Q.Which accounting basis is followed for preparing the Income and Expenditure Account? Or What is Capital Fund?

The Income & Expenditure Account records revenue incomes and expenses, which are nominal items, so it is a nominal account. The answer is (c).

The Income & Expenditure Account of a Not-for-Profit Organisation is prepared like a Profit & Loss Account: it contains only revenue incomes and revenue expenses of the period and shows surplus/deficit. Accounts of incomes and expense …

The Income & Expenditure Account follows the accrual basis — all incomes earned and expenses incurred for the year are taken, regardless of cash received/paid.

The Income & Expenditure Account of a Not-for-Profit Organisation is prepared on the accrual (mercantile) basis. This means income earned during the year (including outstanding items) and expenses incurred during the year (including outstanding ones, and excluding prepaid/advance items) are considered, so that the surplus or deficit for the period is correctly measured — unlike the Receipts & Payments Account, which is on a pure cash basis.

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