An income and expenditure account is an account revealing the surplus or deficit of a non-trading concern, which involves matching incomes and expenses over a specified accounting period.
An income end expenditure account is simply another name for the expense and revenue summary of a non-trading concern. This is prepared on the lines of expense and revenue summary.
All incomes received from receivables and all expenses paid or payable are accounted for at the end of the period it covers.
An income and expenditure account only includes revenue expenses and income. It does not include capital expenditure and income, and it excludes all items in respect of the previous or subsequent period.
The income and expenditure account is the final account for a non-profit organization. The final account of a business enterprise is called a trading and profit and loss account, while in the case of a non-trading enterprise, it is known as an income and expenditure account.
Given that non-trading organizations cannot prepare profit and loss accounts (i.e., as they do not operate to earn profits), the final account shows either a surplus or deficit.
Features of Income and Expenditure Account
The following are the main features of a non-trading organization’s income and expenditure account:
- Expenses are entered on the debit side and incomes on the credit side
- Any income of revenue relating to the present period (whether actually received or not) and any expenditure of revenue nature (whether paid or not) is included
- Capital items are excluded
- All receipts and payments relating to the preceding or following period are excluded
- The excess of income over expenditure (or vice versa) is shown
Format/Specimen of Income and Expenditure Account
Similar to any other account, there are two columns in an income and expenditure account: one is on the debit side (named expenditure) and the other is on the credit side (named income).
These two columns are used to record all the expenditures and revenues of a non-trading organization over a specific accounting period (usually one year). The format/specimen of an income and expenditure account is shown below.
Preparation of Income and Expenditure Account
It is possible to prepare an income and expenditure account in any of the following forms:
- Account form
- Report form
If the account is prepared in account form, it is called an income and expense account.
All expenditure items appear on the debit side and income items appear on the credit side. If the debit side (expenditure) exceeds the credit side (income), it is classed as deficit balance; if the credit side exceeds the debit side, it is a surplus balance.
If the account is prepared in report form, it is called an income and expenditure summary statement. In this form, all incomes are recorded first and then all expenditures are recorded.
The balance of the income and expenditure account is ascertained. If income exceeds expenditure, there is a surplus balance (or excess of income over expenditure). If expenditure exceeds income, this is a 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.
This link provides detailed examples of how to prepare an income and expenditure account from a receipts and payments account.