Exam code:0452 & 0985
Income & expenditure account
What is an income and expenditure account?
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An income and expenditure account is a statement that calculates the surplus or deficit
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A surplus is comparable to a profit for a business
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A deficit is comparable to a loss for a business
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Clubs and societies do not operate to make a profit so the terms profit and loss are not used
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The total expenses are subtracted from the income
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If the income is greater than the expenses then there is a surplus
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If the income is less than the expenses then there is a deficit
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The income and expenditure account is similar to an income statement of a business
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Only expenses and income are included
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Assets and liabilities are not included
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Adjustments are made for:
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Depreciation of non-current assets
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Accruals and prepayments of expenses and income
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Any subscriptions which are written off
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What are the differences between a receipts and payments account and an income and expenditure account?
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The differences are summarised in the total
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Receipts and payments account |
Income and expenditure account |
|---|---|
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Includes only money that is received or paid |
Includes only income and expenses |
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Includes only transactions involving money |
Includes transactions involving non-monetary items such as depreciation |
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Includes both capital and revenue receipts and expenditure |
Includes only revenue receipts and expenditure |
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Does not include adjustments for accruals or prepayments of expenses and income |
Includes adjustments for accruals or prepayments of expenses and income |
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The closing balance represents the bank balance or amount of cash |
The final amount represents the surplus or deficit |
What is the layout of an income and expenditure account?
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The account is prepared in a similar way as the profit section of the income statement for other types of businesses
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Deal with any adjustments
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Accruals
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Subtract accruals from the previous year
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Add accruals at the end of the current year
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Prepayments
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Add prepayments from the previous year
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Subtract prepayments at the end of the current year
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Calculate any depreciation charges
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List the income first
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If there are any associated costs with a source of income then these should be subtracted in this section
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For example, income from a competition should subtract the cost of the competition’s prizes
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Include any profits calculated on the income statements for any trading activities
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List the expenditure next
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Include any losses calculated on the income statements for any trading activities
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Do not include expenses related to specific trading activities
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These will be included in the income statements for those activities and will contribute to the profit or loss
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Find the surplus or deficit of the year by subtracting the two totals
Worked Example
Paramount Badminton Club owns several courts. It also operates a shop where it sells refreshments and badminton equipment. Shop sales are on a cash basis and purchases made for the shop are on credit.
The treasurer of the club provided the following information.
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|
1 January 2023 |
31 December 2023 |
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$ |
$ |
|
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Subscriptions in advance |
2 200 |
2 050 |
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Subscriptions in arrears |
6 515 |
6 850 |
Other information provided for the year ended 31 December 2023:
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Shop profit |
9 410 |
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Subscriptions received during the year |
38 700 |
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Wages for caretakers |
2 650 |
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Insurance |
3 640 |
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Bank charges |
80 |
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Telephone |
380 |
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Advertising |
460 |
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Depreciation of equipment |
520 |
Prepare the income and expenditure account for Paramount Badminton Club for the year ended 31 December 2023.
Answer
Calculate the subscription for the year by finding the amount that was due for the year.
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Add the prepayments from the previous year
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Subtract the accruals from the previous year
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Add accruals at the end of the current year
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Subtract prepayments at the end of the current year
$38 700 + $2 200 – $6 515 + $6 850 – $2 050 = $39 185
Identify the income:
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Subscriptions
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Shop profit
Identify the expenditure:
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Wages
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Insurance
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Bank charges
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Telephone
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Advertising
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Depreciation
Prepare the income and expenditure account using the required format.
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Paramount Badminton Club Income and Expenditure Account for the year ended 31 December 2023 |
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$ |
$ |
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Subscription |
39 185 |
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Shop profit |
9 410 |
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|
48 595 |
||
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Wages for caretakers |
2 650 |
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Insurance |
3 640 |
|
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Bank charges |
80 |
|
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Telephone |
380 |
|
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Advertising |
460 |
|
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Depreciation of equipment |
520 |
7 730 |
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Surplus for the year |
40 865 |
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Responses