How to Prepare Income and Expenditure Account. - Commerce PDF Download

Income and expenditure account is prepared in non profit organisation whose aim is not to earn money for personal benefits but they distribute the profit for welfare activities. So, for showing the organisation different from for-profit organisation, they prepare income and expenditure account. It is prepared just like preparing of profit and loss account.

In the debit side, we show all the expenses whether they has been paid or not. In the credit side, we show all the incomes whether they have been received or not. One thing, we should remember that we will show only the expenses and incomes which are not the capital nature.

Now, you should learn its following steps

1st Step: Get the Raw Data

 Income and expenditure account is made on the basis of raw data which we get from trial balance. All revenue nature expenses and incomes are added in the income statement. In case, if we did not make the trial balance, we can make income and expenditure account on the basis of receipt and payment account. For charging the depreciation, you need opening balance of fixed asset which you can find from opening balance sheet. Now, we tell you what you have to take from receipt and payment account.

2nd Step: Show the Expenses and Incomes from Receipt and Payment Account 

Now, we have explaining, how you can convert the payments and receipts of receipt and payment account into the incomes and expenses of income and expenditure account.

a) Credit side of receipt and payment will be payment side. In this side, you have to leave capital nature expenses and closing balance. All other expenses payments will go to the debit side of income and expenditure account.

Remember : 

i) Please see the adjustment notes, if there are any advance expense, you have to deduct it from particular paid expense because, we did not show the expense which we have paid in advance but still, we did not take its service.

 ii) If there is any expense which is payable but still did not paid, will be added in the particular paid expense.

 b) Debit side of receipt and payment will be receipt side. In this side, you have to leave capital nature incomes and opening balance. All other income receipt will go to the credit side of income and expenditure account.

Remember :

 i) Please see the adjustment notes, if there are any advance incomes, you have to deduct it from particular receipt incomes because, we did not show the income in I/E Account which we have received in advance but still, we did not give its service.

ii) If there is any income which is which is receivable but still did not receive, will be added in the particular received income.

  3rd Step: Not Included Items in I/E Account 

 a) Any donation which we receive for any particular fund, we will not add in income and expenditure account. As per fund based accounting, we will treat it in that particular fund.

 b) Any legacy amount which will get from the will of any person will be capital receipt and will not shown in income and expenditure account.

 c) If we receive life membership fees, we will not add whole fees as income in income and expenditure account. For example, we have rule of 10 years as life time member and if a person donated 5,00,000 as life time membership, we will add only 50,000 per year in the income and expenditure account and balance will goes to the fund for life membership account in the balance sheet.  

 4th Step : Show Adjustments

 There are many adjustments which you have to do in the income and expenditure account whose information, you can not get from receipt and payment account. For example, you have to show depreciation of fixed assets in the debit side of income and expenditure account. You may show bad debt if there is any in the debit side of I/E account

5th Step : Find the Balance of I/E Account 

Compare debit and credit side of income and expenditure account. If credit side is more than debit side, it will be surplus over expenses. If debit side will more than credit side, it will be deficit.

Example : Following is given the receipt and payment account and adjustment. You have to make income and expenditure account. The car is bought at the end of year. So, there is no question of depreciation. We did not charge depreciation on freehold land.