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Question
What steps are taken to prepare Income and Expenditure Account from a Receipt and Payment Account?
Solution
The following steps are taken to prepare Income and Expenditure Account (I&E) from Receipts and Payment Account (R&P).
Step 1: All the revenue expenditures paid for the current accounting period are transferred from the Payments side of R&P to the Expenditure side of I&E.
Step 2: All the revenue receipts for the current accounting period are transferred from the Receipts side of R&P to the Income side of I&E.
Step 3: Expenses outstanding for the current period and expenses paid in advance (prepaid expenses) for the current period in the preceding accounting periods are to be added (adjusted) to their related expenses in the Step 1.
Step 4: Income outstanding (accrued income) for the current period and income received in advance for the current period in the preceding accounting periods are to be added (adjusted) to their related incomes in Step 2.
Step 5: Non-cash items like depreciation, appreciation for the current accounting period are to be adjusted in the I&E.
Step 6: After adjusting all the revenue items for the current accounting period, the Income and the Expenditure sides are totaled. If the sum total of the Income side exceeds (or is lesser than) the sum total of the Expenditure side, then the balancing figure is termed as surplus (or deficit).
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RELATED QUESTIONS
From the following particulars, prepare Income and Expenditure account:
| Details | Amount (RS) |
| Fees collected, including Rs 80,000 on account of the previous year | 520000 |
| Fees for the year outstanding | 30000 |
| Salary paid, including Rs 5,000 on account of the previous year | 68000 |
| Salary outstanding at the end of the year | 3000 |
| Entertainment expenses | 8000 |
| Tournament expenses | 25000 |
| Meeting Expenses | 18000 |
| Traveling Expenses | 7000 |
| Purchase of Books and Periodicals, including Rs 31,000 for purchase of Books | 40000 |
| Rent | 15000 |
| Postage, telegrams and telephones | 6000 |
| Printing and Stationery | 18000 |
| Donations received | 25000 |
Following is the information given in respect of certain items of a Sports Club. Show these items in the Income and Expenditure Account and the Balance Sheet of the Club:
| Particulars | Rs |
| Sports Fund as on 1.4.2015 | 35,000 |
| Sports Fund Investments | 35,000 |
| Interest on Sports Fund | 4,000 |
| Donations for Sports Fund | 15,000 |
| Sports Prizes awarded | 10,000 |
| Expenses on Sports Events | 4,000 |
| General Fund | 80,000 |
| General Fund Investments | 80,000 |
| Interest on General Fund Investments | 8,000 |
From the following Receipts and Payment Account and additional information, prepare Income and Expenditure Account and Balance Sheet of Sears Club, Noida as on March 31, 2018.
Receipts and Payment Account of Sears Club for the year ended 31-3-2018
| Receipts |
Amount (₹) |
Payments | Amount (₹) |
| To Balance b/d | 20,000 | By Stationery | 23,400 |
| To Subscriptions | By 12% Investments | 8,000 | |
| 2016-17 - 40,000 | By Electricity expenses | 10,600 | |
| 2017-18 - 94,000 | By Expenses on lectures | 30,000 | |
| 2018-19 - 7,200 | 141,200 | By Sports equipment | 59,000 |
| To Donations for building | 40,000 | By Books | 40,000 |
| To Interest on Investments | 800 | By Balance c/d | 50,000 |
| To Government Grant | 17,400 | ||
| To Sale of old furniture | |||
| (Book value ₹ 4,000) | 1,600 | ||
| 2,21,000 | 2,21,000 |
Additional Information:
(i) The club has 200 members each paying an annual subscription of ₹ 1,000. ₹ 60,000 were in arrears for last year and 25 members paid in advance in the last year for the current year.
(ii) Stock of stationery on 1-4-2017 was ₹ 3,000 and on 31-3-2018 was ₹ 4,000.
