Income and Expenditure Account

An Income and Expenditure Account is a financial statement used by non-profit organizations to summarize their revenues and expenses for a specific period, typically one year. It determines whether the organization has a surplus (income exceeds expenditure) or a deficit (expenditure exceeds income). This account is crucial for organizations like clubs, societies, and charities to track their financial health and allocate resources effectively.The account is prepared on an accrual basis, meaning income and expenses are recognized when they are earned or incurred, not when cash is actually received or paid. This approach ensures that the account provides a clearer picture of financial performance by reflecting both current obligations and resources, irrespective of cash flow timing.

Key Points

• Surplus: If income exceeds expenditure.
• Income: Recorded when earned, irrespective of when cash is received.
• Expenditure: Recorded when incurred, irrespective of when cash is paid.
• Deficit: If expenditure exceeds income.
• Accrual Basis: Recognizes income and expenses when they occur, not when cash is received or paid.

Examples of Users

• Clubs and Societies: Track membership fees, events, donations, and costs.
• Charitable Organizations: Track donations, grants, fundraising income, and expenses.
• Religious Institutions: Track offerings, donations, and service-related expenses.
• Educational Institutions: Track fees, donations, grants, and program costs.
• Cultural and Art Foundations: Track ticket sales, grants, sponsorships, and expenses.

Examples of Transactions 

• Membership fees recognized when the membership is granted, even if payment is received later.
• Donations recognized when pledged, not when cash is received.
• Salaries recognized when earned, not when paid.
• Rent recorded when due, even if payment is made after the period ends.