Question

Explain the objectives of Income and Expenditure Account.

Hint:

The surplus or deficit shown in the Income and Expenditure Account helps the organization to assess its operational efficiency and plan for the future.

Answer 1

The Income and Expenditure Account is a financial statement typically used by non-profit organizations such as clubs, societies, and associations. It shows the revenues and expenses over a specific period, usually a year. The primary objectives of the Income and Expenditure Account are:

To determine the surplus or deficit: The main objective is to determine whether the organization has made a surplus (income exceeds expenditure) or a deficit (expenditure exceeds income) during the accounting period.
To summarize income and expenses: The account provides a summary of all the incomes earned and expenses incurred during the financial period, without showing the balance sheet details.
To evaluate the financial health of the organization: By reviewing the income and expenditure, the financial position of the organization can be analyzed, and future financial planning can be done.
To comply with regulatory requirements: For non-profit organizations, preparing an Income and Expenditure Account is often a statutory requirement for maintaining transparency and accountability.
To prepare for budgeting: The account serves as a base for future budgeting, as it shows the actual income and expenses in comparison to the budgeted figures.
The Income and Expenditure Account is similar to a Profit and Loss Account used by profit-making businesses but differs in its focus on the not-for-profit sector.