Income and Expenditure Account Format: Structure & Example Explained

The income and expenditure account format is an essential financial statement used primarily by non-profit organizations, clubs, and societies. This statement is designed to assess the financial performance of these organizations over a specific period. Unlike profit-oriented businesses that prepare profit and loss accounts, non-profit entities use income and expenditure accounts to determine whether they have generated a surplus or deficit. This account records all revenues (income) and expenses (expenditure) incurred during the financial year, offering a clear picture of the financial health of the organization.

What is an Income and Expenditure Account?

An income and expenditure account is a financial statement that records the revenues and expenses of non-profit organizations over a particular period. It is similar to a profit and loss account used by for-profit entities, but its primary aim is not to calculate profit but to determine if the organization has a surplus (excess of income over expenditure) or a deficit (excess of expenditure over income).

This account is prepared using the accrual basis of accounting, meaning that income and expenses are recognized when they are earned or incurred, not when cash is received or paid. It helps in analyzing whether the non-profit organization has effectively managed its financial resources and met its goals within the period.

Surplus and Deficit Balance of an Income and Expenditure Account

The surplus and deficit balance of an income and expenditure account is the final result of comparing total income with total expenditure over a specific period.

• Surplus: A surplus occurs when total income exceeds total expenditure. This indicates that the organization has managed its resources well, allowing it to save or reinvest excess funds for future operations or projects. Example: A charity organization that collects more donations than it spends on its programs and administrative costs will report a surplus.
• Deficit: A deficit arises when total expenditure exceeds total income. This signifies that the organization has spent more than it earned during the period, which might require addressing through fundraising, cost-cutting, or financial re-planning. Example: A non-profit running a deficit might have overspent on a major event without raising enough sponsorship or donations to cover the costs.

Basic Features of an Income and Expenditure Account

The basic features of an income and expenditure account are what make it distinct from other financial statements. Here are some important characteristics:

• Accrual Accounting: As mentioned earlier, the income and expenditure account follows the accrual method of accounting. This means that transactions are recorded as they occur, regardless of when the cash is exchanged.
• Excludes Capital Transactions: This account does not include capital transactions such as the purchase or sale of fixed assets, loans, or advances. These are recorded in a separate balance sheet.
• Non-Profit Specific: It is used specifically by non-profit entities like clubs, societies, and charitable institutions to track how well they are managing their resources.
• Revenue and Expense Focus: It records only revenue (income) items such as membership fees, subscriptions, grants, and expenses related to running the organization, including operational and administrative costs.
• Adjustments for Outstanding and Prepaid Items: Adjustments are made for any income that is yet to be received or expenses that have been incurred but not paid. Similarly, prepaid expenses and accrued incomes are accounted for.
• Surplus or Deficit Determination: At the end of the accounting period, the account shows whether there is a surplus (income exceeds expenditure) or a deficit (expenditure exceeds income), providing insight into the financial status of the organization.

How to Prepare an Income and Expenditure Account?

This format provides a clear, organized way to track income and expenses. To understand how to prepare an income and expenditure account, follow these steps:

• Step 1: Start with the Opening Balance Sheet: Begin by reviewing the balance sheet at the start of the accounting period, identifying all liabilities and assets.
• Step 2: Identify All Incomes : Gather all income sources such as membership fees, subscriptions, donations, government grants, and any other revenues earned during the accounting period. Adjust for any income that is yet to be received or that has been received in advance (prepaid).
• Step 3: Identify All Expenditures : Record all operating expenses such as salaries, office rent, utilities, program costs, and administrative expenses. Include any accrued expenses (those that have been incurred but not yet paid) and remove any prepaid expenses.
• Step 4: Exclude Capital Transactions: Ensure that any capital receipts (such as loans or sale of assets) and capital payments (such as asset purchases or loan repayments) are not included in the income and expenditure account. These belong to the balance sheet.
• Step 5: Calculate the Surplus or Deficit : Subtract the total expenses from the total income. A positive result indicates a surplus, while a negative result indicates a deficit.
• Step 6: Record Adjustments : Make necessary adjustments for depreciation of assets or amortization of intangible assets.

 Example of Income and Expenditure Account Format:

Income and Expenditure Account for the Year Ended [Date]

Income

Subscriptions (Members)

Donations

Grants

Miscellaneous Income

Total Income

Expenditure

Salaries and Wages

Rent

Utilities

Office Supplies

Program Expenses

Total Expenditure

Surplus/Deficit (Income – Expenditure)

What Comes in an Income and Expenditure Account?

This account includes all revenue-related items that a non-profit organization earns or spends during a financial period. These elements are carefully tracked to determine whether the organization has a financial surplus or deficit at the end of the period. Below are the key components:

Income

• Membership Fees/Subscriptions: Recurring fees paid by members to maintain their membership in the organization.
• Donations: Contributions made by individuals, businesses, or other organizations.
• Grants: Funds provided by government bodies or private institutions to support specific projects or general operations.
• Interest Earned: Interest earned on bank accounts or investments.
• Miscellaneous Income: Income from events, sales, or any other minor revenue streams.

Expenditure

• Salaries and Wages: Payment to staff members and workers.
• Rent and Utilities: Office rent, electricity, water, and other utilities.
• Administrative Expenses: Office supplies, printing, and general office expenses.
• Program Expenses: Costs related to running specific programs or events.
• Depreciation: Accounting for the reduction in value of tangible fixed assets.

Conclusion

The income and expenditure account format is crucial for non-profit organizations to track their financial performance effectively. It allows them to assess whether they have a surplus or deficit and manage their resources accordingly. By including only revenue and expense items, this account offers a clear picture of how well the organization is functioning financially. The preparation of this account, alongside a balance sheet, ensures that non-profit entities can maintain financial transparency and accountability.

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income and expenditure account format FAQs

What is an income and expenditure account?

It is a financial statement that records the revenues and expenses of non-profit organizations to determine whether they have a surplus or deficit.

What is the purpose of an income and expenditure account?

Its purpose is to assess the financial performance of a non-profit organization over a specific period by comparing total income with total expenditure.

How is surplus or deficit calculated?

The surplus is calculated when total income exceeds total expenditure, while a deficit is recorded when expenditure exceeds income.

What are the basic features of an income and expenditure account?

It uses accrual accounting, excludes capital transactions, and focuses on revenues and expenses incurred during a specific period.

What comes in an income and expenditure account?

It includes income sources like subscriptions, donations, and grants, as well as expenses such as salaries, rent, utilities, and program costs.