Preparation of Income and Expenditure Accounts
Preparation of Income and Expenditure Accounts
Submitted by
ANKITA BAL
PRN: 21010224203, Division: A, Batch: 2021-26, Programme: BBA LLB,
Academic Year 2021-22
Symbiosis Law School, NOIDA
Symbiosis International (Deemed University), PUNE
In
November, 2021
Under The guidance of
Dr. Meenakshi Kaul
Professor
SYMBIOSIS LAW SCHOOL, NOIDA
Sec-62, Block-A, 47 & 48, NOIDA-201301 (U.P.)- India
CERTIFICATE
The Project Titled “Preparation of Income and Expenditure Accounts” submitted to
the Symbiosis Law School, NOIDA for Corporate Accounting as part of Internal
Continuous Evaluation is based on my original work carried out under the
guidance of Dr. Meenakshi Kaul, Professor, SLS Noida from 5 th Mar, 2021 to 1st
Apr. 2022. The research work has not been submitted elsewhere for award of any
degree.
The material borrowed from other sources and incorporated in the research paper
has been duly acknowledged.
I understand that I myself would be held responsible and accountable for
plagiarism, if any, detected later on.
ANKITA BAL
Date: 1 Apr. 2022
ACKNOWLEDGEMENT
First and foremost, I'd want to express my sincere thanks to Dr. Meenakshi Kaul
for assisting me and serving as my guiding light throughout this effort. They gave
me with excellent knowledge that enabled me in grasping all of the fundamentals
of this project, as well as resolving any concerns I had about the project. I would
also want to appreciate the library department and academic support of Symbiosis
Law School, Noida for providing me with various research sources and resources
to assist me create the most unique project possible. I'd also want to thank
Symbiosis Law School in Noida for giving me this project. so that I could learn the
essential knowledge about Corporate Accounting simply, competently, and
completely.
INTRODUCTION
Non-trading or non profit organizations center themselves around the cause of providing services
to those in need of the same. However, to be able to do so, such an organization needs to incur
expenses as well as earn the requisite amount of revenue to deal with the same. Keeping a record
of these incurred expenditure and revenue helps such organizations to understand the deficit or
surplus created.
Thus, income and expenditure accounts summarize the income earned and the expenditure
occurred with the objective of determining a value of surplus or deficit arising out of the value of
income over expenditure for a particular time-frame for the non-trading firm concerned.
It is notably quite similar to the creation of Trading and Profit and Loss Account of a trading
concern and is prepared with a manner of income representing the credit side and expenditures
representing the debit side.
Income and expenditure accounts are prepared on an accrual basis where all revenue or expenses
are taken into consideration, regardless of whether they are actually paid or received or not.
Income and expenditure account is a nominal account and therefore, the rule applies that all
expenses must be debited and revenue items must be credited. While preparing such an account,
all items of capital nature are ignored in favour of revenue items being taken into consideration.
Therefore, a furniture being an asset, the amount received from the sale of such furniture will not
be recorded, however, the profit or loss occurred from the sale of such items will be recorded.
The deficit or surplus recorded in the closing balance of this account is added or subtracted on
the basis of its nature from/to the Capital Fund.1
1
https://www.toppr.com/guides/accountancy/accounting-for-not-for-profit-organisations/income-and-
expenditure-account/?cv=1
PREPARATION OF INCOME AND EXPENDITURE ACCOUNTS
For the preparation of income and expenditure accounts, we must note that –
All items of revenue receipts and expenses are registered on the respective side of the
account.
No items of capital nature are included in this account.
Adjustment made for prepaid and outstanding amounts must be made appropriately with
respect to each item
Include depreciation on all fixed assets of the non-trading entity.
ILLUSTRATION
The following receipts and payments account was created by Sharma Sports Club for the
year ended December 31, 2019 –
Additional information –
REQUIRED – Using the provided information, prepare an income and expenditure account
for Sharma Sports Club for the year ended December 31st, 2019
SOLUTION
41,600 41,600
WORKING NOTE –
Depreciation on supports equipment: 20% on Rs. 30,000 for one year + 20% on Rs. 20,000 for 3
months
= (0.2 x 30,000) + {(0.2 x 20,000) x 3/12}
= 6000 + (4000 x 3/12)
= 6000 + 1000
= 7,000
ANALYSIS –
Entrance fees is a capital receipt and has therefore not been included in the income and
expenditure account.
The subscription only related to the year of 2019 has been included.
The income and expenditure account of Sharma Sports Club shows a surplus balance of Rs.
17,500 which has been written as excess of income over expenditure.
CONCLUSION
2
https://byjus.com/question-answer/distinguish-between-receipt-and-payment-account-ana-income-and-
expenditure-account/
3
https://www.meritnation.com/cbse-class-12-commerce/accountancy/partnership-accounts-ncert-solutions-
(2018)/accounting-for-not-for-profit-organisation/ncert-solutions/59_17_1379_2758?cv=1
Thus, we have effectively explored the subject of income and expenditure accounts, its
definitions and features and understood the difference between receipts and payments account.
We have established that income and expenditure accounts are a nominal account prepared on an
accrual basis and understand their objective is to establish a value of surplus/deficit created on
the basis of the value of income over expenditure. This is an accounting method used by non
profit organisations to establish expenses incurred and revenue received without the involvement
of items capital in nature.