Accounting: Financial Statements: Not-For-Profit Organization and Preparation of Income and Expenditure Account (For CBSE, ICSE, IAS, NET, NRA 2022)

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Not-For-Profit Organizations

In earlier chapter, we have learnt about Receipts and Payments Account of Not-for-Profit Organization. In this chapter, we will learn about Income and Expenditure Account and Balance Sheet preparation of a Not-for-Profit Organization.

Financial Statements for Not-For-Profit Organizations

Income and Expenditure Statement

Business organizations, who work for profit, make Profit and Loss A/c (Financial Statement) in order to know company՚s profit or loss. Not-for-Profit Organizations also make Income and Expenditure Account (provides similar purpose of Profit and Loss A/c) in order to know NPO՚s performance.

Need of Income and Expenditure Account

  • It is a legal requirement. NPOs are obligated to do this.
  • To know incomes and expenses for the current year. So, expenses can be controlled.

Features of Income and Expenditure Account

  • It is a summary of all incomes and expenses relating to the current accounting year.
  • It is nominal account prepared on accrual basis, at the end of the year.
  • It records only revenue expenditures and revenue incomes. Do not record capital expenditures or capital incomes.
  • It records all expenditures on debit side and all incomes on credit side.
  • The Account is ‘Surplus’ if income side is greater than expenditure side and the account is ‘Deficit’ if income side is less than expenditure side.

Preparation of Income and Expenditure Account

  • Steps for Expenditure side: Payments which are of revenue in nature will be transferred to Expenditure side from the Payments column of Receipts and Payments Account. E. g. , Rent paid, Salaries paid, telephone charges paid etc.
  • Steps for Income Side: Receipts which are of revenue in nature will be transferred to Income side from the Receipts column of Receipts and Payments Account. E. g. , Subscription fees, interest on investment etc.
  • Surplus or Deficit: Calculate difference between income and expenditure. Write it on debit side if surplus and write it on credit side if deficit.

Note: While transferring from Receipts and Payments Account necessary adjustments must be made, if any. Also, include transactions related to depreciation, provisions, and profit or loss on sale of assets in the relevant columns of Income and Expenditure Account.

Format of Income and Expenditure Account:

Income and Expenditure A/c of … for the year ending on …

Dr. Cr.

Format of Income and Expenditure Account
ExpenditureAmount (₹)IncomeAmount (₹)

Less Paid for last year outstanding

Less Paid for next year

Add Current year outstanding

Add Received last year on account of current year



Newspaper Expenses

Loss on sale of assets


Expenses on consumable material

Any other revenue expenses

Surplus: Excess of Income over Expenditure


Less Received on account of last year

Less Received on account of next year

Add Subscriptions outstanding for current year

Add Subscriptions received last year on a/c of current year



Interest on Investment

Sale of Old Newspapers

Miscellaneous revenue income

Deficit: Excess of Expenditure over Income

Items of Incomes

Subscriptions, Entrance fees, Admission fees, Donations, Sale of old newspapers and sports materials, Interest on investments, Rent received on assets, Grant-in-Aid etc.

Note: All items which are of revenue in nature (short term revenues and are recurring in nature) will be recorded under income column of Income & Expenditure A/c.

Items of Expenditures

Salaries, Wages, Rents paid, Telephone and Electricity charges, Transportation charges, Honorarium, Depreciation, and other Revenue expenditures relating to the current accounting year. (Expenditures of long term i.e.. , capital expenditures are not considered) .

Adjustment of Items in Income and Expenditure Account

We prepare Income and Expenditure Accounting basing on revenue expenditures and revenue incomes of the current accounting period. But we receive revenue incomes in advance or we pay our dues for the last year in current accounting period. Also, we need to add some extra information. All such transactions need to be adjusted as we do in profit and loss account of profit-based organizations.

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