The income and expenditure account is prepared by a nontrading concern to reveal the surplus or deficit arising out of the operating activities during the accounting period. It is one of the final accounts of nontrading concern like the profit and loss account of trading concern. All the revenue incomes during the accounting period are shown on the income side and all of the revenue expenses during the period as shown on the debit (expenditure) side of the income and expenditure account.
The excess of credit side over the debit side i.e. Excess of income over expenditure is termed as surplus, where the excess of expenses over the revenue incomes is termed as the deficit. The surplus or deficit of income over expenditure is transferred to the Capital fund. The surplus is added to the Capital fund and vice-versa. This account is prepared on accrual basis.
Features of income and expenditure account
- It is prepared on an accrual basis
- It records all cash and non-cash expenses and income, which are revenue in nature.
- It is debited with the expenses and losses and credits the incomes and gains.
- The closing balance of income and expenditure account are the surplus or deficit is transferred to Capital found in the balance sheet