Income and Expenditure Account
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Income and Expenditure Account

Income and Expenditure Account Meaning : Income and Expenditure Account is a summary of all incomes and expenses relating to the current accounting year. It is prepared with the object of finding out the surplus or deficit of current incomes over current expenses. It is similar to Trading and Profit and Loss Account of a trading concern and is prepared in the same manner. Income and Expenditure Account is primed on 'accrual basis'. Income is a receipt of recurring nature and it is not meant for a particular use.

Income and Expenditure Account

Meaning : Income and Expenditure Account is a summary of all incomes and expenses relating to the current accounting year. It is prepared with the object of finding out the surplus or deficit of current incomes over current expenses. It is similar to Trading and Profit and Loss Account of a trading concern and is prepared in the same manner. Income and Expenditure Account is primed on 'accrual basis'. Income is a receipt of recurring nature and it is not meant for a particular use. For example, donation received for building is a capital receipt and, therefore, it is not an income. Similarly, expenditure means payments of recurring nature and is meant only for the current year. No use of such a payment can be derived out of it for future period. For example, if an asset is purchased the payment made is a capital payment and not an expenditure. All incomes and expenses relating to the accounting year (whether actually received/paid or not) are taken into consideration. Expenditure is recorded on the debit side and income is recorded on the credit side. A distinction is made between capital and revenue items and only revenue items are included in it.

The main features of Income and Expenditure Account are as follows:

(i) Income and Expenditure Account is a nominal account. Therefore, the rule of nominal account (debit all expenses and losses and credit all incomes and gains) is followed while preparing it.

(ii) The opening and closing balances of cash in hand and cash at bank are not recorded in it. It has no opening balance,

(iii) While preparing it, only items of revenue nature are recorded and all items of capital nature are ignored. For example, the profit earned or loss suffered on the sale of an asset will be recorded in it but the amount received from the sale of an asset will not be recorded in it.

(iv) Incomes and expenses pertaining to only current year are recorded in it. All items of income and expenditure which pertain to previous years and future years are not recorded in it.

(v) Income and Expenditure Account is prepared in the same manner in which Profit and Loss Account is prepared. Therefore, all adjustments for the current year regarding outstanding expenses, prepaid expenses, incomes in arrears, income received in advance, depreciation, etc., are made while preparing it.

(vi) The closing balance of this account shows surplus or deficit for the year. If the credit side exceeds the debit side, there is surplus. On the other hand, if the debit side exceeds the credit side, there is deficit. The surplus is added to the Capital Fund while the deficit is deducted from the Capital Fund.

(vii) Income and Expenditure Account is prepared at the end of an accounting period,

(viii) Income and Expenditure Account contains revenue items only.

(ix) Income and Expenditure Account is prepared on an accrual basis.

 

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Comments (1)
jakikeen

guys you are doing a good job. your explanation is easy to understand to beginners like me.your are the best

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