Objective of Income and Expenditure Account

The Income and Expenditure Account is a statement that records all the revenue earned and expenses incurred by a not-for-profit organization during a particular accounting period. The objective of preparing an Income and Expenditure Account is to determine the surplus or deficit of the organization during the period. The following are the objectives of an Income and Expenditure Account:

1. To Determine the Surplus or Deficit: The primary objective of preparing an Income and Expenditure Account is to find out whether the organization has earned a surplus or incurred a deficit during a particular period. If the total income exceeds the total expenses, the organization has earned a surplus, and if the total expenses exceed the total income, the organization has incurred a deficit.

2. To Ascertain the Sources of Income: Another objective of an Income and Expenditure Account is to ascertain the sources of income of the organization. The account shows the different types of income earned by the organization, such as membership fees, donations, grants, etc.

3. To Analyze the Expenses: The Income and Expenditure Account also helps in analyzing the expenses incurred by the organization. The account shows the various categories of expenses, such as salaries, rent, office expenses, etc. This analysis helps the organization in identifying areas where it can reduce expenses and improve its financial position.

4. To Facilitate Budgeting: The Income and Expenditure Account is also useful in budgeting. By analyzing the account, the organization can prepare a budget for the next accounting period. The budget helps the organization in planning its activities and allocating resources more efficiently.

Conclusion

Thus, the Income and Expenditure Account is a crucial statement for not-for-profit organizations. It helps in determining the financial position of the organization, analyzing the sources of income and expenses, and planning for the future.

The main objective of income and expenditure account is to ascertain the net operating Result at the end of an accounting period on accrual basis.