Income and expenditure account is just like the profit and loss account but the only difference between the two is that profit and loss account is maintained for trading businesses where as income and expenditure account is prepared and maintained for non- trading organization such as NGOs, Clubs, societies, schools and hospitals. In order to prepare and maintain income and expenditure account all the earnings are credited into the account where as all the expenditures are debited from the account. The expenses may be paid expenses or unpaid expenses. This account can be used to measure and tally the net income of the organization. In most of the organizations income and expenditure accounts are prepared on yearly or quarterly basis. However, in certain cases they are prepared on the weekly and monthly basis as well. There are several categories included in an income and expenditure account. These categories are Cost of Goods Sold, Net Revenue, Gross profit of a firm, administrative expenses, tax payments, dividend payments and net profit of the organization.
One thing must be considered in mind while preparing the income and expenditure account that capital expenditures are not included in expenditure section of this account. Examples of capital expenditures are sales or purchase of fixed assets, bequests and objects of receipts. Income and expenditure account is usually prepared for non business organizations that do no have a traditional accounting system and a full time accountant to maintain accounts. There are different terms used in non-trading organization for accounting as compared to the terms generally used in the business and managerial accounting. For example in such organizations capital is termed as accumulated fund, cash book is known as receipts and payment accounts, profit and loss account is referred as income and expenditure account, net profit is termed as surplus income over expenses and net loss is known as deficit of expenses over a particular period of time. The receipts and payment account of an organization is the summary of its entire bank transactions for that particular time period. Income and expenditure account is prepared from the receipts and payments account so that an organization can compute it surplus or deficit for that period of time.
Similar Accounting Articles:
- Difference between Receipts and Income as taken from Profit and loss and Income Expenditure account
- How to Prepare Income and Expenditure Account
- Example of preparing Income and Expenditure Account
- Income and Expenditure Account of Chartable Organization