Accountancy · Ch 4 — Not-For-Profit Organization
Income and Expenditure Account
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Income and Expenditure Account
The Income and Expenditure Account is the equivalent, for a not-for-profit organization, of the Profit and Loss Account of a trading concern. It is a Nominal Account, prepared on the accrual (mercantile) basis, to ascertain whether the organization has earned a surplus (excess of income over expenditure) or incurred a deficit (excess of expenditure over income) during the year.
How it differs from the Receipts and Payments Account
| Basis | Receipts and Payments Account | Income and Expenditure Account |
|---|---|---|
| Nature | Real Account (summary of cash book) | Nominal Account |
| Basis of recording | Cash basis | Accrual basis |
| Period | Includes amounts of past, current, and future years | Includes only amounts relating to the current year |
| Nature of items | Both capital and revenue items | Only revenue items |
| Non-cash items (depreciation) | Not recorded | Recorded, since they relate to the period even without a cash movement |
| Opening/closing balance | Cash/bank balance b/d and c/d | No opening or closing balance; ends in a surplus or deficit, transferred to Capital Fund |
| Purpose | Shows cash position | Shows the result (surplus/deficit) of the year's activities |
Steps to prepare it from a Receipts and Payments Account
- Ignore the opening and closing balances of cash and bank — they belong to the Balance Sheet, not to this account.
- Exclude every item of a capital nature — purchase/sale of fixed assets and investments, loans raised or repaid, and donations/legacies meant to be capitalized.
- Adjust every revenue item for outstanding and prepaid amounts at the beginning and end of the year, so that only the amount relating to the current year is shown (explained in detail for subscriptions in the next section). …