Income & Expenditure Account (Cambridge International A-Level Accounting)

Spec point — how to prepare, from full or incomplete accounting records: – an income and expenditure account

Income & expenditure account

What is an income and expenditure account?

• An income and expenditure account is a statement that calculates the surplus or deficit

  • A surplus is comparable to a profit for a business

  • A deficit is comparable to a loss for a business

    • Clubs and societies do not operate to make a profit so the terms profit and loss are not used

• The total expenses are subtracted from the income

  • If the income is greater than the expenses then there is a surplus
  • If the income is less than the expenses then there is a deficit

• The income and expenditure account is similar to a statement of profit or loss of a business

  • Only expenses and income are included
  • Assets and liabilities are not included

• Adjustments are made for:

  • Depreciation of non-current assets
  • Accruals and prepayments of expenses and income
  • Any subscriptions which are written off

What are the differences between a receipts and payments account and an income and expenditure account?

• The differences are summarised in the table below

What is the layout of an income and expenditure account?

• The account is prepared in a similar way as the profit section of the statement of profit or loss for other types of businesses

• Deal with any adjustments

  • Accruals

    • Subtract accruals from the previous year
    • Add accruals at the end of the current year

  • Prepayments

    • Add prepayments from the previous year
    • Subtract prepayments at the end of the current year

  • Calculate any depreciation charges

• List the income first

  • If there are any costs associated with a source of income then these should be subtracted in this section

    • For example, income from a competition should subtract the cost of the competition's prizes

  • Include any profits calculated on the statements of profit or loss for any trading activities

• List the expenditure next

  • Include any losses calculated on the statements of profit or loss for any trading activities

  • Do not include expenses related to specific trading activities

    • These will be included in the statements of profit or loss for those activities and will contribute to the profit or loss

• Find the surplus or deficit of the year by subtracting the two totals

Layout of an income and expenditure account

Exam Hint If the question involves life memberships or donations, read the information carefully to determine how much is released as income for the year.

Worked Example Paramount Badminton Club owns several courts. It also operates a shop where it sells refreshments and badminton equipment. Shop sales are on a cash basis and purchases made for the shop are on credit.

The treasurer of the club provided the following information.

	1 January 2023	31 December 2023
$	$
Subscriptions in advance	2 200	2 050
Subscriptions in arrears	6 515	6 850

Other information provided for the year ended 31 December 2023:

Shop profit	9 410
Subscriptions received during the year	36 900
Wages for caretakers	2 650
Insurance	3 640
Bank charges	80
Telephone	380
Advertising	460
Depreciation of equipment	520

• There were a total of 15 life members at 31 December 2023, all of whom joined after 1 January 2021.
• Life members pay $1 200 for lifelong access to the club. Income is released to the income and expenditure account in equal amounts over 10 years.

Prepare the income and expenditure account for Paramount Badminton Club for the year ended 31 December 2023.

Answer:

• Calculate the subscriptions for the year by finding the amount that was due for the year

  • Add the prepayments from the previous year
  • Subtract the accruals from the previous year
  • Add accruals at the end of the current year
  • Subtract prepayments at the end of the current year

$36 900 + $2 200 - $6 515 + $6 850 - $2 050 = $37 385

• Calculate the life membership income

  • Divide the membership cost by 10
  • Multiply by the number of life members

$1 200 ÷ 10 × 15 = $1 800

• Identify the income:

  • Subscriptions
  • Shop profit

• Identify the expenditure:

  • Wages
  • Insurance
  • Bank charges
  • Telephone
  • Advertising
  • Depreciation

• Prepare the income and expenditure account using the required format

Final answer: Paramount Badminton Club Final answer: Income and Expenditure Account for the year ended 31 December 2023
	Final answer: $**	Final answer: **$
Final answer: Subscriptions		Final answer: 37 385
Final answer: Life membership		Final answer: 1 800
Final answer: Shop profit		9 410
		48 595
Final answer: Wages for caretakers	2 650
Final answer: Insurance	3 640
Final answer: Bank charges	Final answer: 80
Final answer: Telephone	Final answer: 380
Final answer: Advertising	Final answer: 460
Final answer: Depreciation of equipment	Final answer: 520	Final answer: (7 730)
Final answer: Surplus for the year		Final answer: 40 865