Term: 1^st Term

Week: 7

Class: Senior Secondary School 2

Age: 16 years

Duration: 40 minutes of 2 periods each

Date:

Subject: Financial accounting

Topic:- Account for non-profit making organization

SPECIFIC OBJECTIVES: At the end of the lesson, pupils should be able to

Define income and expenditure account
Outline the features, limitations and formats of income and expenditures account
Prepare an income and expenditures account

INSTRUCTIONAL TECHNIQUES: Identification, explanation, questions and answers, demonstration, videos from source

INSTRUCTIONAL MATERIALS: Videos, loud speaker, textbook, pictures

INSTRUCTIONAL PROCEDURES

PERIOD 1-2

PRESENTATION	TEACHER’S ACTIVITY	STUDENT’S ACTIVITY
STEP 1 INTRODUCTION	The teacher reviews the previous lesson on manufacturing account	Students pay attention
STEP 2 EXPLANATION	She explains income and expenditures account and outlines its features, limitations and format	Students pay attention and participates
STEP 3 DEMONSTRATION	She shows the learners how to prepare an income and expenditures account	Students pay attention and participate
STEP 4 NOTE TAKING	The teacher writes a summarized note on the board	The students copy the note in their books

NOTE

ACCOUNT FOR NON-PROFIT MAKING ORGANIZATION

INCOME AND EXPENDITURES ACCOUNT

Income and Expenditure Account is a nominal account prepared by not for

profit organisations to ascertain the surplus or deficit of the organisation for

the current accounting year. It is prepared at the end of the accounting year

by debiting all the expenses and losses and crediting all incomes and gains

of the concerned year in this account to ascertain the result of either

surplus or deficit. The Income and Expenditure Account is prepared on an

accrual basis of accounting and records income and expenses of revenue

nature only.

The Income and Expenditure Account is similar to the Profit & Loss

Account of a business organisation, which ascertains profit or loss of the

business for the concerned year. Profit and Loss a/c ascertain profit or loss

and since Not-for-Profit-organisation is established for the welfare and

service motive of the society, it prepares an Income and Expenditure

Account to know the surplus or deficit of the organisation.

The surplus or deficit ascertained from the Income and Expenditure

Account is transferred to Capital Fund in the Balance Sheet. The difference

between the two sides is either surplus( if the total of the Income side is

more than the Expenditure side) or deficit( the Expenditure side is more

than the Surplus side), which is added or deducted from the Capital Fund in

Balance Sheet, as the case may be. Income and Expenditure Account

records the non-cash expenditure, such as depreciation.

Income and Expenditure Account is prepared from trail balance when

complete sets of books are maintained or from Receipt & Payment a/c

when complete sets of books are not maintained by the organisations.

Features of Income and Expenditure Account:

Revenue Nature:Income and Expenditure Account is a nominal

account which records transactions and events of a revenue nature. All the

expenses and losses are debited and all incomes and gains are credited to

this account.

Accrual Basis of Recording:Income and Expenditure Account records

transactions and events on an accrual basis of accounting.

Current Period:Income and Expenditure Account records only current

periods’ incomes, expenses and losses whether paid or not. Revenue

items relating to the preceding or succeeding period are excluded while

preparing this account.

Opening and Closing Balances:Income and Expenditure Account

does not have any opening balance. The balance at the end of the account

represents the surplus or deficit of the accounting year. The surplus or the

deficit is transferred to the capital fund in the balance sheet.

Adjustments:Income and Expenditure Account takes into account all

the adjustments to ascertain the surplus or deficit of an accounting year. It

records adjustments relating to prepaid or outstanding, provisions for

depreciation and doubtful debts.

STEPS IN PREPARATION OF INCOME AND EXPENDITURE ACCOUNTS:

Step 1: All the revenue receipts are credited to the income side of Income

& Expenditure A/c. Adjustments related to the accounting year are to be

made where amounts relating to the preceding and succeeding year are

excluded, and the amount relating to the current year yet not received are

included.

Step 2: All the revenue expenditures are debited to Income and

Expenditure A/c with due adjustments from the additional information

provided relating to the accounts for the amounts received in advance and

those outstanding.

Step 3: Record all the non-cash expenditures and gains to determine the

surplus/deficit of the current year, such as:

Depreciation of fixed assets
Provision for doubtful debts, if required
Profit or loss on sale of fixed assets

Step 4: Carefully read and record the necessary items from the Receipt &

Payment a/c, if the Income and Expenditure Account is being prepared

from it.

Step 5: Opening and closing balance of cash is not recorded, as they are

not income.

Step 6: Transactions and events of capital nature are not taken in Income

and Expenditure A/c. Capital Receipts and Capital Payments are shown in

the Balance Sheet.

Format of Income and Expenditure Account:

Name of the organisation

Income and Expenditure Account

(for the year ended… )

* represents that the Income and Expenditure A/c will either have a Surplus

or Deficit balance, i.e., when the income side is greater than the payment

side, the difference is denoted as a Surplus, and when the payment side is

more than the receipt side, the difference is denoted a Deficit.

EXAMPLES

From the following information, prepare Income and Expenditure Account

of Geeks Foundation for the year ending 2021:

Subscriptions received during the year ₹74,000, which included ₹1,000

for the year 2020 and ₹1,200 for the year 2022.

Rent and Taxes paid during the year ₹5,600.
Outstanding subscription for the year 2021 amounts to ₹700.
Sundry payments include:

Electricity charges ₹2,100
General expenses ₹ 900
Entertainment expenses ₹ 2,500
Printing and Stationery ₹ 2,600
Telegram and Telephone expenses ₹3,200

Sundry receipts included:

Sale of old newspaper ₹1,900
Hall rent received ₹4,000.

Donations received ₹5,500
Write off ₹2,300 from furniture and ₹600 from books
Bank interest received ₹1,000

Solution:

Geeks Foundation

Income and Expenditure Account

(for the year ended 31st March,2021)

EVALUATION: 1. Define income and expenditure account in non-profit making organization

State the features of income and expenditure account in non-profit making organization
Discuss the format/layout for income and expenditure account

From the following Receipts and Payments Account of Jaipur Sports Club, prepare Income and Expenditure Account for the year ended 31st March, 2019:

RECEIPTS AND PAYMENTS ACCOUNT for the year ended March 31st March, 2019
Dr.					Cr.
Receipts		₹	Payments	₹
To Balance b/d		2,00,000	By Rent	60,000
To Entrance Fees:			(including ₹15,000 for 2017 – 18)
2017 – 18	10,000		By Insurance Premium	60,000
2018 – 19	50,000	60,000	(including ₹15,000 for 2019 – 20)
To Subscriptions:			By Sports Equipments	50,000
2017 – 18	10,000		By Furniture	60,000
2018 – 19 (90%)	90,000		(Purchased on 31st March, 2019)
2019 – 20	5,000	1,05,000	By 8% Fixed Deposit	1,20,000
To Life Membership Fees		20,000	(Made on 1st October, 2018)
To Donations		1,20,000	By Tournament Expenses	10,000
To Donation for Tournament		50,000	By Books	20,000
To Subscription for Governor's Party		15,000	By Newspapers	1,000
To Interest on 8% Fixed Deposit		2,400	By Printing and Stationery	19,000
To Sale of Old Newspapers		300	By Balance c/d	1,80,000
To Sale of Old Sports Materials		500
(Book Value ₹ 1,200)
To Locker Rent		6,800
(including ₹ 600 for 2017 – 18)

		5,80,000

CLASSWORK: As in evaluation

CONCLUSION: The teacher commends the students positively

Lesson Notes By Weeks and Term - Senior Secondary 2