Income & Expenditure Account

Last Updated On -02 May 2025

Whether the cash has been received or paid, the Income and Expenditure Account is a nominal account created on an accrual basis, therefore documenting all incomes generated and costs incurred within the accounting year.

These companies nevertheless need strong financial management to guarantee responsibility and sustainability even without a profit incentive. They use a particular kind of financial statement called the Income & Expense Account for this aim. Acting as the non-profit equivalent of the Profit & Loss Account, this one offers a concise summary of the income and spending for a certain accounting period. It gives stakeholders knowledge of the company's financial situation and facilitates the evaluation of whether ethical and efficient use of its resources is being done.

What is an Income & Expenditure Account?

Within the fields of accounting and business, not every institution seeks profit. Nonprofit organizations including educational institutions, clubs, societies, charity trusts, and NGOs—which operate to serve public or member interests rather than produce wealth—occupate a sizable portion of the economic ecology. It purposely excludes any capital receipts or payments and is focused just on revenue transactions. This guarantees that reflections of daily operations only show. The Income and Expenditure Account records, for example, regular expenses including salaries, printing, or maintenance as well as subscription income earned from members. Capital costs, including loan repayments or the acquisition of a new building, will be left out nonetheless. The account helps ascertain at the end of the year whether the company closed with a deficit (excess of income over expenditure) or a surplus.

Key Features of an Income & Expenditure Account

Usually starting with the Receipts and Payments Account, a cash-based overview of all inflows and outflows across the year, helps one build an appropriate Income and Expense Account.

For example, even if a March power payment is overdue, it is still recorded as an item in the account for the current year. Likewise, income includes subscription income due but not received at year-end. Though a non-cash cost, depreciation is also included since it shows the use and wear-and- tear of fixed assets across time.

Key Features of an Income & Expenditure Account are listed below:

Prepared only including the incomes earned and the expense incurred
The capital receipts and payments are not recorded
Expenses are matched with the related income
The outstanding prepaid and received-in-advance items are adjusted
There is no opening balance

Format of Income & Expenditure Account

From this, the accountant ignores capital items and then makes required adjustments for outstanding, prepaid, accrued, or advance items, extracting merely revenue items. These tweaks are absolutely essential to make sure the account shows the actual financial performance throughout the relevant period.

The format of income and expenditure account:

Expenditure	Amount	Income	Amount
To Salaries	XXXX	By Subscriptions	XXXX
To Rent	XXXX	By Donation (Revenues)	XXXX
To Printing & Stationery	XXXX	By Interest on Investments	XXXX
To Depreciation	XXXX	By Entrance Fees	XXXX
To Loss on Sale of Asset	XXXX
To Surplus (excess of income)	XXXX
By Deficit	XXXX
Total	XXXX	XXXX

Accounting Treatment of Income & Expenditure Account

Whether you’re a student, accountant, or trustee, understanding how this account works is fundamental to ensuring proper stewardship of donated or fee-based funds and running a mission-driven organization efficiently.

Here is a tabulated data of the accounting treatment of income & expenditure account:

Adjustment Type	Treatment in Income & Expenditure Account
Outstanding Expenses	Added to the related expense
Prepaid Expenses	Deducted from the related expense
Accrued income	Added to the related income
Income received in advance	Deducted from the related income
Depreciation	Shown as an expense
Profit/loss on asset sale	Recorded as income/expense accordingly

Why is an Income & Expenditure Account Important?

The Income and Expenditure Account is a cornerstone in the financial reporting system of non-profit entities. It serves not just as a performance tracker but also as a tool for building financial transparency, winning public trust, and meeting audit and regulatory expectations. While it resembles the Profit & Loss Account in form and function, it is specially tailored to the operational context of non-profit organizations. By following accrual-based principles and focusing on revenue items only, it ensures a true and fair representation of the entity’s financial operations.

Helps the non-profit track operational efficiency
Enables transparency and accountability
Important for annual audit
Helps in comparing year-to-year performance

Income & Expenditure Account Relation with Receipts & Payment Account

With incomes on the right (credit) side and expenses on the left (debit), the Income and Expenditure Account's structure is somewhat similar to that of a Profit & Loss Account. Usually on the spending side, items including salary, rent, postage, printing, and depreciation show; on the income side, subscriptions, contributions (if frequent) and interest income. Then, the balancing figure on either side—which denotes either a surplus or a deficit—is transferred to the capital fund shown on the balance page. Since this story primarily relates to the performance of the current year, it is noteworthy that there is no opening balance here. It also ignores cash movement; the Receipts and Payments Account handles this and so the Income and Expenditure Account is more analytical in character.

Did you know?

Are you aware? Unlike companies that abide by required company law rules, non-profit organizations in India sometimes follow the recommendations released by the Institute of Chartered Accountants of India (ICAI) instead of the Companies Act. Still, they are supposed to follow important accounting guidelines including AS-9 (Revenue Recognition), particularly with regard to grants, gifts, and subscriptions.

Frequently Asked Questions (FAQs)

In what ways does the Income & Expenditure Account differ from the Receipts & Payments Account?

Like a cash summary, the Receipts & Payments Account records all receipts and payments—capital and income, past, present, future—on a cash basis. In contrast, the Income & Expenditure Account records only revenue items on an accrual basis and excludes all capital transactions, offering a more accurate picture of the organization’s financial performance during the year.

Although it is a non-cash expenditure, is depreciation shown in the Income & Expenditure Account?

Yes, depreciation is a key component of the Income & Expenditure Account. It reflects the consumption of asset value during the year and is essential for matching the cost of using fixed assets with the revenues generated in the same period, in line with the matching principle of accounting.

Can a non-profit organization use its surplus like a business uses profit?

Not very precisely. While a non-profit may generate a surplus, it is not distributed to members or stakeholders as profit. Instead, it is reinvested into the organization’s mission or carried forward to fund future activities. Surplus funds are often added to the capital fund or earmarked for specific projects in the future.