Income and Expenditure Account

INTRODUCTION

Income and expenditure is a nominal account which includes all revenue items. It is prepared same as profit and loss account i.e. on accrual basis. The difference of this account will represent surplus or deficit.

Features of Income & Expenditure Account

The features of income and expenditure a/c are as follows:

• It is a nominal account.

• It includes all revenue items.

• It includes accrued income or expenditure related to current year only.

• The difference of this account is surplus or deficit.

Characteristics of Income and Expenditure Account

• It is similar to Profit and Loss Account of a profit-seeking concern.

• All expenses are recorded on debit side and all revenues on credit side of income and expenditure account.

• It deals with only revenue transaction.

• Surplus or deficit of a concern is ascertained through this account. Credit balance indicates surplus, while debit balance indicates deficit.

• Its balance is transferred to Capital Fund Account.

• It is prepared on the last day of an accounting year.

• It does not need opening balance.

Method of Preparation

The following points are to be noted, while preparing the above account:

1. Surplus or deficit of a fixed period of time is ascertained through this account. So, it's heading will be:
   
   Income and Expenditure Account for the year ended as on .............

2. Income and Expenditure Account is a Nominal Account. Hence, only revenue (no capital) items will find place in it.

3. All items of revenue income and expenditure relating to the current year will appear in it.

Format of Income and Expenditure Account

Income and Expenditure Account
For the year ending on……………………………

Expenditure	Dr.Amt	Income	Cr.Amt
Revenue Payment: To Rent XX Less: Outstanding for Previous year XX Add: Outstanding for current year XX Add: Advance for current year XX Less: Advance for next year XX To Salary To Insurance To Audit fee To Honorarium To Bank Charges To Newspaper To Loss on sale of fixed assets To Upkeep of lawn To Charity To Advertisement To Tournament expenses To Surplus (Excess of income over expenditure)	XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX	Revenue Receipt: By Subscription XX Less: Outstanding for Previous year XX Add: Outstanding for current year XX Add: Advance received in previous for current year XX Less: Advance received in current year for next yearXX By Entrance fee By Donation (General) By Profit on sale of assets By Proceeds from Tournament By Interest receive By Sundry recipt By Government grants By Sale of newspaper By Proceeds from charity show By Deficit (Excess of expenditure over income)	XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX
	XXX		XXX

Distinguish between Receipt & Payment Account and Income & Expenditure Account

Basis	Receipt & Payment Account	Income & Expenditure Account
Account	It is a real account.	It is a nominal account.
Nature	It includes both revenue and capital item.	It includes only revenue items.
Basis	It is prepared on cash basis.	It is prepared on accrual basis.
Opening	It starts with opening balance and ends with closing balance of cash.	It has no opening and closing balance.
Period	It includes the actual cash receipt.	It includes only the income and expenditure of current year.
Adjustment	Adjustments are not considered.	Adjustments are considered,.

Points to be considered while converting receipt & payment account into income & expenditure account:

1. Exclude opening and closing balance of cash.
2. Exclude capital items.
3. Exclude amount of income and expenditure related to the current year.
4. Provide Accrued income and expenditure related to the current year.
5. Provide depreciation if given.

References:

Sharma, Narendra et.al., Principles of Accounting-XI, Bundipuran Prakashan, Kathmandu

Koirala, Yadav Raj et.al., Principles of Accounting-XI, Asmita Books Publication, Kathmandu

Shrestha, Dasharaha et.al., Accountancy-XI, M.K. Prakashan, Kathmandu