Income and Expenditure Account

What is an Income and Expenditure Account?

An Income and Expenditure Account is the detailed summary of every income and expense incurred by an organisation in a specific financial year. Prepared on an accrual basis, this account records every income and expense in a particular year, irrespective of whether they are clear or not. Outlined by non-trading entities, this account distinguishes capital from revenue and takes only the latter into account.


Typically, these are nominal accounts, which outline an organisation’s final accounts and are similar to that of profit and loss accounting by a business entity. These accounts primarily serve to find the surplus or deficit balance of an organisation, taking both current income and expenses into account.


Surplus and Deficit Balance of an Income and Expenditure Account

When the revenue generated by a non-trading or non-profitable organisation exceeds total expenditure incurred in a financial year, Income & Expenditure account shows a surplus balance. It is usually termed as excess income over expenditure. Contrastingly, if the revenue generated by an organisation falls short of its annual expenditure, the format of Income and Expenditure account shows a deficit balance. Be it surplus or deficit, only its closing balance is taken into consideration.


Format of an Income and Expenditure Account

Like any accounting method, an Income and Expenditure account has its specific format accompanied by its formula. This format has the following features.

  • Name of this institution is mentioned at the top, followed by its heading of Income and Expenditure account.

  • Financial year for which this account has been created must be mentioned too.

  • Typically, these have 4 columns with 2 on the left for expenditure, while those on its right for income.

  • First column contains expenditure details while the following column notes these expense amounts.

  • Third column lists every income along with its following column mentioning income amounts

  • These second and fourth columns mention total expenditure and income in a financial year.

This format is vital since it effectively ensures that the Income and Expenditure formula is utilised in the simplest ways to calculate results. Total expenditure is subtracted from total income to find out surplus or deficit. In the event of a negative answer, it indicates a deficit while it is vice versa if there is a profit. This following table illustrates an Income and Expenditure account format.


Income and Expenditure Account for the Year Ended……….

Expenditure (Dr.)

INR

Income (Cr.)

INR

To Consumable materials

xxx

By Subscriptions

xxx

To Honorarium

xxx

By Grants received

xxx

To Salary and Wages

xxx

By Entrance fees

xxx

To Repairs 

xxx

By General donations

xxx

To Entertainment expenses

xxx

By Interest on deposits

xxx

To Printing and Stationery

xxx

By Dividends

xxx

To Postage

xxx

By Collection for shows and events

xxx

To Housing rent

xxx

By Profit of sale of fixed assets

xxx

To Municipal Tax

xxx

By Rent received

xxx

To Insurance

xxx

By Receipts of sales

xxx

To Depreciation of fixed assets

xxx

By Miscellaneous incomes

xxx

To Audit fees

xxx



To Miscellaneous

xxx



To surplus (excess of Income over Expenditure)

xxx

By deficit (excess of Income over Expenditure)

xxx


Basic Features of an Income and Expenditure Account

Vital features of an Income and Expenditure Account are as Follows.

  • Similar to profit and loss accounts maintained by business entities, an Income & Expenditure account helps non-trading organisations to keep a note of their generated revenue.

  • These accounts typically outline a period of one year and are taken into account when the fiscal year concludes.

  • This accounting method is primarily based on a double-entry system of accounting which records both outgoing expenses and incoming revenues.

  • These accounts are used to deduce surplus or deficit incurred by an organisation at the end of a certain period.

  • The surplus or deficit recorded in an Income and Expenditure account is moved to a Capital fund account when this account is closed.

  • An Income & Expenditure account only takes into consideration revenues and expenses. Such an account does not record any capital-based income or expenditure of an organisation.

  • While these accounts are generally prepared by internal accountants of a non-trading organisation, these are audited independently by external auditors.

  • Such an account does not begin with its opening balance. Usually, they follow back every income with expenditure through a concerned financial year.

  • As a nominal account, Income and Expenditure account format debits all expenses and losses, while crediting every income. Prepared on an accrual basis, this includes every paid and received amount along with those that await clearance.


How to Prepare an Income and Expenditure Account?

Understanding the format for an Income & Expenditure account along with its formula, is not adequate to prepare them. These steps below detail an outline on how to create such an account.

  1. Collection of receipts and payment accounts of a non-trading enterprise whose Income and Expenditure account is to be created.

  2. Opening and closing balances pertaining to this receipt and payment account should be ignored. Additionally, every payment of previous years’ expenses, as well as that of the future, should also be ignored. Capital payments of this current year are also omitted.

  3. Every receipt pertaining to previous year’s revenue along with that of the upcoming years should be omitted from listing. Additionally, capital revenue for this current year is also ignored.

  4. Current year’s revenues should be listed, including both expenditures and incomes. Depreciation of fixed assets related to revenue should also be taken into consideration. Additionally, profit or loss on sales of assets is also taken into account as long as they are not a part of this organisation’s capital revenue.

  5. Both the total expenditure and total income should be calculated. Net differences between these 2 suggest if a non-trading enterprise has a surplus or deficit balance.

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FAQ (Frequently Asked Questions)

1. What is an Income and Expenditure Account?

An Income and Expenditure account records every revenue and expenditure of a non-trading organisation in a specific financial year. Vitally, it restricts to operational revenues and does not take into account capital based incomes and expenses. Furthermore, these are nominal accounts maintained on an accrual basis, thereby considering every income and expenditure irrespective of whether they receive clearance or not.

2. What is the Basic Difference Between Income and Expenditure?

Income is the revenue generated by a non-trading institution in a financial year, while expenditure denotes outgoing expenses incurred. These are the basis of an Income & Expenditure account, and their net balance calculated after a financial year ends indicates if there is surplus or deficit.