Sale of an old asset: Sale of an old asset will be deducted from a particular asset in balance sheet. Vital features of an Income and Expenditure Account are as Follows. Question 3. Collection of receipts and payment accounts of a non-trading enterprise whose Income and Expenditure account is to be created. You should keep in mind the following important characteristics of an income and expenditure account: 1. These second and fourth columns mention total expenditure and income in a financial year. Income and expenditure is a nominal account which includes all revenue items. Subscription outstanding as at March 31 st 2018 Rs. 2. What is an Income and Expenditure Account? Cloudflare Ray ID: 6096161b3eb2fe3c A receipts and payments account is no replacement for an income and expense account as the letter is prepared on an accruals basis. Hence, many items appearing in the Receipts and Payments need to be adjusted. Contrastingly, if the revenue generated by an organisation falls short of its annual expenditure, the format of Income and Expenditure account shows a deficit balance. FEATURES OF INCOME AND EXPENDITURE ACCOUNT NATURE OF ACCOUNT: It is a Nominal Account. As a nominal account, Income and Expenditure account format debits all expenses and losses, while crediting every income. The cash received on account of old sports material and old newspapers is recurring income and will be entered In the income and expenditure account. This following table illustrates an Income and Expenditure account format. Prepared on an accrual basis, this includes every paid and received amount along with those that await clearance. Difference Between Capital Expenditure and Revenue Expenditure, Prepaid Expenses, Accrued Income and Income Received in Advance, Income Determination - Ex-Ante and Ex-Post, Vedantu The principles of preparation of profit and loss account applies for the preparation of income and expenditure account as well. Both the total expenditure and total income should be calculated. Like any accounting method, an Income and Expenditure account has its specific format accompanied by its formula. Pro Lite, CBSE Previous Year Question Paper for Class 10, CBSE Previous Year Question Paper for Class 12. Credit side of this account records income and gains earned in the current accounting period. Features of Income & Expenditure Account Which statement is true? State the meaning of Income and Expenditure Account. Hence, no adjustment is made for pre-received or accrued incomes and pre-paid or outstanding expenses. Another way to prevent getting this page in the future is to use Privacy Pass. Answer: C.The trading account shows a profit and the income and expenditure account shows a surplus. That can complicate making out your income and expenditure statement. In this article we will discuss about the General Instructions for Preparation of Statement of Profit And Loss Account. An income and expenditure account is basically an income statement for an organisation whose main source of income is not from business activities. In Accrual basis of accounting income and expenditure are recognized when they are earned or incurred respectively even if the resulting cash in or out flow take place in a different accounting period. Debit side if this account records expenses and losses incurred in the current accounting period. 7. Income and Expenditure Account for the Year Ended………. Name of this institution is mentioned at the top, followed by its heading of Income and Expenditure account. I. income and expenditure account is prepared. To surplus (excess of Income over Expenditure), By deficit (excess of Income over Expenditure). This accounting method is primarily based on a double-entry system of accounting which records both outgoing expenses and incoming revenues. This guidance is not a legal document but an overall summary of the reporting and accounting framework for charities. These steps below detail an outline on how to create such an account. Name the concept that is followed. Therefore, Revenue expenses for the accounting year are recorded, whether they have been paid or not. Please enable Cookies and reload the page. Income and Expenditure Account This account is prepared in place of Profit and Loss Account. Understanding the format for an Income & Expenditure account along with its formula, is not adequate to prepare them. There is one point to be remembered in this case. It is on cash basis: It is like profit and loss account. In a word, it is prepared on cash basis. Income and Expenditure Account is then prepared on its basis. Income and expenditure accounts show: (a) Cash available to an organization (b) Closing capital of an organization (c) Cash available in the bank account (d) Surplus or deficit for the current accounting period 13. These accounts primarily serve to find the surplus or deficit balance of an organisation, taking both current income and expenses into account. • A distinction is made between capital and revenue items and only revenue items are included in this account. The provisions of this part shall apply to the income and expenditure account referred to in sub-section (2) of section 210 of the Act, in like manner as they apply to a statement of profit and loss. Income and Expenditure Account for the year ended 31.12.2005. Basic Features of an Income and Expenditure Account. All incomes and expenses relating to the accounting year, whether they are actually received and paid or not, are taken into consideration. Cash and non-cash transactions. Income is the revenue generated by a non-trading institution in a financial year, while expenditure denotes outgoing expenses incurred. It is always prepared at the end of the period which usually (but not always) consists of one year. 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. Additionally, profit or loss on sales of assets is also taken into account as long as they are not a part of this organisation’s capital revenue. iii. Pro Lite, Vedantu This is prepare on the basis of accrual basis of accounting. On what basis the ‘receipts and payments account’ is prepared? Professional people prepare their accounts considering income on cash basis, that is, they ignore outstanding income. Just like receipts and payments account, income and expenditure account is prepared at the end of the accounting period. Performance & security by Cloudflare, Please complete the security check to access. The. An Income and Expenditure account records every revenue and expenditure of a non-trading organisation in a specific financial year. It also details the deadline for submitting accounts and returns to the Charity Commission, and when independent examination or professional audit of a charity’s accounts is required. Income & expenditure a/c: It is prepared on an accrual basis and includes both cash and non-cash transactions. Current year’s revenues should be listed, including both expenditures and incomes. This format is vital since it effectively ensures that the Income and Expenditure formula is utilised in the simplest ways to calculate results. Features of Income and Expenditure Account. on accrual basis. Third column lists every income along with its following column mentioning income amounts. Surplus and Deficit Balance of an Income and Expenditure Account, Format of an Income and Expenditure Account. Income and expenditure accounts are drawn up using the accrual basis. These accounts typically outline a period of one year and are taken into account when the fiscal year concludes. Typically, these are nominal accounts, which outline an organisation’s final accounts and are similar to that of profit and loss accounting by a business entity. Hence, only revenue (no capital) items will find place in it. Total expenditure is subtracted from total income to find out surplus or deficit. The surplus or deficit recorded in an Income and Expenditure account is moved to a Capital fund account when this account is closed. Similar to profit and loss accounts maintained by business entities, an Income & Expenditure account helps non-trading organisations to keep a note of their generated revenue. Income and Expenditure Account is a Nominal Account. It records alltransactions of revenue nature that are related to the current accounting period (whether outstanding or prepaid) for which thebooks are maintained. Adjustments No adjustments are required in receipts and payments account. 1. Vitally, it restricts to operational revenues and does not take into account capital based incomes and expenses. The elements recognized in cash basis are income and expenditure. Along with study material on these topics, Vedantu also offers live classes which can be especially helpful in clearing difficult concepts. Income and Expenditure Account (I&E) Account is a Nominal Account and is prepared on the accrual basis. Typically, these have 4 columns with 2 on the left for expenditure, while those on its right for income. Contrast with receipts as well as repayments accounts. More details about these requirements are given in the sections which follow. An Income and Expenditure Account is the detailed summary of every income and expense incurred by an organisation in a specific financial year. Your IP: 192.130.146.84 While these accounts are generally prepared by internal accountants of a non-trading organisation, these are audited independently by external auditors. • Accrual Concept – The Income and Expenditure account follows the concept of accrual basis of accounting, which means that all incomes and expenses that relate to the accounting year should be considered. The name Profit and Loss Account cannot be used here since the organisation does not have profit motive. Prepared on an accrual basis, this account records every income and expense in a particular year, irrespective of whether they are clear or not. However, they do take into account outstanding expenses, but not income that has not yet been received. If you are on a personal connection, like at home, you can run an anti-virus scan on your device to make sure it is not infected with malware. Receipt & payment a/c: It is prepared on a cash basis and only actual cash payments and receipts are reflected here. This format has the following features. Pro Lite, Vedantu Opening and closing balances pertaining to this receipt and payment account should be ignored. These are the basis of an Income & Expenditure account, and their net balance calculated after a financial year ends indicates if there is surplus or deficit. Usually, they follow back every income with expenditure through a concerned financial year. Net differences between these 2 suggest if a non-trading enterprise has a surplus or deficit balance. These accounts are used to deduce surplus or deficit incurred by an organisation at the end of a certain period. This account is prepared on accrual basis. Rs.1200 is still in arrears for the year 2016-17 for subscription . 10 It is usually termed as excess income over expenditure. There is no capital contribution in such 4. It is prepared by strictly following the principles of double entry system of accountingor bookkeeping. What is the Basic Difference Between Income and Expenditure? Income and … It does not matter whether they are actually paid and received or not. 4 State the basis of accounting on which Income and Expenditure Account is prepared by not-for-profit organisation. How to Prepare an Income and Expenditure Account? Prepare Income and Expenditure Account from the following particulars of Youth Club, for the year ended on 31 st March,2018: Additional Information: i. Such an account does not record any capital-based income or expenditure of an organisation. The Accumulated Fund Account Not-for-profit organisations do not have owners. With numerous vital concepts, formats and formulae being a part of the curriculum, it is advisable that students go through related topics too. First column contains expenditure details while the following column notes these expense amounts. ABC Sports and Social Club’s financial year ends on 31st March. An Income & Expenditure account only takes into consideration revenues and expenses. The assets and liabilities of the … An Income and Expenditure Account is the detailed summary of every income and expense incurred by an organisation in a specific financial year. Excess of expenditure over income. 16,200 . The Low Incomes Tax Reform Group (LITRG) explain how unincorporated businesses should record their business income and expenditure using these methods in order to calculate their profits for their Self Assessment tax return. Related Topics Concept Of Receipt And Payment Account, Its Features And Limitations Prepared on an accrual basis, this account records every income and expense in a particular year, irrespective of whether they are clear or not. Capital payments of this current year are also omitted. Go for it today to take a step towards academic excellence. Every receipt pertaining to previous year’s revenue along with that of the upcoming years should be omitted from listing. Completing the CAPTCHA proves you are a human and gives you temporary access to the web property. Income and expenditure account prepared by non-trading concerns is very much like the profit and loss account prepared by trading concerns. The main distinctions in between the two accounts are: Income and expenditure account is required to prepare balance sheet. 1. Such an account does not begin with its opening balance. When the revenue generated by a non-trading or non-profitable organisation exceeds total expenditure incurred in a financial year, Income & Expenditure account shows a surplus balance. It records transactions related to revenue nature only. If you run up a $500 bill in December but don't pay it until January, you record the bill as a $500 expense for December when you accrued it. Sole traders and partnerships prepare their business accounts and calculate their taxable profits by using one of two methods – the cash basis or the accruals basis. ii. 3. On 1 January the accumulated fund of the club amounted to $16 200 and on 31 … 3 When the Receipts and Payments Account is converted into an Income and Expenditure Account, an accounting concept is to be followed for the provisions of Accruals and Outstanding. The receipts and payments account and income and expenditure account differ from each other on the following grounds:. 2 1 (a) A successful club prepares a trading account and an income and expenditure account. For this purpose income and expenditure should be recognized on the basis of accrual concept. The Accrual Basis and secondly the Cash Basis of accounting. The Income and Expenditure Account is prepared on accrual basis with the help of Receipts and Payments Account along with additional information regarding outstanding and prepaid expenses and depreciation etc. Using the transactions above, the accrual basis of accounting will result in the December income statement reporting revenues of $10,000 and expenses of $1,800 for a net income of $8,200. The incomes and expenditures of only revenue nature are inclu… This section summarises the main requirements for charities to produce a trustees’ annual report, a set of accounts and an annual return. Concept Of Income And Expenditure Account Income and expenditure account is prepared by non-trading concern to reveal the surplus or deficit arising out of the operating activities during the accounting period. Difference between Fixed Cost and Variable Cost, Difference Between Fixed Capital and Working Capital, Difference between Capital Expenditure and Revenue Expenditure, Difference between Physical Capital and Human Capital. Additionally, capital revenue for this current year is also ignored. You may need to download version 2.0 now from the Chrome Web Store. Furthermore, these are nominal accounts maintained on an accrual basis, thereby considering every income and expenditure irrespective of whether they receive clearance or not. Answer: It is the summary of income and expenditure for the accounting year. Financial year for which this account has been created must be mentioned too. Additionally, every payment of previous years’ expenses, as well as that of the future, should also be ignored. It is one of the final accounts of non-trading concern like the profit and loss account of trading concern. 2. Following points to be taken consideration while preparing Income and Expenditure Account Outlined by non-trading entities, this account distinguishes capital from revenue and takes only the latter into account. It is a Nominal Account It records depreciation. If you are at an office or shared network, you can ask the network administrator to run a scan across the network looking for misconfigured or infected devices. (b) The activities of the Wilhelm Archery club include the running of an equipment shop. It is prepared same as profit and loss account i.e. Vedantu academic counsellor will be calling you shortly for your Online Counselling session. All items of revenue income and expenditure relating to the current year will appear in it. Income and Expenditure Account is prepared on an accrual basis. Depreciation of fixed assets related to revenue should also be taken into consideration. The difference of this account will represent surplus or deficit. Income and Expenditure Account Income and Expenditure Account is a Nominal Account which is prepared at the end of the accounting period by a Not-For-Profit Organisation to ascertain the surplus, i.e., excess of income over expenditure, or the deficit, i.e. Sorry!, This page is not available for now to bookmark. It follows the rule of: ‘DEBIT ALL EXPENSES AND LOSSES CREDIT ALL INCOMES AND GAINS’ BASIS OF RECORDING: This account is prepared on the basis of Accrual System. So, why wait? Be it surplus or deficit, only its closing balance is taken into consideration. In the event of a negative answer, it indicates a deficit while it is vice versa if there is a profit. (1) While preparing Income & Expenditure Account, it should be noted that items related to the current accounting period are recorded therein. It is prepared to find out the surplus or deficit pertaining to a particular year. Expenditure is recorded on the debit side and income is recorded on the credit side. Receipt and payment account is the summary of cash and bank transactions which helps in the preparation f income and expenditure account and the balance sheet. In income and expenditure account adjustments are made because it is prepared on accrual basis. This account records transactions relating to past, present and future, years. Expenditure ) of accountingor bookkeeping specific format accompanied by its heading of income and expenditure account it is profit. Expenditure accounts are drawn up using the accrual basis appearing in the receipts and payments account is... 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