Question

Explain the steps necessary to prepare income and expenditure account from receipts and payments account.

Answer 1

Answer:

Explanation:

Conversion of Receipts and Payment Account into Income and Expenditure Account. When it is desired to convert a receipts and payments account into an income and expenditure account, the following steps are taken :

Leave the opening and closing balance of cash and bank given in the receipts and payments account.

Take only revenue items of income and expenditure and leave all those items which are of capital nature.

Make all adjustments for outstanding and prepaid expenses, accrued income, income received in advance, provision for depreciation or bad debts etc.

Taking items only for the current period i.e., items relating to the preceding and succeeding periods are to be ignored.