Home > Topics > Foundation – Paper 1 – Accounting > Income and Expenditure Account for NPOs
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Income and Expenditure Account

"The P&L Account for non-profit organizations."

While Receipts & Payments Account shows cash flow, Income & Expenditure Account shows the true surplus or deficit for the year.

What is Income & Expenditure Account?

Definition: A statement prepared by NPOs to find out surplus/deficit for a particular period, similar to Profit & Loss Account of a business.

Nature: Revenue account (not cash account)

Basis: Accrual Basis (not cash basis)

Comparison with Receipts & Payments Account

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Format of Income & Expenditure Account

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Items Shown in I&E Account

Expenditure Side (Debit)

✅ Salaries and wages
✅ Rent, electricity, water charges
✅ Stationery and printing
✅ Depreciation on assets
✅ Repairs and maintenance
✅ Insurance premium
✅ Audit fees
✅ Bad debts

❌ NOT Shown: Purchase of fixed assets, loan repayments, investments

Income Side (Credit)

✅ Subscriptions (current year)
✅ Donations (revenue nature)
✅ Entrance fees (small amount, revenue)
✅ Income from investments
✅ Grants received
✅ Profit from special events
✅ Rent received

❌ NOT Shown: Sale of fixed assets, loans taken, capital funds received

Adjustments in I& E Account

1. Outstanding Subscriptions

Meaning: Subscriptions due but not received

Example: Annual subs ₹1,200, received ₹1,000, outstanding ₹200

Treatment:

  • I&E Account: Credit ₹1,200 (full amount due)
  • Balance Sheet: Asset ₹200 (Outstanding Subscriptions)

2. Advance Subscriptions

Meaning: Subscriptions received in advance for next year

Example: Received ₹800 in 2023 for year 2024

Treatment:

  • I&E Account 2023: NOT included
  • Balance Sheet 2023: Liability ₹800 (Advance Subscriptions)
  • I&E Account 2024: Credit ₹800

3. Subscriptions Received

Formula:

Subscriptions for Current Year = 
  Subscriptions Received
  + Outstanding of Current Year
  + Advance of Previous Year
  - Advance of Current Year
  - Outstanding of Previous Year

Comprehensive Example

Special Items Treatment

entrance Fees

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Donations

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Preparing I&E Account from R&P Account

Steps:

  1. Exclude all capital items (asset purchases, loan receipts/repayments)
  2. Include only revenue items
  3. Make adjustments for outstanding, prepaid, accrued items
  4. Add depreciation (not in R&P, but in I&E)
  5. Calculate surplus/deficit

Important Notes

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Relationship with Balance Sheet

Surplus/Deficit from I&E Account is transferred to Capital Fund in Balance Sheet:

  • Surplus: Capital Fund increases
  • Deficit: Capital Fund decreases

Quiz: Income & Expenditure Account

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