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……………………………

Distinguish between Receipt & Payment Account and Income & Expenditure Account

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