Question

Explain the basic features of Income and Expenditure Account and Receipt and Payment Account.

Answer 1

The following are the basic features of Income and Expenditure Account
(i) Nature It is a Nominal Account. It is like profit and loss account.
(ii) Basic of Recording Basis for recording the transactions in both the case is similar and recording of revenue expenditure revenue income is the only concern of both the accounts. It means there is no space for capital nature expenditure.
(iii) No space for Capital Transactions The transactions those are capital in nature are excluded from this account. Only profit and loss on sale of assets is recorded in this account not the sale proceed.
(iv) Similar to Profit and Loss Account Income and Expenditure Account is similar to the Profit and Loss Account the only the difference is that profit and loss account is prepared for general organisation and income expenditure account is prepared for Not-for-Profit organisations.
(v) Current Year Transactions Both the accounts records only current year transactions. Transactions related to previous year and future and excluded in the form of adjustments.
(vi) 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.
(vii) Surplus or Deficit The outcome of Income and Expenditure Account comes in the form of Surplus or Deficit. When income exceed over expenditure it reflects Surplus and when Expenditure exeed over income it reflects Deficit. The Surplus balance is added to the capital fund in Balance Sheet and Deficit balance is deducted from the capital fund in the Balance Sheet.
The following are the features of Receipt and Payment Account.
(i) Nature It is summary of cash book and prepared like one column cash book.
(ii)Nature of transactions It records transactions related to both revenue and capital nature
(iii) Opening and Closing Balance This account begins with the opening balance of cash in hand and cash at bank or overdraft.
(iv) Purpose It reveals the cash position of an organisation. It helps to ascertain the total amount paid and receive during an accounting period.