What steps are taken to prepare Income and Expenditure Account from a Receipt and Payment Account

To prepare an Income and Expenditure Account from a Receipts and Payments Account, you need to adjust the cash-based data (from Receipts and Payments) to an accrual basis (used in Income and Expenditure). This is typically done by non-profit organizations to determine their surplus or deficit.

???? Steps to Prepare Income and Expenditure Account

? 1. Start with Receipts and Payments Account

This is a cash book summary showing all cash and bank transactions (both capital and revenue, irrespective of the period).

? 2. Eliminate Capital Items

Remove capital receipts/payments, as they don’t belong in the Income and Expenditure Account:

• Capital Receipts: e.g., donations for building, entrance fees (if treated as capital)

• Capital Payments: e.g., purchase of fixed assets, loan repayments

? 3. Consider Only Revenue Items

Include only revenue items that belong to the current accounting year:

• Subscription income

• Rent paid or received

• Salaries, wages, utilities, etc.

? 4. Adjust for Accruals

Convert cash items to accrual basis:

• Add: Outstanding expenses (e.g., salary due)

• Add: Income earned but not received (e.g., interest receivable)

• Subtract: Prepaid expenses

• Subtract: Income received in advance

? 5. Include Non-Cash Items

• Include depreciation on assets.

• Include provisions or write-offs if applicable.

? 6. Prepare the Account

• Format is similar to a Profit & Loss Account.

• Debit side = Expenses

• Credit side = Incomes

• The balancing figure is Surplus (Excess of Income over Expenditure) or Deficit.

???? Example Format:

Income and Expenditure Account for the year ended 31st March 2025