Income and Expenditure Account - Meaning, Features

The income and expenditures account is a way to track the business's income and costs in order to identify the surplus produced and deficit experienced within a certain period. It would be hard to establish where the money migrated at the completion of the economic cycle without this record.

It is generated on an accrual basis of accounting and solely tracks revenue-related expenses and earnings.

The Income and Expenditure Account is analogous to a business organization's Profit & Loss Account, which determines the firm's profit or loss for the fiscal year in question.

Income and Expenditure Account Meaning

An income and expenditure account is an accounting statement that offers a summary of an organization's earnings and spending for a certain time, often a year. It is often used by nonprofit organizations, bars, communities, and similar organizations to monitor their financial activity.

Features of Income and Expenditure Account

The following are the characteristics of the Income and Expenditure Account:

• Non-trading entities' income and expenditure accounts are similar to trading firms' profit and loss accounts.
• It is created by strictly adhering to the foundations of the double-entry bookkeeping or accounting system.
• It is always made towards the conclusion of the time, which is usually one year.
• It determines the surplus or deficit of non-trading companies' revenue over expenditures for the fiscal year.
• The income and expenditure account excess or deficit is transferred to the capital fund a/c.
• This account incorporates solely revenue-related income and expenditure accounts. Any capital income and expenditure are not considered.
• It is produced by accountants selected by the company's management and audited by an independent auditor.
• It does not start with the starting balance, but rather with the revenue and expenses incurred by non-trading businesses throughout the fiscal year.
• When accounting is produced, the cumulative or accrual notion is strictly followed.

How to Create Income and Expenditure Account

These steps must be taken when preparing an income and spending account:

• It is necessary to get the receipt and payment account from a non-trading firm in order to create an income and spending account for it.
• The beginning and ending balances of the receipt and payment accounts must be disregarded.
• contributions for prior years' costs, future years' expenses, and current-year capital contributions must be eliminated.
• The current year's income and revenue costs, as well as the depreciation on all of the entity's fixed assets, must be included.
• Then determine the account balance, which might be either a surplus or a deficit balance.

Income and Expenditure Account Format

Income Section: Lists various sources of income such as membership fees, donations, grants, fundraising events, investment income, and any other sources of income specific to the organization.

Expenditure Section: Details different categories of expenses including salaries and wages, utilities, rent, office supplies, travel and conveyance, and miscellaneous expenses.

Income and Expenditure Account Vs Receipt and Payment Account

They both serve different purposes and provide distinct insights into an organization's financial activities. Here are the key differences between the two:

Income And Expenditure Account Examples

Example 1: Club's Annual I&E Account for the Year 20XX-20YY

In this example, the club had a total income of ₹1,00,000 and a total expenditure of ₹59,000, resulting in a surplus of ₹41,000 for the year 20XX-20YY.

Example 2: School's Annual I&E Account for the Year 20XX-20YY

In this example, the school had a total income of ₹3,85,000 and a total expenditure of ₹2,15,000, resulting in a surplus of ₹1,70,000 for the year 20XX-20YY.