Income and Expenditure Account

Non-trading concerns do not prepare profit and loss account. They prepare income and expenditure account in stead of profit and loss account. It is prepared to see whether annual revenue income is sufficient to meet the annual revenue expenditure. It shows the classified summary of income and expenditures which are of revenue nature and which relate to the current accounting period. It helps to ascertain the amount of surplus or deficit occurred in a non-profit making organization.

According to F.G. William,"An income and expenditure account prepare to show all the revenue incomes for the period whether actually received or accrued and all the revenue expenditures for the period whether actually paid or accrued and not yet paid." In other words, all the expenditures which related to the year whether it has actually been paid or not, are debited to income and expenditure account whereas all incomes are credited. If the credit total is greater than the debit, the difference is known as 'surplus' or 'excess of income over expenditure' but when debit total is higher, there is 'deficit' i.e. excess of expenditure over incomes'.

The way of preparing the income and expenditure account is similar as trading and profit and loss account. The accounts heads and adjustments to them and the sides on which they appear are also the same.

Features of Income and Expenditure Account:

1. It records only those incomes and expenses which are of revenue nature. Purchase of furniture is not recorded since it is a capital item.
2. It records incomes, expenses and losses, which relate to current accounting year. It excludes all the items of previous and coming year. In other words, it is prepared on accrual basis.
3. It records all the expenses and losses on the debit side and all the incomes on the credit side.
4. It does not record opening or closing balance of cash or bank.
5. The difference between two sides of the income and expenditure account is either surplus or deficit.