500 do not relate to the current year. So they should not be recorded in Income and Expenditure Account.

(ii) Subscription outstanding for the current year 2016-17 is ₹ 2,400. It should be added with the amount of subscription received during 2016-17.

Illustration 9

How the following items will appear in the final accounts of a club for the year ending 31st March, 2019?

There are 300 members in the club each paying an annual subscription of ₹ 200 per annum.

Subscription still outstanding for the year 2017- 2018 is ₹ 1,000.

Solution:

Tutorial note

Total Subscription due for current the year (2018-19) 300 x ` 200 = ₹ 60,000

Less: Amount received for the current year (2018-19) = ₹ 48,000

                                                                               -----------------------------

Outstanding subscription for the current year (2018-2019) = ₹ 12,000

                                                                               -----------------------------

Illustration 10

How will the following items appear in the final accounts of a club for the year ending 31st March 2017? A club received subscription of ₹ 25,000 during the year 2016-17. This includes subscription of ₹ 2,000 for 2015-16 and ₹ 1,500 for the year 2017-18. Subscription of ₹ 500 is still outstanding for the year 2016-17.

Solution

Illustration 11

Compute income from subscription for the year 2018 from the following particulars relating to a club.

Subscription received during the year 2018: ₹ 1,50,000.

Solution

Calculation of income from subscription for the year 2018

Illustration 12

From the following particulars, show how the item ‘subscription’ will appear in the Income and Expenditure Account for the year ended 31-12-2018?

Subscription received in 2018 is ₹ 16,000 which includes ₹ 3,000 for 2017 and ₹ 5,000 for 2019. Subscription outstanding for the year 2018 is ₹ 4,000. Subscription of ₹ 2,000 was received in advance for 2018 in the year 2017.

Solution

(b) Treatment of consumable items such as sports materials, stationery items, medicines, etc.

i.            Consumable items such as sports materials, stationery, medicines, etc., consumed during the year will appear on the debit side of income and expenditure account.

ii.            Consumption = Opening stock + Purchases during the current year - Closing stock

iii.            Closing stock will appear on the assets side of the balance sheet as at the end of the year.

iv.            If there is any sale of old sports materials, etc., that will be shown on the credit side of income and expenditure account or can be subtracted from the respective items consumed on the debit side of income and expenditure account.

Illustration 13

How will the following items appear in the final accounts of a sports club?

Solution

Illustration 14

From the following details calculate the printing and stationery to be debited to Income and Expenditure Account for the year ending 31st March, 2018 and also show how it will appear in the Balance Sheet as on 31st March, 2018.

Amount paid for stationery during 2017- 2018  =  â‚¹ 1,500

Stock of stationery on 1st April, 2017 =  â‚¹ 300

Stock of stationery on 31st March, 2018  =  ₹ 200

Solution:

(c) Treatment of incomes and expenses pertaining to specific funds

i.            Specific fund is to be shown on the liabilities side and specific fund investments account is to be shown on the assets side of the balance sheet.

ii.            Incomes and expenses relating to the specific fund account should not be recorded in income and expenditure account.

iii.            Incomes relating to the fund should be added to the fund account and expenses relating to the fund should be subtracted from the fund account in the balance sheet prepared as at the end of the year.

iv.            If interest is accrued on specific fund investments for the current year, then it should be added along with the fund account on the liabilities side and should also be shown on the assets side of the balance sheet as accrued interest on investments.

Illustration 15

How will the following appear in the final accounts of a club for the year 2017 –2018?

Solution