Question

State the features of income and expenditure account

Answer 1

These are the basic features of Income and Expenditure Accountand of Receipt and Payment Account
Income and Expenditure Account (I&E) Account is a Nominal Account and is prepared on the accrual basis. It records alltransactions of revenue nature that are related to the current accounting period (whether outstanding or prepaid) for which thebooks are maintained. All expenses and losses are recorded on the debit side (Expenditure side) and all income and gains arerecorded on the credit side (Income side) of I&E Account. The closing balance or the balancing figure of I&E Account is termedas surplus (or deficit), if the sum total of the Income side exceeds (is lesser than) the sum total of the Expenditure side.The following are the basic features of Income and Expenditure Account1.

Nature
: It is a Nominal Account. The debit side of I&E records all expenses and losses and the credit side records all incomesand gains related to the current accounting period.2.

Basis
: It is prepared on the basis of Receipt and Payment Account (R&P). All the revenues items whether incomes orexpenditures are transferred from R&P.3.

Excludes Capital Transactions
: The transactions those are capital in nature are excluded from this account. For example, onlyprofit or loss on sale of fixed assets is recorded but the total amount of sales is not recorded since sale of fixed asset is consideredas a capital receipt.4.

Akin to Profit and Loss Account
: Income and Expenditure Account (I&E) is similar to the Profit and Loss Account in thesense that while the former is prepared to ascertain surplus or deficit during an accounting period the latter is prepared toascertain net profit or net loss incurred during an accounting period.5.
Records only

Current Year’s items
: This account records only those transactions that are related to current accounting year. Inother words, transactions related to the preceding or succeeding accounting period are excluded even if these transactions arerealised in the current period.6.

Adjustments
: Various cash and non-cash items like, outstanding expenses, prepaid expenses, income received in advance,income due but not received, depreciation, bad debts, etc. can be adjusted in this account.7.

Balancing Figure
: The balancing figure of this account is expressed in terms of either surplus (if incomes > expenses) or
deficit (if expenses > incomes). The surplus balance, if any, is added to the Capital Fund, whereas, the deficit balance, if any, isdeducted from the Capital Fund.

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Answer 2

Income and Expenditure Account (I&E) is similar to the Profit and Loss Account in the sense that while the former is prepared to ascertain surplus or deficit during an accounting period, the latter is prepared to ascertain net profit or net loss incurred during an accounting period. I&E Account is a nominal account and is prepared on the accrual basis. It records all transactions of revenue nature that are related to the current accounting period (whether outstanding or prepaid) for which the books are maintained. All expenses and losses are recorded on the debit side (Expenditure side) and all income and gains are recorded on the credit side (Income side) of I&E Account. The closing balance or the balancing figure of I&E Account is termed as surplus (or deficit), if the sum total of the Income side exceeds (is lesser than) the sum total of the Expenditure side.