INCOME AND EXPENDITURE ACCOUNT
INCOME AND EXPENDITURE ACCOUNT(with answers)
A conventional trading and profit and loss account is not an appropriate form in which to present the final accounts of a non-trading entity. Clubs, institutions, societies, professional bodies and similar concerns not formed with the intention of profit making will usually prepare an income and expenditure account. Occasionally it may be called a revenue account.
Differences between ‘A Receipts and Payment Account’ and
‘An Income and Expenditure Account’
| | |
|Receipts and Payment Account |Income and Expenditure Account |
| | |
|1. a summary of cash transactions and the resultant cash or bank |1. a balance representing the surplus or deficit of income over |
|balance |expenditure for the period under review |
| | |
| |2. contains all income and revenue expenditure attributable to the period |
|2. contains only part of the income or expenditure for the period, |of the account, whether received or paid or not. |
|i.e., the part actually received or paid. It may also contain receipts | |
|and payments belonging to preceding or succeeding periods. | |
| | |
| | |
|3. contains both capital and revenue items if received or paid. |3. contains revenue items only. |
| | |
|4. virtually a summarised statement of cash book | |
| |4. virtually a Trading and Profit and Loss Account. |
There are a few points in particular that should be noted when attempting an income and expenditure question in an examination.
1. In large clubs it is usual to prepare special Trading Accounts to show the results of bar trading, sale of refreshments and similar operations.
2. The capital account is sometimes described as an Accumulated Fund. A surplus of income over expenditure for the period is added to this fund, and a deficit is deducted.
3. Depreciation of fixed assets may or may not be required. If depreciation is required there will be some indication of this, though it may be implicit rather than explicit.
4. If receipts are described as ‘bar receipts’ or ‘dance receipts’ or other ‘special effort receipts’, careful scrutiny is recommended to see if expenses are similarly identified. If is quite probable that the examiner is looking for a separate ‘bar account’ or ‘dance account’, the profit and loss on which should be transferred to the main income and expenditure account. Marks will be list if the individual items are simply listed in the income and expenditure account. In the case of a bar account, stocks at the beginning and the end of the year should of course be included, as should items such as barman’s wages.
5. A payment for life membership should not be treated as income solely in the year in which the member paid the money. It should be credited to a Life Membership Account, and transfers should be made to the credit of the income and expenditure account of an appropriate amount annually.
6. Entrance fees paid on application for membership should not be treated as income solely in the year in which the member is admitted. It should be credited to Entrance Fees Account and transfers should be made from that account to the income and expenditure account of an appropriate amount annually.
Accounting treatments for subscriptions
e.g 1. The club has 10 members at present and the annual subscription for each member is $100 each.
Case 1 – all members duly paid their subscriptions.
Subscription
I&E a/c $1 000 | Bank (10x$100) $1 000
Case 2 – only 9 members paid their subscriptions.
Subscription
I & E a/c 1 000 | Bank (9x$100) 900
| In arrear c/d 100
1 000 | 1 000
|
In arrear b/d 100
Journal entries for year end adjustments:
Dr. Subscription in arrear 100
Cr. Subscription 100
To record the unpaid subscription for one member.
Case 3 – all members duly paid their subscriptions and one of them also paid for the next year.
Subscription
I & E a/c 1 000 | Bank (11x$100) 1 100
In advance c/d 100 |
1 100 | 1 100
| In advance b/d 100
Journal entries for year end adjustments:
Dr. Subscription 100
Cr. Subscription in advance 100
To record the subscription paid in advance for one member.
e.g 2. The cash receipts for members’ subscription amounted to $4 388 for the year ended 30 September 1998. The following valuations are also available:
As at 30 September 1997 1998
Subscriptions in arrears $150 $ 90
Subscriptions in advance 75 35
You are required to prepare the subscription account for the year ended 30 September 1998.
Subscription account
In arrear b/d 150 | In advance b/d 75
I&E a/c (b.f.) 4 368 | Bank 4 388
In advance c/d 35 | In arrear c/d 90
4 553 | 4 553
e.g 3. The subscriptions received from members for the year ended 31 December 1998 are shown as follows:
Subscriptions received for:
1997 55
1998 1 236
1999 40
Subscriptions owing by members amounted to $65 on 31 December 1997, and $66 on 31 December 1998. Subscriptions owing for more than one year would be treated as uncollectible.
You are required to prepare the subscription account for the year ended 31 December 1998.
Subscription
In arrear b/d 65 | In advance b/d 0
| Bank – 1997 55
I & E a/c (b.f.) 1 302 | - 1998 1 236
| - 1999 ___44 1 335
| Bad debts 10
In advance c/d 44 | In arrear c/d 66
______ | _____
1 411 | 1 411
Illustration One (Amended from 1998 Section A Question 3)
The treasurer of the Leisure Club has prepared the following receipts and payments account for the year ended 31 December 1997:
Receipts and payments account
| |$ | | |$ |
|Balance b/d |15 330 | |Bar purchases |61 250 |
|Subscriptions |49 000 | |Bar wages |7 420 |
|Bank interest |92 | |Administration expenses |42 270 |
|Bar sales |97 500 | |Insurance |6 250 |
| | | |Balance c/d |44 732 |
| |161 922 | | |161 922 |
Additional information:
i) The following balances were extracted from the club’s books at 31 December 1996:
$
Accrued bar wages 455
Bar debtors 1 000
Club premises 300 000
Creditors for bar supplies 8 190
Bar stock 9 425
Prepaid insurance 600
Subscriptions in arrears 2 405
Subscriptions in advance 1 120
ii) Depreciation is to be charged on the cost of club premises at 5% per annum.
iii) Bar stock at 31 December 1997, amounted on $9 620.
iv) Accrued bar wages, prepaid insurance, bar debtors and creditors for bar supplies amounted to $390, $400, $1 200 and $7 215 respectively at 31 December 1997.
v) Subscriptions in advance and in arrears amounted to $2 600 and $1 360 respectively at 31 December 1997.
You are required to prepare for the Leisure Club:
a) A statement showing the accumulated funds of the club as at 1 January 1997, and
b) A bar trading account for the year ended 31 December 1997, and
c) An income and expenditure account for the year ended 31 December 1997,
d) A balance sheet as at 31 December 1997.
Answers:
a) A statement showing the accumulated funds of the club as at 1 January 1997:
|Assets: |$ |$ |
|Club premises | |300 000 |
|Bar debtors | |1 000 |
|Bar stock | |9 425 |
|Prepaid insurance | |600 |
|Subscriptions in arrears | |2 405 |
|Cash and Bank | | 15 330 |
| | |328 760 |
|Liabilities: | | |
|Accrued bar wages |455 | |
|Creditors for bar supplies |8 190 | |
|Subscriptions in advance |1 120 | 9 765 |
|Balance of the accumulated funds as at1.1.1997 | |318 995 |
b)
|Leisure Club |
|Bar trading account for the year ended 31 December 1997 |
|Opening stock |9 425 |Sales (W1) |97 700 |
|Purchases (W2) |60 275 | | |
| |69 700 | | |
|Less: closing stock |9 620 | | |
|Cost of goods sold |60 080 | | |
|Gross profit c/d |37 620 | |______ |
| |97 700 | |97 700 |
|Bar wages (W3) |7 355 |Gross profit b/d |37 620 |
|Net profit |30 265 | |______ |
| |37 620 | |37 620 |
Workings:
1.
|Bar debtors |
|1997 | | |1997 | |
|Jan 1 Balance b/d |1 000 | |Dec 31 Cash / Bank |97 500 |
|Dec 31 Total sales (b.f.) |97 700 | | 31 Balance c/d | 1 200 |
| |98 700 | | |98 700 |
2.
|Bar creditors |
|1997 | | |1997 | |
|Dec 31 Cash / Bank |61 250 | |Jan 1 Balance b/d |8 190 |
|Dec 31 Balance c/d |7 215 | |Dec 31 Total purchases (b.f.) |60 275 |
| |68 465 | | |68 465 |
3.
|Bar wages |
|1997 | | |1997 | |
|Dec 31 Cash / Bank |7 420 | |Jan 1 Accrued b/d |455 |
|Dec 31 Accrued c/d |390 | |Dec 31 Bar trading (b.f.) |7 355 |
| |7 810 | | |7 810 |
c)
|Leisure Club |
|Income and expenditure account for the year ended 31 December 1997 |
|Expenditure | |Income | |
|Administration expenses |42 270 |Subscription (W4) |46 475 |
|Insurance (W5) |6 450 |Bar profit |30 265 |
|Depreciation |15 000 |Bank interest received |92 |
|Surplus of income over expenditure |13 112 | |______ |
| |76 832 | |76 832 |
Workings :
4.
|Subscription |
|1997 | | |1997 | |
|Jan 1 In arrear b/d |2 405 | |Jan 1 In advance b/d |1 120 |
|Dec 31 I&E a/c (b.f.) |46 475 | |Dec 31 Bank / Cash |49 000 |
| 31 In advance c/d |2 600 | | 31 In arrear c/d |1 360 |
| |51 480 | | |51 480 |
5.
|Insurance |
|1997 | | |1997 | |
|Jan 1 Prepaid b/d |600 | |Dec 31 I&E a/c (b.f.) |6 450 |
|Dec 31 Cash / Bank |6 250 | | 31 Prepaid b/d |400 |
| |6 850 | | |6 850 |
d)
|Leisure Club |
|Balance Sheet as at 31 December 1997 |
|Fixed assets | | |Accumulated funds | | |
|Club premises | |300 000 |At 1 January 1997 | |318 995 |
|Accumulated depreciation | | 15 000 |Add: Surplus for the year | | 13 112 |
| | |285 000 | | |332 107 |
|Current assets | | |Current liabilities | | |
|Bar stock |9 620 | |Bar creditors |7 215 | |
|Bar debtors |1 200 | |Accruals |390 | |
|Prepaid insurance |400 | |Subscription in advance |2 600 |10 205 |
|Subscription in arrear |1 360 | | | | |
|Cash and Bank |44 732 | 57 312 | | |_______ |
| | |342 312 | | |342 312 |
Illustration Two (Amended from 1987 Section A Question 4)
The Treasurer of the International Club submitted the following receipts and payments account to club members covering the year to 31 December 1986:
Receipts and Payments Account
|Receipts |$ | |Payments |$ |
|Bank b/f |62 500 | |Printing and stationery |110 000 |
|Subscriptions received: | | |Bar purchases |132 000 |
|For current year |232 000 | |New equipment bought |150 000 |
|In advance |8 000 | |Wages for bar staff |215 000 |
|For previous years |10 000 | |Sundry expenses |110 700 |
|Bar takings |318 600 | | | |
|Sale of equipment |35 000 | | | |
|Bank c/f |51 600 | | |_______ |
| |717 700 | | |717 700 |
Additional information:
i) The following balances were extracted from the club’s books:
| |At 31.12.86 |At 31.12.85 |
|Bar stock |$ 36 000 |$ 28 000 |
|Bar debtors |4 100 |5 200 |
|Bar creditors |3 200 |6 300 |
|Stationery stock |800 |600 |
|Sundry expenses accrued |700 |200 |
| | | |
ii) The discounts allowed, discounts received and bad debts during the year were $1 000, $2 000 and $3 000 respectively.
iii) On 1 January 1986 the club’s only equipment was sold. The net book value of the equipment was $20 000.
iv) Depreciation on the new equipment was estimated at $30 000.
v) The subscription in advance at 31 December 1985 was $900 and all the subscriptions for the previous years were collected. The subscription in arrears on 31 December 1986 amounted to $3 000.
You are required to prepare for the Leisure Club:
a) A statement showing the accumulated funds of the club as at 31 December 1985, and
b) A bar trading account for the year ended 31 December 1986, and
c) An income and expenditure account for the year ended 31 December 1986,
d) A balance sheet as at 31 December 1986.
Answers:
a) A statement showing the accumulated funds of the club as at 31 December 1985:
|Assets: |$ |$ |
|Equipment | |20 000 |
|Bar debtors | |5 200 |
|Bar stock | |28 000 |
|Stationery stock | |600 |
|Subscriptions in arrears | |10 000 |
|Cash | | 62 500 |
| | |126 300 |
|Liabilities: | | |
|Bar creditors |6 300 | |
|Sundry expenses accrued |200 | |
|Subscriptions in advance | 900 | 7 400 |
|Balance of the accumulated funds as at 31.12.1985 | |118 900 |
b)
|International Club |
|Bar trading account for the year ended 31 December 1986 |
|Opening stock |28 000 |Sales (W1) |321 500 |
|Purchases (W2) |130 900 | | |
| |158 900 | | |
|Less: closing stock |36 000 | | |
|Cost of goods sold |122 900 | | |
|Gross profit c/d |198 600 | |_______ |
| |321 500 | |321 500 |
|Bar wages |215 000 |Gross profit b/d |198 600 |
| |_______ |Net loss | 16 400 |
| |215 000 | |215 000 |
Workings:
1.
|Bar debtors |
|1986 | | |1986 | |
|Jan 1 Balance b/d |5 200 | |Dec 31 Bank |318 600 |
| | | |31 Discounts allowed |1 000 |
| | | |31 Bad debts |3 000 |
|Dec 31 Total sales (b.f.) |321 500 | | 31 Balance c/d | 4 100 |
| |326 700 | | |326 700 |
2.
|Bar creditors |
|1986 | | |1986 | |
|Dec 31 Bank |132 000 | |Jan 1 Balance b/d |6 300 |
| 31 Discounts received |2 000 | | | |
|31 Balance c/d |3 200 | |Dec 31 Total purchases (b.f) |130 900 |
| |137 200 | | |137 200 |
c)
|International Club |
|Income and expenditure account for the year ended 31 December 1986 |
|Expenditure | |Income | |
|Loss from bar |16 400 |Subscription (W3) |235 900 |
|Printing and stationery (W4) |109 800 |Discounts received |2 000 |
|Sundry expenses (W5) |111 200 |Profit on disposal of equipment |15 000 |
|Discounts allowed |1 000 |Deficit of expenditure over income |18 500 |
|Bad debts |3 000 | | |
|Depreciation | 30 000 | |_______ |
| |271 400 | |271 400 |
Workings :
3.
|Subscription |
|1986 | | |1986 | | |
|Jan 1 In arrear b/d |10 000 | |Jan 1 In advance b/d | |900 |
|Dec 31 I&E a/c (b.f.) |235 900 | |Dec 31 Bank - current |232 000 | |
| | | | - in advance |8 000 | |
| | | | - previous | 10 000 |250 000 |
| 31 In advance c/d |8 000 | | 31 In arrear c/d | |3 000 |
| |253 900 | | | |253 900 |
4.
|Printing and stationery |
|1986 | | |1986 | |
|Jan 1 Stock b/d |600 | |Dec 31 I&E a/c (b.f.) |109 800 |
|Dec 31 Bank |110 000 | | 31 Stock b/d |800 |
| |110 600 | | |110 600 |
5.
|Sundry expenses |
|1986 | | |1986 | |
|Dec 31 Bank |110 700 | |Jan 1 Accrued b/d |200 |
|Dec 31 Accrued c/d |700 | |Dec 31 I&E a/c (b.f.) |111 200 |
| |111 400 | | |111 400 |
d)
|International Club |
|Balance Sheet as at 31 December 1986 |
|Fixed assets | | |Accumulated funds | | |
|Equipment | |150 000 |At 1 January 1986 | |118 900 |
|Accumulated depreciation | | 30 000 |Less:Deficit for the year | | 18 500 |
| | |120 000 | | |100 400 |
|Current assets | | |Current liabilities | | |
|Bar stock |36 000 | |Bar creditors |3 200 | |
|Bar debtors |4 100 | |Accruals |700 | |
|Stationary stock |800 | |Subscription in advance |8 000 | |
|Subscription in arrear | 3 000 | 43 900 |Bank overdraft |51 600 | 63 500 |
| | |163 900 | | |163 900 |
Exercise One
The following is a summary of the receipts and payments of the Victory Club during the year ended 30 September 1998:
Victory Club
Receipts and Payments Account
For the year ended 30 September 1998
----------------------------------------------------------------------------------------------------------------------
Cash and Bank balances b/d $1 247 Rent $1 524
Sales of annual dinner tickets 990 Purchase of office equipment 870
Members’ subscriptions 4 388 Donations to charities 287
Life membership 200 Meeting expenses 559
Donations 150 Expenses of annual dinner 1 213
Heating and lighting 446
Stationery and printing 320
Cash and Bank balances c/d 1 756
6 975 6 975
The following valuations are also available:
As at 30 September 1997 1998
Subscriptions in arrears $150 $ 90
Subscriptions in advance 75 35
Stocks of stationery 67 83
Meeting expenses prepaid 150 0
Heating and lighting accrued 110 83
On 1 October 1997 the Victory Club owned office equipment costing $2 500 which had been depreciated by $500. The policy of the club is to depreciate office equipment at 10% per annum using the straight line method applied on a full year basis. The club did not sell any office equipment during the year ended 30 September 1998.
Life membership was introduced for the first time in the current year. The payment for each member amounted to $100 and it would be spread over 5 years.
You are required to prepare an Income and Expenditure Account for the Victory Club for the year ended 30 September 1998 and a Balance Sheet as at that date
Victory Club
Income and Expenditure Account
For the year ended 30 September 1998
Income:
Life membership
Subscriptions
Donations
Expenditure:
Rent
Donations to charities
Meeting expenses
Expenses over ticket sales of annual dinner
Heating and lighting
Stationery and printing
Depreciation
Surplus of income over expenditure
Victory Club
Balance Sheet as at 30 September 1998
Fixed assets:
Office equipment
Less: Accumulated depreciation
Current assets:
Stock of stationery
Subscriptions in arrear
Cash and bank
Less: Current liabilities
Subscription in advance
Accruals
Accumulated fund:
Beginning balance
Add: Surplus
Ending balance
Life membership account ________
Workings:
1. Subscription
In arrear b/d | In advance b/d
I & E a/c | Bank
In advance c/d | In arrear c/d
|
2. Meeting expenses
Prepaid b/d | I & E a/c
Bank/Cash |
|
3. Annual dinner
Bank-expenses | Bank-sales of tickets
| Excess of expenses
| over sales revenue |
4. Heating and Lighting Bank | Accrual b/d
Accrual c/d | I & E a/c
|
5. Stationery and printing Stock b/d | I & E a/c
Bank/Cash | Stock c/d
|
6. Accumulated Fund as at beginning of year:
Assets: Cash and bank $
Subscriptions in arrear
Stock of stationery
Meeting expenses prepaid
Office equipment
Liabilities: Subscriptions in advance
Heating and lighting accrued
Exercise Two
Long Lane Football Club
Receipts and Payments Account
For the year ended 31 December 1998
---------------------------------------------------------------------------------------------------------------------------
Bank Balance 1.1.1998 $ 524 Payment for bar supplies $ 3 962
Subscriptions received for: Wages:
1997 55 Groundsman and assistant 939
1998 1 236 Barman 624
1999 40 Bar expenses 234
Bar sales 5 628 Repairs to stands 119
Donations received 120 Ground upkeep 229
Secretary's expenses 138
Transport costs 305
_____ Bank Balance 31.12.1998 1 053
7 603 7 603
1. Assets and liabilities at the beginning and end of the year:
31.12.1997 31.12.1998
Stocks in the bar - at cost $ 496 $ 558
Owing for bar supplies 294 340
Bar expenses owing 25 36
Transport costs owing - 65
2. The land and football stands were valued at 31 December 1997 at:
Land at cost of $4 000
Football stands at cost of $5 000 less accumulated depreciation of $3 000
The stands are to be depreciated by 10% per annum on reducing balance method.
3. The equipment at 31 December 1997 was valued at cost of $1 000 less depreciation to date of $500, and is to be depreciated at 25 per cent per annum on straight line method.
4. Four-fifths of the bar expenses were actually spent on the improvement of the equipment on 1 January 1998.
5. It was found repairs to stands included $100 cost of additions to stands.
6. Subscriptions owing by members amounted to $65 on 31 December 1997, and $66 on 31 December 1998. Subscriptions owing for more than one year would be treated as uncollectible.
You are required to prepare a Bar Trading Account, an Income and Expenditure Account for the year ended 31 December 1998 and a Balance Sheet as at that date.
Long Lane Football Club
Bar Trading Account for the year ended 31 December 1998
Bar sales
Beginning stock
Add: purchases
Less: ending stock
Cost of goods sold
Gross profit
Bar wages
Bar expenses
Net profit from bar
Income and Expenditure Account for the year ended 31 December 1998
Income
Subscriptions
Profit from the bar
Donations received
Expenditure
Wages
Repairs to stands
Ground upkeep
Secretary's expenses
Transport costs
Depreciation - Stands
- Equipment
Bad debts
Surplus of income over expenditure
Balance Sheet as at 31 December 1998
Fixed assets:
Cost Depreciation Net book value
Land
Stand ________ _________ ________
Current assets:
Stock of bar supplies
Subscriptions in arrear
Cash at bank
Less: Current liabilities
Bar creditors
Bar expenses owing
Transport costs owing
Subscription in advance
Accumulated fund:
Beginning balance
Add: Surplus
Ending balance
Workings:
1. Bar creditors
|
|
|
2. Bar expenses |
|
|
3. Subscription In arrear b/d | In advance b/d
| Bank - 1997
I & E a/c | - 1998
| - 1999
| Bad debts
In advance c/d | In arrear c/d
|
4. Transport costs |
|
|
5. Accumulated Fund as at beginning of year:
Assets: Land $
Stands
Equipment
Stock in bar
Bank
Subscriptions in arrear
Liabilities: Bar creditors
Bar expenses owing
................
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