Accounting

The following are the characteristics of Income and Expenditure Account:
(1) It is in. fact the Profit and Loss Account of a profit-seeking concern.
(2) All expenses are recorded on Debit side and all revenues on Credit side.
Only revenue transactions are included in it. No capital items is taken into account.
(4) All the items of income/revenue concerning current year — whether received in cash or not
— and all items of expense — whether paid in cash or not — are taken into account. But no, item of income or expense concerning last year or next year is included in it.
(5) Surplus or deficit of a concern is ascertained through this account. Credit balance indicatessurplus, while debit balance indicates deficit.
(6) Its balance is transferred to Capital Fund Account.
(7) It is prepared on the last day of an accounting year..(8) It does not start with any opening balance.
METHOD OF PREPARATION:
The following points are to be noted, while preparing the above account:
1. Surplus or deficit of a fixed period of time is ascertained through this account. So it's heading willbe:
Income and Expenditure Account for the year ended 31.12.2005.
(If the accounting year closes on 31.12.2005).
2. Income and Expenditure Account is a Nominal Account. Hence, only revenue (no capital) items willfind place in it.
3. All items of revenue income and expenditure relating to the .current year will appear in it. In otherwords, all items of income relating to the current year - whether received in cash or not - and allitems of expenditure relating to the current year - whether paid in cash or not - will find place in thisaccount. No itrms of income or expenditure relating to last year or next year will be included in thisaccount.
SOME PECULIAR ITEMS OF A NON-PROFIT SEEKING CONCERNS
1. DEPRECIATION:Depreciation means loss on account of use of an asset or decrease in its value on account of passage of time. Suppose, an almirah is bought for Rs. 1,000. Its value must diminish gradually on account of use -the more it is used, the more will it diminish in value. After sometime it will become unfit for use. Then a new almirah is to be bought. Suppose, the almirah can be used for 10 yrars. In that case the annual loss on account of depreciation will be Rs. 100 (1,000 + 10). It must be debited to Income and Expenditure Account; otherwise the true result cannot be obtained, Similarly, depreciation must be taken into account in respect of all other assets like building, typewriter, furniture etc