Equivalent of the Profit and Loss Account
The Income and Expenditure Account is the non-profit version of the Profit and Loss Account. It records revenue income and revenue expenditure only, on an accruals basis. Capital items such as buying equipment are not included.
- If income exceeds expenditure → a surplus.
- If expenditure exceeds income → a deficit.
Depreciation of equipment is revenue expenditure and is shown on the expenditure side. Profit from activities such as selling refreshments is included as income.
Example
Income: subscriptions RM5,200, canteen profit RM800, donations RM300 → total RM6,300. Expenditure: rent RM1,200, wages RM2,000, depreciation RM500, sundry RM400 → total RM4,100. Surplus = RM6,300 − RM4,100 = RM2,200.
| Income and Expenditure Account | |
| Rent 1,200 | Subscriptions 5,200 |
| Wages 2,000 | Canteen profit 800 |
| Depreciation 500 | Donations 300 |
| Sundry 400 | |
| Surplus 2,200 | |
| 6,300 | 6,300 |
Key idea
Surplus / (deficit) = Total revenue income − Total revenue expenditure. A surplus is added to the accumulated fund; a deficit is deducted.
Steps in Preparation
To prepare the Income and Expenditure Account, start with the Receipts and Payments Account, then remove all capital items such as asset purchases and cash balances. Next, adjust each revenue item for arrears and prepayments so it represents the amount for the current year, and add non-cash expenses such as depreciation. Income such as subscriptions and canteen profit is shown on the credit side, while expenses such as rent, wages and depreciation are on the debit side. The difference between the two totals gives the surplus or deficit for the year. Comparing the surplus or deficit from one year to the next helps the committee decide whether subscriptions should be raised or spending brought under tighter control.
Remember
Only revenue items are included. Buying equipment (a capital item) is not recorded here, but its depreciation is revenue expenditure.