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Karnataka Class 12 Commerce Accountancy Preparation of Income and Expenditure Account and Balance Sheet

Karnataka Class 12 Commerce Accountancy Preparation of Income and Expenditure Account and Balance Sheet

Karnataka Class 12 Commerce Accountancy Preparation of Income and Expenditure Account and Balance Sheet

Karnataka Class 12 Commerce Accountancy Preparation of Income and Expenditure Account and Balance Sheet :Income and Expenditure Account is the summary of income and expenditure for the accounting year. It is just like a profit and loss account prepared on accrual basis in case of the business organisations. It includes only revenue items and the balance at the end represents surplus or deficit.

The Income and Expenditure Account serves the same purpose as the profit and loss account of a business organisation does. All the revenue items relating to the current period are shown in this account, the expenses and losses on the expenditure side and incomes and gains on the income side of the account. It shows the net operating result in the form of surplus (i.e. excess of income over expenditure) or deficit (i.e. excess of expenditure over income), which is transferred to the capital fund shown in the balance sheet.

The Income and Expenditure Account is prepared on accrual basis with the help of Receipts and Payments Account along with additional information regarding outstanding and prepaid expenses and depreciation etc. Hence, many items appearing in the Receipts and Payments need to be adjusted.

Balance Sheet : ‘Not-for-Profit’ Organisations prepare Balance Sheet for ascertaining the financial position of the organisation. The preparation of their Balance Sheet is on the same pattern as that of the business entities. It shows assets and liabilities as at the end of the year. Assets are shown on the right hand side and the liabilities on the left hand side.

However, there will be a Capital Fund or General Fund in place of the Capital and the surplus or deficit as per Income and Expenditure Account which is either added to/deducted from the capital fund, as the case may be. It is also a common practice to add some of the capitalised items like legacies, entrance fees and life membership fees directly in the capital fund.

Besides the Capital or General Fund, there may be other funds created for specific purposes or to meet the requirements of the contributors/donors such as building fund, sports fund, etc. Such funds are shown separately in the liabilities side of the balance sheet. Some times it becomes necessary to prepare Balance Sheet as at the beginning of the year in order to find out the opening balance of the capital/general fund.

Karnataka Class 12 Commerce Accountancy Preparation of Income and Expenditure Account and Balance Sheet

The Final Accounts of non-trading concerns consists of:

1. Receipts and Payments Account

2. Income and Expenditure Account, and

3. Balance Sheet.

Karnataka Class 12 Commerce Accountancy Preparation of Income and Expenditure Account and Balance Sheet

Income and Expenditure Account:

It is a Nominal Account. It is in the form of Profit and Loss Account. It is concerned with only revenue items—expenses and incomes. It records all losses and expenses on its debit side and all incomes and gains on its credit side.

Of the incomes and expenses of revenue nature, only the portion pertaining to the current year is shown in the Income and Expenditure Account i.e. amount relating to the previous year or future year are excluded. Again, the incomes and expenses of current year, whether received or not, must be shown.

In other words, incomes and expenses have to be adjusted for both out-standing and pre-payments. All non-cash items, Depreciation, Bad Debts, Provision for Doubtful Debts etc. are taken into account.

The difference between the debit side and the credit side is either surplus or deficit for the year concerned and the difference will be transferred to the Capital Fund (also called General Fund or Accumulated Fund) appearing in Balance Sheet.

Features of Income and Expenditure Account, In Brief:

1. It is prepared in lieu of Profit and Loss Account.

2. It is a nominal account.

3. It is based on mercantile system of accounting.

4. There is no opening balance.

5. It ends with Surplus or Deficit.

6. It excludes all capital income and capital expenses.

7. It includes only revenue items.

8. It records all expenses whether paid or not, and all incomes whether received or not.

Karnataka Class 12 Commerce Accountancy Preparation of Income and Expenditure Account and Balance Sheet

Steps in the Preparation of Income and Expenditure Account

Following steps may be helpful in preparing an Income and Expenditure Account from a given Receipt and Payment Account:

1. Persue the Receipt and Payment Account thoroughly.

2. Exclude the opening and closing balances of cash and bank as they are not an income.

3. Exclude the capital receipts and capital payments as these are to be shown in the Balance Sheet.

4. Consider only the revenue receipts to be shown on the income side of Income and Expenditure Account. Some of these need to be adjusted by excluding the amounts relating to the preceding and the succeeding periods and including the amounts relating to the current year not yet received.

5. Take the revenue expenses to the expenditure side of the Income and Expenditure Account with due adjustments as per the additional information provided relating to the amounts received in advance and those not yet received.

6. Consider the following items not appearing in the Receipt and Payment Account that need to be taken into account for determining the surplus/ deficit for the current year :

(a) Depreciation of fixed assets.

(b) Provision for doubtful debts, if required.

(c) Profit or loss on sale of fixed assets

Karnataka Class 12 Commerce Accountancy Preparation of Income and Expenditure Account and Balance Sheet

Balance Sheet:

Balance Sheet in case of non-trading concern is prepared in the usual manner and consists of all liabilities and assets on the date on which it is prepared. The excess of assets over liabilities is termed Capital Fund or General Fund.

Again, The Capital Fund are accumulated with Capital Receipts, Receipts that are capitalized and further increased by surplus or decreased by deficit, during the year. At the inception of a non-trading concern, there will be no formal Capital Fund and in such case, the Surplus, if any, earned during the year constitute the Capital Fund at the end of the year.

Karnataka Class 12 Commerce Accountancy Preparation of Income and Expenditure Account and Balance Sheet

Preparation of Balance Sheet

The following procedure is adopted to prepare the Balance Sheet:

1. Take the Capital/General Fund as per the opening balance sheet and add surplus from the Income and Expenditure Account. Further, add entrance fees, legacies, life membership fees, etc. received during the year.

2. Take all the fixed assets (not sold/discarded/or destroyed during the year) with additions (from the Receipts and Payments account) after charging depreciation (as per Income and Expenditure account) and show them on the assets side.

3. Compare items on the receipts side of the Receipts and Payments Account with income side of the Income and Expenditure Account. This is to ascertain the amounts of:

(a) subscriptions due but not yet received:

(b) incomes received in advance;

(c) sale of fixed assets made during the year;

(d) items to be capitalised (i.e. taken directly to the Balance Sheet) e.g. legacies, interest on specific fund investment and so on.

4. Similarly compare, items on the payments side of the Receipt and Payment Account with expenditure side of the Income and Expenditure Account. This is to ascertain the amounts if:

(a) outstanding expenses;

(b) prepaid expenses;

(c) purchase of a fixed asset during the year;

(d) depreciation on fixed assets;

(e) stock of consumable items like stationery in hand;

(f) Closing balance of cash in hand and cash at bank as, and so on.

Karnataka Class 12 Commerce Accountancy Preparation of Income and Expenditure Account and Balance Sheet

Types of Accounting Problems:

1. Preparation of Income and Expenditure Account and Balance Sheet from a given Receipts and Payment Account with additional information.

2. Preparation of Opening Balance Sheet and Closing Balance Sheet from a given Receipt and Payment Account and Income and Expenditure Account.

3. Preparation of Receipt and Payment account from a given income and Expenditure Account and other information given.

4. Income and Expenditure Account and Balance Sheet from a given Trial Balance with addi­tional information.

Karnataka Class 12 Commerce Accountancy Preparation of Income and Expenditure Account and Balance Sheet

Preparation of Income and Expenditure Account and Balance Sheet from a given Receipts and Payment Account with additional information:

The Income and Expenditure Account is simply another name for the Profit and Loss Account drawn up for a non-profit organisation. In this account, all losses and expenses relating to the period are debited and all gains and incomes relating to the same period are credited. It must be remembered that only the revenue items relating to the period are dealt within this Account.

In examinations, sometimes, Receipts and Payments Account is given and the students are required to prepare Income and Expenditure Account and in such situation, the following steps are to be followed:

1. Do not take the opening balance and closing balance of Cash in hand and at Bank.

2. Do not take Capital Receipts and Capital Expenditure.

3. Pick up only the revenue receipts and revenue payments and exclude the portions relating to previous and subsequent years.

4. Add the portions of incomes and expenses prepaid in the previous year on account of current year.

5. Add also the portions of incomes and expenses of the current year due but remaining unpaid.

6. Provide for depreciation, Reserve for doubtful debts etc. as needed in the problems.

7. Surplus or Deficit will be transferred to Capital Fund.

Karnataka Class 12 Commerce Accountancy Preparation of Income and Expenditure Account and Balance Sheet

Preparation of Opening Balance sheet and Closing Balance Sheet from a given Receipts and Payments Account and Income and Expenditure Account.

Follow the following steps:

(A) Opening Balance Sheet:

(1) Consider Opening Cash and Bank balances from Receipts and Payments Account and write them in the asset side of the Balance Sheet.

(2) Consider other adjustments from income and Expenditure Account either income or expenses and put them in asset side or liability side of the Balance sheet.

(3) The difference between the asset side and liability side will reflect the capital Fund, as balanc­ing figure.

(B) Closing Balance Sheet:

(1) Take all the assets from Opening Balance Sheet, after due effect of depreciation (from Income and Expenditure A/c) additions (from Receipts and Payment A/c) and sold (from Receipts and Payments A/c), the net figure will be written in the asset side of the Balance Sheet.

(2) Take the Capital Fund from Opening Balance Sheet and add surplus or deduct deficit- and all other liabilities (from Income and Expenditure A/c) go to liability side of the Balance sheet.

(3) Closing cash and Bank Balances (from Receipt and Payment A/c) will be written on asset side.

(4) Compare each item from Income and Expenditure with Receipts and Payments Account and write suitably to close Balance Sheet.

Karnataka Class 12 Commerce Accountancy Preparation of Income and Expenditure Account and Balance Sheet

Distinction between Income and Expenditure Account and Profit And Loss Account:

The Income and Expenditure Account of a Non-trading concern is similar to profit and Loss Account of a Trading concern.

However, the following differences may be noted:

1. Income and Expenditure Account is prepared by a Non-trading concern while Profit and Loss Account is prepared by a trading concern.

2. Income and Expenditure shows Surplus or Deficit while Profit and Loss Account shows Net Profit or Net Loss.

3. Income and Expenditure Account does not start with Gross Profit or Gross Loss while Profit and Loss Account starts with Gross Profit or Gross Loss.

4. The Surplus (or Deficit) shown in the Income and Expenditure is added (or deducted) to/ from Capital Fund and is not distributed among the owners: whereas the Net Profit shown in the Profit and Loss Account is distributed among the owners.

for more details On Karnataka Class 12 Commerce Accountancy Preparation of Income and Expenditure Account and Balance Sheet syllabus check here Accountancy Syllabus

Karnataka Class 12 Commerce Accountancy Preparation of Income and Expenditure Account and Balance Sheet

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  • Non Profit Organisations book
  • Need for Maintaining of Accounts books by Non Profit Organisation
 

  • Accounting book 1
 

  • Accounting book 2
  • Accounting book 3
  • Need for Maintaining of Accounts notes by Non Profit Organisation
  • Need for Maintaining of Accounts guide by Non Profit Organisation
  • Need for Maintaining of Accounts guide by Non Profit Organisation 1
  • Need for Maintaining of Accounts guide by Non Profit Organisation 2

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