An income end expenditure account is merely another name for the expense and revenue summary of non-trading concern. This is prepared on the lines of expense and revenue summary. All incomes received from receivable and all expenses paid or payable are accounted for at the end of the period it covers.
It includes only revenue expenses and income and does not include capital expenditure and income: It excludes all the items in respect of the previous or subsequent period.
It is the final account of non-profit organizations. The final account of business concerns is called Trading and Profit and Loss Account while in case of non-trading concern it is known as Income and Expenditure Account. Because non-trading concerns cannot prepare profit and loss account as they are not operated for profit earning. That’s why their final account shows “Surplus” Or “Deficit”.
Features of income and expenditure account
Following are the main features of non-trading concern’s income and expenditure account:
- Expenses are entered on debit side and incomes on the credit side
- Any income of revenue nature relating to the present period whether actually received or not and any expenditure of revenue nature whether paid or not being taken into account.
- Capital items are excluded.
- All receipts and payments relating to the preceding or succeeding period are excluded.
- It shows the excess of income over expenditure or vice versa.
Format/Specimen of income and expenditure account
Similar to any other account, there are two columns in income and expenditure account, one is on debit side named as expenditures and other is on the credit side named as income, which are used to record all expenditures and revenues of a non-trading concern for a specific accounting period (usually one year). Below is the format/specimen of income and expenditure account.
Preparation of income and expenditure account
Income and expenditure account can be prepared in any of the following forms:
- Account Form
- Report Form
If it is prepared in account form, it is called income and expense account. All expenditure items appear on the debit side and income items on the credit side. if debit side (expenditure) exceeds the credit side (income) it is deficit balance and if the credit side exceeds the debit side it is a surplus balance.
If it is prepared in report form, it is called income and expenditure summary statement. In this form, all incomes are recorded first and then all expenditures are recorded. The balance of income and expenditure account is ascertained. If Income exceeds the expenditure, it is termed as surplus balance or excess of income over expenditure. If expenditures exceed the income, it is termed as deficit balance or excess of expenditure over income.
The balance of income and expenditure account is transferred to the balance sheet. Surplus balance is added to the accumulated fund (Capital) and deficit balance is deducted from the accumulated fund. Deficit balance can also be shown as an asset on the balance sheet.
Please visit the following link for detailed examples of the preparation of income and expenditure account from receipts and payments account.