Q.Distinguish between Receipts and Payments Account and Income and Expenditure Account.
Concept understanding — Income and Expenditure Account
An Income and Expenditure Account is the not-for-profit organisation's equivalent of a Profit & Loss Account: a nominal account prepared on the accrual basis that records only revenue incomes and expenses of the current period, and whose balance is a surplus (excess of income over expenditure) or deficit rather than profit or loss.
Convert the cash-based Receipts & Payments Account into the accrual-based Income & Expenditure Account by removing all capital items and all items of other periods, then adjusting current-period incomes/expenses for outstanding and prepaid amounts.
How it differs from Receipts & Payments
- Receipts & Payments A/c = a summarised cash book: all cash received/paid, capital or revenue, current year or not.
- Income & Expenditure A/c = only revenue items of the current year on accrual basis; capital receipts (donations for building, legacies, sale of assets) and capital payments (buying assets) are excluded and go to the Balance Sheet.
Preparing it (the adjustments)
Start from receipts/payments and apply accrual adjustments:
| Adjustment | Treatment |
|---|---|
| Subscriptions received | + outstanding for this year, − received in advance, − last year's arrears now received |
| Expenses paid | + outstanding, − prepaid |
| Depreciation on assets | Debit (non-cash expense) |
| Bad debts / provisions | Debit |
After preparing the account, complete the Balance Sheet: the opening Capital Fund = opening assets − opening liabilities; add the surplus (or deduct deficit) and any capitalised donations. A bank reconciliation may be needed to agree the cash/bank figure with the pass book.
Governing rule
Revenue nature + current period + accrual basis — an item must satisfy all three to enter this account; otherwise it belongs in the Balance Sheet.
Trap: Entrance/admission fees and life membership fees are usually capitalised (Balance Sheet), while general donations and annual subscriptions are revenue (Income side). Read the question's instruction — treatment can be specified.
These two accounts are prepared from the very same underlying cash transactions, yet they answer completely different questions — one of the most frequently tested distinctions in this chapter.
Receipts and Payments A/c is a Real Account on the cash basis, recording all cash movements; Income and Expenditure A/c is a Nominal Account on the accrual basis, recording only this year's revenue items, with a Surplus/Deficit as its result.
The Receipts and Payments Account is a summarised Cash Book (a Real Account), prepared on the cash basis, recording every receipt and payment — capital or revenue, of any period — and opening/closing with the cash and bank balances. The Income and Expenditure Account is a Nominal Account, prepared on the accrual basis, recording only revenue items adjusted to the current year, with depreciation included and a Surplus or Deficit as its balancing figure.
Receipts and Payments A/c = Real Account, cash basis, all receipts/payments of any period, balances to cash/bank balance. Income and Expenditure A/c = Nominal Account, accrual basis, only current year's revenue items, balances to Surplus/Deficit.
| Basis | Receipts and Payments Account | Income and Expenditure Account |
|---|---|---|
| Type of account | Real Account (a summarised Cash Book) | Nominal Account (like a Profit and Loss Account) |
| Basis of accounting | Cash basis | Accrual (mercantile) basis |
| Items recorded | All cash receipts and payments — capital and revenue alike | Only revenue income and revenue expenditure |
| Period covered | May include amounts relating to the past year or the next year | Strictly the current year only, after adjustment |
| Opening/closing balance | Opens with, and balances off to, the cash/bank balance | Has no opening balance; a fresh nominal account each year |
| Non-cash items (e.g. depreciation) | Never appears | Always included where applicable |
| Balancing figure | Closing balance of cash and bank | Surplus or Deficit |
| Purpose | Shows the cash position during the year | Shows whether the year's operations left a surplus or a deficit |
The two accounts are built from the same underlying transactions but serve opposite purposes: the Receipts and Payments Account is a record of cash MOVEMENT, while the Income and Expenditure Account is a measure of the year's actual financial RESULT — which is exactly why every capital receipt/payment and every past/future-year amount must be stripped out, and every accrual adjustment made, before one can be converted into the other.
Receipts and Payments A/c is a Real Account on the cash basis recording all cash receipts/payments (capital and revenue, any period), balancing to the cash/bank balance. Income and Expenditure A/c is a Nominal Account on the accrual basis recording only the current year's revenue items (including non-cash items like depreciation), balancing to a Surplus or Deficit.
A quick way to remember the distinction: the Receipts and Payments Account is a WIDER account (every cash movement, of any kind, any period) but a SHALLOWER one (no adjustment, no accrual); the Income and Expenditure Account is a NARROWER account (revenue only, current year only) but a DEEPER one (fully adjusted, includes non-cash items).
A common mistake is assuming the closing balance of the Receipts and Payments Account (cash/bank) and the Surplus/Deficit of the Income and Expenditure Account should be the same figure — they are entirely different things: one is a cash balance, the other is an accrual-based measure of the year's result, and the two coincide only by rare accident, never as a rule.
Showing the 12 most recent of 13 on this concept.
- CBSE 2026Set ANNUAL1 markQ.Complete the table:
Income Expenditure Deficit 25,000 .......... 2,000 ›Reveal solutionSolution
Expenditure = ₹27,000. A deficit is the excess of expenditure over income, so Expenditure = Income + Deficit.
Method
The Income and Expenditure Account of a not-for-profit concern shows a deficit when total expenditure exceeds total income. Therefore:
Deficit = Expenditure − Income
Re-arranging: Expenditure = Income + Deficit
Item Amount (₹) Income 25,000 Add: Deficit (excess of expenditure) 2,000 Expenditure 27,000 ✓Final answerExpenditure = ₹25,000 + ₹2,000 = ₹27,000
- CBSE 2026Set ANNUAL1 markQ.Write the word/phrase/term, which can substitute the following sentence. An account which records only revenue items in the case of a not-for-profit concern.
›Reveal solutionSolution
The account that records only revenue items of a not-for-profit concern is the Income and Expenditure Account.
A not-for-profit concern (club, school, hospital, trust) does not prepare a Profit and Loss Account. Instead it prepares an Income and Expenditure Account, which is a nominal account resembling a Profit and Loss Account:
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It is prepared on the accrual basis and includes only revenue (recurring, current-period) incomes and expenses.
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Capital receipts and capital expenditure are excluded (they go to the Balance Sheet).
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Its balancing figure is a Surplus (excess of income over expenditure) or a Deficit (excess of expenditure over income), which is added to / deducted from the Capital Fund.
✓Final answerIncome and Expenditure Account.
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- CBSE 2025Set ANNUAL1 markMCQQ.Excess of income over expenditure in ‘Not for Profit Concern’ is termed as ______.(a) Deficit(b) Profit(c) Surplus(d) Loss
›Reveal solutionSolution
The answer is Surplus.
A Not for Profit Concern (club, school, hospital, trust) does not trade to earn profit, so it prepares an Income and Expenditure Account rather than a Profit and Loss Account. The balancing figure of this account is described in special terms:
Situation Term used Income greater than Expenditure Surplus Expenditure greater than Income Deficit Since the words profit and loss are reserved for trading (profit-seeking) concerns, the excess of income over expenditure of a Not for Profit concern is called a Surplus, which is added to the Capital Fund.
✓Final answerExcess of income over expenditure in a Not for Profit Concern is termed Surplus.
- CBSE 2025Set ANNUAL1 markQ.Income and Expenditure Account is a ______ account.
›Reveal solutionSolution
The answer is Nominal.
Accounts are classified as Personal, Real or Nominal. Nominal accounts deal with incomes, gains, expenses and losses. The Income and Expenditure Account of a Not for Profit concern records:
Debit side Credit side Revenue expenses & losses Revenue incomes & gains Because it summarises incomes and expenses of the period (and its balance is a Surplus or Deficit), it follows the nature and rules of a nominal account — it is the Not for Profit equivalent of a Profit and Loss Account.
✓Final answerIncome and Expenditure Account is a Nominal account.
- CBSE 2025Set MARCH1 markMCQQ.Income and Expenditure account is a :(a) Representative Personal A/c(b) Real A/c(c) Personal A/c(d) Nominal A/c
›Reveal solutionSolution
The Income and Expenditure Account is a Nominal Account.
The Income and Expenditure Account is prepared by not-for-profit organisations (TN HSC Commerce) to record all revenue incomes and revenue expenses relating to the current period, ending in a surplus or deficit. Because it deals only with items of income and expense — not with persons or property — it falls under the class of nominal accounts (debit all expenses/losses, credit all incomes/gains).
✓Final answerOption (d) Nominal A/c — the nature of the Income and Expenditure Account.
- CBSE 2024Set ANNUAL1 markMCQQ.Find the odd one:(a) Audit Fees(b) Insurance(c) Medical Expenses(d) Sundry Receipts
›Reveal solutionSolution
Three items are expenses; one is an income/receipt. The income item is the odd one.
In the Income and Expenditure Account of a not-for-profit concern the items fall on opposite sides:
Item Nature Side of I&E A/c Audit Fees Expense Debit (Expenditure) Insurance Expense Debit (Expenditure) Medical Expenses Expense Debit (Expenditure) Sundry Receipts Income Credit (Income) Audit fees, insurance and medical expenses are all amounts spent (revenue expenditure). Sundry Receipts is money received (a revenue income). Being the only income among expenses, it is the odd one.
✓Final answerSundry Receipts is the odd one — the other three are expenses, while Sundry Receipts is an income.
- CBSE 2024Set ANNUAL1 markMCQQ.Income and Expenditure Account is a ________ Account.(a) Capital account(b) Real account(c) Personal account(d) Nominal account
›Reveal solutionSolution
The Income and Expenditure Account of a not-for-profit concern is a Nominal Account — it is the equivalent of a Profit and Loss Account and records only revenue items.
A not-for-profit concern prepares an Income and Expenditure Account to find its surplus (excess of income over expenditure) or deficit. Because it deals only with revenue incomes and revenue expenses of the current year, it follows the golden rule of nominal accounts:
- Debit all expenses and losses.
- Credit all incomes and gains.
Capital receipts, capital payments and assets/liabilities never enter this account (they go to the Balance Sheet). Hence it is neither a Real account (assets) nor a Personal account, but a Nominal account.
✓Final answerNominal account.
- CBSE 2024Set ANNUAL1 markQ.Write the word/phrase/term which can substitute of the following statement: The debit balance of Income and Expenditure Account.
›Reveal solutionSolution
The debit balance of the Income and Expenditure Account represents the Deficit — the excess of expenditure over income.
At the year-end the Income and Expenditure Account is balanced:
- If income exceeds expenditure, the credit balance is a Surplus.
- If expenditure exceeds income, the debit balance is a Deficit.
The deficit is deducted from the Capital Fund in the Balance Sheet.
✓Final answerDeficit (excess of expenditure over income).
- CBSE 2024Set MARCH1 markMCQQ.Income and Expenditure Account is prepared to find out :(a) Surplus or deficit(b) Profit or loss(c) Financial position(d) Cash and Bank balance
›Reveal solutionSolution
The Income and Expenditure Account is prepared to find the surplus or deficit of a not-for-profit organisation — option (a).
Not-for-profit organisations (clubs, societies, hospitals, schools) do not trade to earn profit, so they do not prepare a Profit and Loss Account. Instead they prepare an Income and Expenditure Account, which is a nominal account maintained on the accrual basis:
- All revenue incomes of the year (whether received or not) are credited.
- All revenue expenses of the year (whether paid or not) are debited.
- The balancing figure is a surplus (income exceeds expenditure) or a deficit (expenditure exceeds income).
It does not report profit or loss (that is a trading concern's term), nor the financial position (that is the Balance Sheet), nor cash and bank balance (that is the Receipts and Payments Account). Hence the correct purpose is to ascertain surplus or deficit.
✓Final answerOption (a) Surplus or deficit. The Income and Expenditure Account matches a year's incomes against its expenses on the accrual basis; its balance is the surplus or deficit for the year.
- CBSE 2023Set ANNUAL1 markMCQQ.Income and Expenditure Account is a ________ Account.(a) Capital(b) Real(c) Personal(d) Nominal
›Reveal solutionSolution
The correct option is Nominal. The Income and Expenditure Account is prepared by a not-for-profit concern on the same lines as a Profit & Loss Account; it is a Nominal account that records all revenue incomes and expenses of the year and reveals the surplus (excess of income over expenditure) or deficit.
Explanation
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Nominal accounts are accounts of incomes, gains, expenses and losses.
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The Income and Expenditure Account is credited with all revenue incomes and debited with all revenue expenses relating to the current year (on accrual basis).
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Its closing balance is transferred to the Capital Fund as surplus or deficit, exactly the way a Nominal account is closed.
✓Final answerNominal — the Income and Expenditure Account is a nominal account.
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- CBSE 2022Set ANNUAL1 markQ.Aurangabad University prepares _______ Account instead of Profit and Loss Account.
›Reveal solutionSolution
The blank is Income and Expenditure Account.
A university, like a club or a charitable trust, is a not-for-profit organisation whose objective is service, not profit. Such concerns do not prepare a Profit and Loss Account; instead they prepare an Income and Expenditure Account, which records all revenue incomes and revenue expenditures of the period on an accrual basis. Its balancing figure is a surplus (excess of income over expenditure) or a deficit, not a profit or loss.
✓Final answerAurangabad University prepares an Income and Expenditure Account instead of a Profit and Loss Account.
- CBSE 2022Set MARCH1 markMCQQ.Income and Expenditure Account is prepared to find out :(a) surplus or deficit(b) profit or loss(c) financial position(d) cash and bank balance
›Reveal solutionSolution
The Income and Expenditure Account reveals the surplus or deficit of a not-for-profit organisation.
In the Tamil Nadu HSC Class-12 Accountancy syllabus, not-for-profit organisations (clubs, societies, hospitals) do not aim to earn profit, so they prepare an Income and Expenditure Account instead of a Profit and Loss Account. It records only revenue incomes and revenue expenditures of the current period on an accrual basis.
- Excess of income over expenditure = surplus.
- Excess of expenditure over income = deficit.
The term profit/loss (option b) is used by trading concerns; financial position (option c) is shown by the Balance Sheet; and cash and bank balance (option d) comes from the Receipts and Payments Account.
✓Final answerOption (a) surplus or deficit.
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