Income and Expenditure Account (I&E) Account is a Nominal Account and is prepared on the accrual basis. It records all transactions of revenue nature that are related to the current accounting period (whether outstanding or prepaid) for which the books are maintained. All expenses and losses are recorded on the debit side (Expenditure side) and all income and gains are recorded on the credit side (Income side) of I&E Account. The closing balance or the balancing figure of I&E Account is termed as surplus (or deficit), if the sum total of the Income side exceeds (is lesser than) the sum total of the Expenditure side.
The following are the basic features of Income and Expenditure Account
1. Nature: It is a Nominal Account. The debit side of I&E records all expenses and losses and the credit side records all incomes and gains related to the current accounting period.
2. Basis: It is prepared on the basis of Receipt and Payment Account (R&P). All the revenues items whether incomes or expenditures are transferred from R&P.
3. Excludes Capital Transactions: The transactions those are capital in nature are excluded from this account. For example, only profit or loss on sale of fixed assets is recorded but the total amount of sales is not recorded since sale of fixed asset is considered as a capital receipt.
4. Akin to Profit and Loss Account: Income and Expenditure Account (I&E) is similar to the Profit and Loss Account in the sense that while the former is prepared to ascertain surplus or deficit during an accounting period the latter is prepared to ascertain net profit or net loss incurred during an accounting period.
5. Records only Current Year’s items: This account records only those transactions that are related to current accounting year. In other words, transactions related to the preceding or succeeding accounting period are excluded even if these transactions are realised in the current period.
6. 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.
7. Balancing Figure: The balancing figure of this account is expressed in terms of either surplus (if incomes > expenses) or deficit (if expenses > incomes). The surplus balance, if any, is added to the Capital Fund, whereas, the deficit balance, if any, is deducted from the Capital Fund.
Receipts and Payments Account is a summary of the Cash Book. All the cash receipts are recorded on the Receipts side (i.e. Debit side) and all the cash payments are recorded on the Payments side (i.e. Credit side) of Receipts and Payments Account. It is prepared on the basis of cash and bank transactions recorded in the Cash Book. It begins with the opening balance of cash and bank and ends with the closing balances of cash and bank (balancing figure) at the end of the accounting period. It records all the cash and bank transactions both of capital and revenue nature. It not only records the cash and bank transactions relating to the current accounting period but also cash and bank receipts (or payments) received during the current accounting period that may be related to the previous or next accounting period.
The following are the features of Receipt and Payment Account.
1. Nature: It is a Real Account. It is a summarised version of the Cash Book.
2. Nature of Transactions: It records only cash and bank transactions. Transactions other than cash and bank like depreciation, loss/ profit on sale of assets, etc. are not recorded in this account.
3. No distinction between Capital and Revenue items: It records all cash and bank receipts and payments of both capital and revenue nature.
4. Opening and closing balance: It begins with the opening balance of cash and bank and ends with the closing balance of the cash and bank (balancing figure) at the end of the accounting period.
5. Purpose: It reveals the cash position of an organisation. It helps to ascertain the total amount paid and received during an accounting period.

Details	Amount (Rs.)
Subscriptions Received as per Receipt and Payment account	2,50,000
Add: Subscriptions outstanding on 31.3.2017	35,000
Add: Subscriptions received in advance on 1.4.2016	25,000
	3,10,000
Less: Subscriptions outstanding on 1.4.2016	50,000
	2,60,000
Less: Subscriptions received in advance on 31.3.2017	30,000
Income from subscription for the year 2016–17	2,30,000

Alternately, income received from subscriptions can be calculated by preparing a Subscriptions account as under.

                           Subscription Account                            

Date	Particulars	J.F	Amount (Rs.)	Date	Particulars	J.F.	Amount (Rs.)
	Balance b/d (outstanding		50,000		Balance b/d (advance)		25,000
	Income and Expenditure Account		2,30,000		Receipts and Payments A/c		2,50,000
	(balancing figure)				Balance c/d (outstanding)		35,000
	Balance c/d (advance)		30,000
			3,10,000				3,10,000

Relevant items of subscription can be shown in the opening and closing balance sheet as under:

                  Balance Sheet as on March 31, 2014                

Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
Subscriptions received in advance	25,000	Subscription outstanding	50,000

                  Balance Sheet as on March 31, 2015            

Liabilities	Amount (Rs.)	Asset	Amount (Rs.)
Subscriptions received in advance	30,000	Subscriptions outstanding	35,000

                                                                         Books of Silver Point
                               Receipt and Payment Account for the year ending March 31, 2017              

Receipts	Amount (Rs.)	Amount (Rs.)	Payments	Amount (Rs.)
Balance b/d			Rent	3,000
Cash		1,000	Sports materials purchased	4,800
Bank		7,200	Purchase of refreshments	600
Subscriptions			Maintenance expenses for tennis court	2,000
2015-16	500		Salary	2,500
2016-17	7,600		Tournament expenses	2,400
2017-18	900	9,000	Furniture purchased	1,500
Sale of refreshments		1,000	Office expenses	1,200
Entrance fees		1,000	Balance c/d
Sale of old sports materials		1,200	Cash	400
Donation for pavilion		4,600	Bank (balancing figure	6,600
		25,000		25,000

                                                              Income and Expenditure Account
Dr.                                                                                                                                                                            Cr.

Expenditure	Amount Rs.	Amount Rs.	Income	Amount Rs.	Amount Rs.
Salaries	68,000		Fees Collected	5,20,000
Less: Previous year's Outstanding	(5,000)		Less: Previous year's Outstanding	(80,000)
	63,000			4,40,000
Add: Current year's Outstanding	3,000	66,000	Add: Current year's Outstanding	30,000	4,70,000
Entertainment Expenses		8,000	Donations		25,000
Tournament Expenses		25,000
Meeting Expenses		18,000
Traveling Expenses		7,000
Purchases of Periodicals (40,000 – 31,000)		9,000
Postage, Telegrams and Telephone’s		6,000
Rent		15.000
Printing and Stationery		18,000
Surplus (Excess of Income over Expenditure)		3,23,000
		4,95,000			4,95,000

NOTE: As per the solution, Excess of Income over Expenditure is Rs 3,23,000; however, as per the book, it is Rs 3,07,000.

                 Shiv-e-Narain Education Trust Balance Sheet as on March 31, 2016

Liabilities	Amount (Rs.)	Assets	Amount (Rs.)
Capital/General Fund (Balancing figure)	2,54,000	Investments	1,60,000
		Furniture	40,000
		Books	20,000
		Outstanding subscription	12,000
		Accrued Interest on Invest.	4,000
		Cash in hand	3,000
		Cash at bank	15,000
	2,54,000		2,54,000

                         Balance Sheet of Shiv-e-Narain Education Trust as on March 31, 2017

Liabilities	Amount (Rs.)	Amount (Rs.)	Assets	Amount (Rs.)	Amount (Rs.)
Tuition fee advance		10,000	Investments		1,60,000
Rent Outstanding		3,000	Furniture	40,000
Advertisement Outstanding		380	Less: Depreciation	4,000
Printing & Stationery		1,800		36,000
Outstanding Advance Subscription		15,600	Add: Purchases	28,000	64,000
Capital/			Books	20,000
General Fund	2,54,000		Add: Purchases	5,000	25,000
Add Entrance fee	25,200		Interest Accrued		800
Add Surplus	5,000		Outstanding tuition fee		10,000
			Staff Salary Advance		1,000
			Cash in Hand		9,180
			Cash at Bank		45,000
		3,14,980			3,14,980

Note:
1. Income and Expenditure Account for the current year shows interest on investment income Rs.6,800 while Receipts and Payments Account shows the receipts of Rs.6,000 the difference of Rs.800 means interest on investment has become due but not yet receivable during the year.
2. Income and Expenditure Account shows Rs.90,000 as income from Tuition fees. However, the Receipts and Payments Account shows Rs.10,000 as tuition fees received for the year 2017-18 and Rs.80,000 for 2015-16. It implies that Rs.10,000 on account of tuition fees for the year 2016-17 are still receivable (i.e. Tuition fees are outstanding).
3. Receipt and Payment Account shows a payment of Rs.85,000 on account of staff salaries, but the Income and Expenditure Account shows expenditure of Rs.84,000 on account of staff salaries. It means the excess of Rs.1,000 shown in the Receipt and Payment Account may either belong to the pervious year or the next year. Their is no evidence that staff salaries of Rs.1,000 was outstanding at the end of the previous year 2013-14. This is why this payment of Rs.1,000 has been considered as an advance salaries to the staff.

Details	Amount (Rs.)
Payment made for the purchase of stationery as per Receipts and Payments account	23,000
Less: Creditors in the beginning	9,000
Payment made for the year 2014-15	14,000
Add: Payment not yet made (i.e. creditors at the end)	2,500
Stationery Purchased for the year 2014-15	16,500
Add: Stock in the beginning	4,000
Stationery Available for consumption during 2014-15	20,500
Less: Stock at the end	3,000
Stationery Consumed during 2014-15 to be taken to the Expenditure side of the Income and Expenditure account	17,500

Stationery:
Normally expenses incurred on stationary, a consumable items are charged to Income and Expenditure Account. But in case stock of stationery (opening and/or closing) is given, the approach would be make necessary adjustments in purchases of stationery and work out cost of stationery consumed and show that amount in Income and Expenditure Account and its stock in the balance sheet. For example, the Receipt and Payment Account shows a payment for stationery amounting to Rs. 40,000 and there is an opening and closing stationery amounting to Rs. 12,000 and Rs. 15,000. The amount of expense on stationery will be worked out as follows:
 

Particulars	Amt(Rs.)
Stationery Purchases	40,000
Add: Opening stock	12,000
	52,000
Less: Closing stock	15,000
	37,000

In case stationery is also purchased on credit, the amount of its consumption will be worked out as given in Illustration 12.

Capital fund is the excess of NPOs, assets over its liabilities. In other words, the excess of assets over the liabilities for a profit earning organisation is termed as capital and the same for an NPO is termed as capital fund. Any surplus or deficit ascertained from Income and Expenditure account is added to (deducted from) the capital fund. It is also termed as Accumulated Fund.
Calculation of Capital Fund

Capital Fund at the beginning of the year		**
Add: Surplus from Income and Expenditure Account	**
Add: Subscription Amount (Capitalised amount)	**
Add: Life membership fee.	**	**
Less: Deficit from Income and Expenditure Account		**
Capital Fund at the end of the year		***

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).

The following are the features of Receipt and Payment Account:
1. Nature: It is a Real Account. It is a summarised version of Cash Book.
2. Nature of Transactions: It records only cash and bank transactions. Transactions other than cash and bank like depreciation, loss/ profit on sale of assets, etc. are not recorded in this account.
3. No distinction between Capital and Revenue items: It records all cash and bank receipts and payments of both capital and revenue nature.
4. Opening and closing balance: It begins with the opening balance of cash and bank and ends with the closing balance of the cash and bank (balancing figure) at the end of the accounting period.
5. Purpose: It reveals the cash position of an organisation. It helps to ascertain the total amount paid and received during an accounting period.

Income and Expenditure Account (I&E) is similar to the Profit and Loss Account in the sense that while the former is prepared to ascertain surplus or deficit during an accounting period, the latter is prepared to ascertain net profit or net loss incurred during an accounting period. I&E Account is a nominal account and is prepared on the accrual basis. It records all transactions of revenue nature that are related to the current accounting period (whether outstanding or prepaid) for which the books are maintained. All expenses and losses are recorded on the debit side (Expenditure side) and all income and gains are recorded on the credit side (Income side) of I&E Account. The closing balance or the balancing figure of I&E Account is termed as surplus (or deficit), if the sum total of the Income side exceeds (is lesser than) the sum total of the Expenditure side.

Receipts and Payments Account is a summary of the Cash Book. All cash receipts are recorded on the Receipts side (i.e. Debit side) and all cash payments are recorded on the Payments side (i.e. Credit side) of Receipts and Payments Account. It is prepared on the basis of cash and bank transactions recorded in the Cash Book. It begins with the opening balance of cash and bank and ends with the closing balances of cash and bank (balancing figure) at the end of the accounting period. It records all cash and bank transactions both of capital and revenue nature. It not only records the cash and bank transactions relating to the current accounting period, but also the cash and bank receipts (or payments) received during the current accounting period that may be related to the previous or next accounting period. This account only helps us to ascertain the closing balance of the cash and bank and helps in assessing the cash position of an NPO.

Not-for-Profit Organisations (NPO) are set up with the prime objective of providing services and not to earn profit thereby enhancing the welfare of society. Such organisations include schools, hospitals, trade unions, religious organisations, etc. The person/s or the groups of individuals who govern and manage the working of an NPO are known as trustees. NPO's main sources of income are donations, subscriptions, life membership fees, grants etc. As these organisations are not set up with profit motive, they do not prepare Trading and Profit and Loss Account. Instead, they maintain Receipt and Payments Account, Income and Expenditure Account and Balance Sheet.