Question

Explain the difference between Income and Expenditure Account and Cash Account.

Hint:

For accurate financial reporting, both the Income and Expenditure Account and Cash Account should be reviewed to assess both performance and liquidity.

Answer 1

The Income and Expenditure Account and the Cash Account are two distinct financial statements, and they serve different purposes. Here are the key differences:

Income and Expenditure Account: The Income and Expenditure Account is primarily used by non-profit organizations, such as clubs, societies, and charities, to record their income and expenses over a specific period. The account reflects the performance of the organization, showing whether there is a surplus or deficit for the period. It includes all incomes and expenditures irrespective of whether cash is received or paid, as it also accounts for accrued income and expenses.
Cash Account: The Cash Account, on the other hand, records only the cash transactions of an organization. It shows the cash receipts and payments during a period. The Cash Account does not include credit transactions (i.e., income earned or expenses incurred but not yet paid or received in cash).
Key Differences:

The Income and Expenditure Account shows the overall financial performance (profit or loss), while the Cash Account shows the actual cash flow.
The Income and Expenditure Account is prepared on an accrual basis, meaning it includes credit transactions, while the Cash Account is prepared on a cash basis, meaning it only records cash transactions.
The Income and Expenditure Account is used mainly by non-profit organizations, whereas the Cash Account is used by both profit and non-profit organizations to track cash flow.