What steps are taken to prepare Income and Expenditure Account from a Receipt and Payment Account?

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Solution

The following steps are taken to prepare Income and Expenditure Account (I&E) from Receipts and Payment Account (R&P).

Step 1: All the revenue expenditures paid for the current accounting period are transferred from the Payments side of R&P to the Expenditure side of I&E.

Step 2: All the revenue receipts for the current accounting period are transferred from the Receipts side of R&P to the Income side of I&E.

Step 3: Expenses outstanding for the current period and expenses paid in advance (prepaid expenses) for the current period in the preceding accounting periods are to be added (adjusted) to their related expenses in the Step 1.

Step 4: Income outstanding (accrued income) for the current period and income received in advance for the current period in the preceding accounting periods are to be added (adjusted) to their related incomes in Step 2.

Step 5: Non-cash items like depreciation, appreciation for the current accounting period are to be adjusted in the I&E.

Step 6: After adjusting all the revenue items for the current accounting period, the Income and the Expenditure sides are totaled. If the sum total of the Income side exceeds (or is lesser than) the sum total of the Expenditure side, then the balancing figure is termed as surplus (or deficit).

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Q. What is Receipt and Payment Account? How is it different from Income and Expenditure Account?

From the following Receipt and Payment Account of Jan Kalyan Club, prepare Income and Expenditure Account and Balance Sheet for the year ending December 31, 2006.

Receipt and Payment Account for the year ending December 31, 2006
Receipts	Amount Rs	Payments	Amount Rs
Cash in hand as on 1.1.06	6,800	Salaries	24,000
Subscription	60,200	Traveling Expenses	6,000
Donation	3,000	Stationery	2,300
Sale of furniture (Book value Rs 6000)	4,000	Rent	16,000
Entrance fee	800	Repair	700
Life membership fee	7,000	Books purchased	6,000
Interest on investment (@ 5% for full year)	5,000	Building purchased	30,000
		Cash in Hand as 31.12.2006	1,800

	86,800		86,800

Additional Information:

		As on 1.01.2006	As on 31.12.2006
(i)	Subscription received in advance	1,000	3,200
(ii)	Outstanding subscription	2,000	3,700
(iii)	Stock of stationery	1,200	800
(iv)	Books	13,500	16,500
(v)	Furniture	16,000	8,000
(vi)	Outstanding rent	1,000	2,000

Q. From the following Receipts and Payments Account of Jaipur Sports Club , prepare Income and Expenditure Account for the year ended 31st March, 2018:

RECEIPTS AND PAYMENTS Account for the year ended March 31, 2018
Dr.					Cr.
Receipts		₹	Payments	₹
To Balance b/d		2,00,000	By Rent	60,000
To Entrance Fees:			(including ₹15,000 for 2016-17)
2016-17	10,000		By Insurance Premium	60,000
2017-18	50,000	60,000	(including ₹15,000 for 2018-19)
To Subscriptions:			By Sports Equipments	50,000
2016-17	10,000		By Furniture	60,000
2017-18(90%)	90,000		(Purchased on 31st March,2018)
2018-19	5,000	1,05,000	By 8% Fixed Deposit	1,20,000
To Life Membership Fees		20,000	(made on 1st October, 2017)
To Donations		1,20,000	By Tournament Expenses	10,000
To Donation for Tournament		50,000	By Books	20,000
To Subscription for Governor's Party		15,000	By Newspapers	1,000
To Interest on 8% Fixed Deposit		2,400	By Printing and Stationery	19,000
To Sale of Old Newspapers		300	By Balance c/d	1,80,000
To Sale of Old Sports Materials		500
(Book Value ₹ 1,200)
To Locker Rent		6,800
(including ₹ 600 for 2016-17)

		5,80,000		5,80,000

Distinguish between Receipts and Payments Account and Income and Expenditure Account.

Q. Distinguish between Receipt and Payment Account and Income and Expenditure Account.

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