The non-profit organization prepares an income-expenditure account. In the previous article, we learned about the Receipts and Payments Account, and in today's article, we will understand the Income and Expenditure Account, such as definition, characteristics, examples, dealing transactions, adjustments, format, and how to create this account from Receipts and Payments. and FAQs are given at the end of the article which often creates confusion in the minds of the students.

income and expenditure account
income and expenditure account

What do you understand by income?

The amount that remains after deducting the expenses from the money received in the business is called "income". It can be defined in another way as income is the increase in economic benefits in the form of internal flow of assets, a decrease in liabilities in an accounting year, thereby increasing internal equity. According to the formula,

Income = Revenue – Expenses

What is Income?

Income is meant the income of the business. It also means income received regularly or income of recurring nature. For example, rent earned, dividend earned, discount earned, commission, interest, and proceeds from the sale of goods, etc.

 What are expenses/expenses?

If something is needed in any type of business or work, then the money paid to get it is called "expenditure".

Example – Expenditure incurred in obtaining goods, services, etc.

What is an income and expenditure account?

Income-Expenditure Account is called Profit-Loss Account, it is prepared by a non-profit making organization. It is prepared in the same way as the Profit and Loss Account, in which only revenue transactions are recorded and capital items are not recorded. It is a nominal account that is prepared on the accrual basis of accounting. Excess of income part over expenditure is called Surplus and excess of expenditure part over income is called Deficit.

Example – Repair, Depreciation, Sale of Gross, Dividend, Electricity, Printing and Stationery, Telephone Charges, Fair expenses, Entrance Fees, Bad Debts, etc.

Characteristics of Income and Expenditure Account

The main features of this account are as follows-

  • In this only items of a revenue nature are accounted for.
  • This account is similar to the profit and loss account.
  • The nature of this account is a nominal account.
  • In this, only the income and expenditure of the current year are written. Related income and expenses for the previous or next year are not displayed.
  • Capital items are not accounted for.

limitations of the income-expenditure account

As you know the specialty of this account above (profit), despite having so many qualities, there are some limitations of income-expenditure which are given in this way-

  • Only items of income nature of the first shortfall of the income-expenditure account are displayed.

  • Items related to the previous year and the upcoming (next) year are not written in this.

  • Adjustment is required to be made on this account.

  • Capital items (capital receipts and payments) are not shown in the Income and Expenditure Account.

Main points to be noted related to the income-expenditure account

In the Income-Expenditure Account, only the income and expenditure of the current year are recorded, whether they are received or not, and whether they are paid or not.

  • There is never an account of capital receipts or payments in this account.
  • If there is an adjustment in a deal, then definitely do it.

 Adjustment Considerations

  • If any other information is present in the question then make its Adjustment (+, – ).
  • Deduct income relating to the previous year and next year ( – )
  • Add income relating to the current year which has been accrued but not yet received (+)
  • Add initial/initial advance income (+ )
  • Net advance income less ( – )
  • Depreciation must be deducted from fixed assets.

Why is an income-expenditure account prepared?

In simple words, this account is made by the non-profit organization to find out the surplus of income over expenditure and the deficit of expenditure over income in the current year.

How to prepare an Income and Expenditure Account from the Receipt and Payment Account?

Receipts and Payments Account is completed in 5 steps which are given as follows-

  • 01 - First of all remember the items which are not written in the income-expenditure account.

  • Cash in hand, Cash at Bank are shown in the assets part of the Balance Sheet. (Opening Balance)

  • Cash in hand, Cash at Bank is written off on the assets side in the final B/S.

  • Life membership fees, amounts received from bequests, special donations, dedicated funds, etc. are all capital gains. It is written on the liability side in B/S.

  • Sale of Fixed Assets, Capital Payment (Investment, Fixed Deposit)

  • Charity Fund, Sports Fund, Cricket Fund, Prize Fund, Tournament Fund, etc. These are reserves and funds, they are shown as the liability side of the final B/S, and expenses related to them are deducted from it.

02 – Items are shown in the income-expenditure account (income receipt and payment)

Under income receipt – Subscription, Rent, Internet, etc. Cr. It is written on the side.

  • Add the earned and outstanding income of the current year to the related income (+)
  • In the current year, deduct the income of the previous year ( – )
  • Deduct income of advance year received in the current year ( – )
  • Add the income of the current year received in the previous year (+ )
  • Under income payment – Salary etc. Dr. It is written on the side.

  •  After ascertaining the non-cash items (Bad Debts, loss on sale of assets, depreciation, etc.) from the additional information given in the question, it is written on the debit side.
  •  Find out the cost of the material used and write it in the debit of the Income-Expenditure Account.
  •  Find the difference between income and expenditure in the last step and write Surplus and Deficit.

{If the sum of the income-expenditure account is more than the credit part of the account then there will be a surplus and if it is the opposite then there will be a deficit or deficit.}


Here in this article, we add all related information about income and expenditure accounts so if you are making accounting notes then you should know this topic that's why we add it I hope you understand all the headings and points.

FAQ For income and expenditure account

Q.1: income and expenditure account is which type of account?

Ans: nominal accounts.