Accounts

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(Part 1) (Chapter - 1) (Accounting for Not-for-Profit Organisation)
(Class 12)
Question 2:
“Income and Expenditure Account of a Not-for-Profit Organisation is akin to Profit and Loss Account of a business
concern”. Explain the statement.
CAnswer 2:
Income and Expenditure Account is similar to Profit and Loss Account. Income and Expenditure account is
prepared by Not-for-profit-Organisations and the Profit and Loss account is prepared by profit earning
organisations. Both the accounts are prepared on the accrual basis.
In Income and Expenditure account all the expenses and losses pertaining to the current accounting period are
recorded on the debit side (Expenditure side) and all the gains and income of the current accounting period are
recorded on the credit side (Income side). The balancing figure of profit and loss account is net profit or net loss
and that of Income and Expenditure account is surplus or deficit. Both the accounts record only revenue items.
Similarities:
> Both the concerned accounts are nominal in nature.
> Both the accounts record only revenue expenses and revenue income. The items of capital nature are not
ignored while preparing these accounts
> Transactions related to current year are recorded in Income and Expenditure account in the same manner in
which profit and loss account is prepared.
> The treatment of adjustments like, prepaid expenses, outstanding expenses, income received in advance,
income, depreciation etc. is same as that in Profit and Loss Account and are prepared on the accrual basis.

Question 3:
Distinguish between Receipts and Payments Account and Income and Expenditure Account.
CAnswer 3:
Basis of Income and Expenditure Receipt and Payment Account
distinction
Nature It is like as profit and loss It is the summary of the cash account.
Nature of Items It records income and expenditure of It records receipts and payments of revenue as
revenue nature only. well as capital nature.
Period Income and expenditure items relate only Receipts and payments may also relate to
to the current period. preceding and succeeding periods.
Debit side Debit side of this account records expenses Debit side of this account records the receipts.
and losses
Credit side Credit side of this account records income Credit side of this account records the
and gains. payments
Depreciation Includes depreciation. Does not includes depreciation.
Opening Balance. There is no opening balance. Balance in the beginning represents cash in
hand /cash at bank or overdraft at the
beginning
Closing Balance Balance at the end represents excess of Balance at the end represents cash in hand at
Income over expenditure and vice-versa the end and bank balance (or bank overdraft).

Question 4:
Explain the basic features of Income and Expenditure Account and of Receipt and Payment Account.
CAnswer 4:
Income and Expenditure 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

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