LESSON – 3
PREPARATION OF RECEIPTS AND PAYMENTS ACCOUNT
AND INCOME AND EXPENDITURE ACCOUNT
Objective
To meet socially desirable goal or to kinder services to its members.
· Service is primary profit sis secondary.
· Applicable to institution like clubs, hospitals trade unions ,sports clubs , libraries ,
· educational institution
· It is the persuit of some interest.
· Democratic management
Structure
3.1 Introduction
3.2 Special features.
3.3 Income & Expenditure Account
3.4 Distinction between Receipt and payments Account and Income and Expenditure Account
3.5 Forms of the Problems.
3.6 Special items of receipts
3.7 Some Income and Expenditure with taken to income and Expenditure of account.
3.8 When Receipts and payments account is required.
3.9 Procedure for finding out payment from expenses
3.10 When Balance sheets are required.
Unit Questions
3.1 INTRODUCTION
People join together in voluntary organizations like sports clubs, trade unions, consumer co-operatives, political associations, automobile associations, medical associations, educational institutions, hospitals, and so on for various reasons: for mutual entertainment, for protection, for professional reasons, or for the promotion of art and culture. The aim of such organizations is the pursuit of some interest other than financial gain. Nevertheless, these organizations must have money to promote their activities and money must be honestly accounted for. The officer elected for the purpose, the treasurer, collects subscriptions from the members and spends money on such activities as are needed for achieving the aim of the organisation. At the Annual General Meeting, the treasurer submits suitable final accounts to the members. It is prepared at the end of the year from the cash book. The receipts and payments account is merely a summary of cash transactions under important beadings. Receipts and payments account gives a summary picture of the various receipts and payments, the details of which can be seen in the cash book.
3.2 SPECIAL FEATURES
(i) It is a real account
(ii) Receipt are recorded on the debit side because in case of a real account receipts are debited.
(iii) Payments are recorded on the credit side because in case of a real account payments are credited.
(iv) It starts with the balance in the beginning, and ends with the balance at the end which means balance of cash in hand in the beginning and at the end, respectively.
(v) It records amounts received during the year and amounts paid during the year whether they belong to past, current or subsequent year.
(vi) It records all receipts and all payments without they are of capital or revenue nature.
Example 1: The Manager of Madras Sports Club requests you to prepare Receipts and Payments Account for the year ending 31st March, 2000 from the following information:
Rs. | |
Entrance fees | 500 |
Subscription collected | 2,000 |
Salary paid | 1,000 |
Donation for club pavilion | 20,000 |
Construction for Club pavilion | 15,000 |
Rent paid | 800 |
Periodicals and newspapers | 1,000 |
Miscellaneous expenses | 400 |
Tournament expenses | 2,000 |
Furniture purchases | 1,000 |
Salaries and rent outstanding | 300 |
Cash in hand (opening) | 1,000 |
Solution:
RECEIPT AND PAYMENTS ACCOUNT
Dr. for the year ending March 31, 2000 Cr.
Receipts | Rs. | Payments | Rs. |
To Balance b/d | 1,000 | By Salary | 1,000 |
To Entrance fees | 500 | By construction for Club pavilion | 15,000 |
To Subscriptions | 2,000 | By Rent | 880 |
To Donation for Club pavilion | 20,000 | By Periodicals & newspapers | 1,000 |
By Miscellaneous expenses | 400 | ||
By Furniture purchased | 1,000 | ||
By Tournament expenses | 2,000 | ||
To Balance b/d | By Balance c/d | 2,220 | |
23,500 | 23,500 | ||
2,200 |
Note: Students should observe that:
(i) Purchase of furniture, though it is a transaction of capital nature, is credited to Receipts and payments account.
(ii) Salary and rent outstanding at the end of the year is not taken to Receipts and payments account as they have not actually been paid.
3.3 INCOME AND EXPENDITURE ACCOUNT
Income and expenditure account is the summary of incomes and expenditures of the complete year. It is like a profit and loss account. It is prepared at the end of the year and includes only revenue items (not capital items) Its balance at the end represents surplus of the income over the expenditure or vice versa. The following points about income and expenditure account are worth noting:
a) Income and expenditure account is a nominal account.
b) Expenditure is recorded on the debit side as in the case of a nominal account losses and expenses are debited.
c) Income is recorded on the credit side because in the case of a nominal account gains and incomes are credited.
d) It shows income and expenditure of current year only on accrual basis.
e) It shows items of revenue nature only. Items of capital nature are not shown in this account.
Example 2: The following is the summary of cash transactions for the year 1997:
Dr. | Cr. | ||
Receipts | Rs. | Payments | Rs. |
To Balance b/d | 6,000 | By Salaries | 6,200 |
To Entrance fees | By Additions to Library | 13,500 | |
To Subscriptions: 1996 3,000 1997 13,000 1998 1,000 | 17,000 | By Payments to creditors By Repairs By Electric fittings By Printing & Stationery By Misc. expenses | 1,300 500 9,000 1,900 300 |
To | 1,200 | By Balance c/d | 6,900 |
To | 120 | ||
To Rent of Library hall | 2,080 | ||
To Proceeds from Entertainment (net) | 6,000 | ||
To Special Subscription for Governor’s party | 2,000 | ||
39,600 | 39,600 |
From the above Receipts and Payments Account prepare Income and Expenditure account.
Solution:
INCOME AND EXPENDITURE ACCOUNT
Dr. | for the year ending … 1997 | Cr. | |
Expenditure | Rs. | Income | Rs. |
To Salaries | 6,200 | By Entrance fees | 5,200 |
To Repairs | 500 | By Subscription | 13,000 |
To Printing | 1,900 | By | 120 |
To Miscellaneous expenses | 300 | By Rent of Library hall | 2,080 |
To Excess of Income over Expenditure | 17,500 | By Proceeds from entertainment (net) | 6,000 |
26,400 | 26,400 | ||
Note:
Only revenue receipts and revenue expenses are taken into account while preparing income and expenditure account.
Capital receipts and capital expenditure are not recorded in this account.
The income and expenditure account includes the incomes or expenses pertaining to current year only.
Opening and closing balances of cash will not be recorded in income and expenditure account.
Example 3:
Prepare an Income and Expenditure Account relating to 1997 from the figures given below:
Receipts | Rs. | Payments | Rs. |
To Opening Balance | 1,800 | By Salaries | 4,800 |
To Subscriptions | 9,000 | By Rent | 500 |
To | 2,000 | By Stationery | 200 |
To | 300 | By Defence Bonds | 3,000 |
(Book value Rs.400) | By Furniture purchased | 2,000 | |
To Donations | 100 | By Bicycle purchased By Balance c/d | 300 2,400 |
13,200 | 13,200 |
Solution:
INCOME AND EXPENDITURE ACCOUNT
Dr. for the year ended 31st Dec., 1997 | Cr. | ||
Expenditure | Rs. | Income | Rs. |
To Salaries | 4,800 | By Subscriptions | 9,000 |
To Rent | 500 | By Donations | 100 |
To Stationery | 200 | ||
To Loss on | 100 | ||
To Excess of Income over Expenditure | 3,500 | ||
9,100 | 9,100 | ||
Example 4: From the following Receipts and Payments Account of a Cricket Club and the additional information, prepare an Income and Expenditure Account for the year ended on 31st December 1996:
RECEIPTS AND PAYMENTS ACCOUNT
for the year ending 31st December 1996 | |||
Rs. | Rs. | ||
To Balance: Cash Bank | 3,500 27,380 | By Crockery Purchased By Maintenance By Match Expenses | 2,650 6,820 13,240 |
To Fixed Deposit at 6% | 30,000 | By Salaries | 11,000 |
To membership Subscription (including Rs.6,000 for 1997) | 40,000 | By Conveyance By Upkeep of Lawn | 820 4,240 |
To Entrance Fees | 2,750 | By Postage Stamps | 1,050 |
To Donation | 5,010 | By Purchase of Cricket Goods | 9,720 |
To Interest on Fixed Deposit | 900 | By Sundry Expenses | 2,000 |
To Tournament Fund | 20,000 | By Investments | 5,700 |
To (Book Value Rs.1,200) | 2,000 | By Tournament Expenses By Balance: Cash Bank Fixed Deposits | 18,800 2,200 23,320 30,000 |
1,31,560 | 1,31,560 | ||
Information:
a) Monthly salary is Rs.1,000.
b) The value of unused postage stamps is as follows: 31st December 1995 Rs.750; 31st December 1996 Rs.900
c) Stock of Cricket equipment is as follows: 31st December 1995 Rs. 3,210; 31st December 1996, Rs.2,800
d) Arrear of membership subscription: 1995 Rs.6,600; 1996 Rs.8,000
e) Donation and Entrance Fees are not to be capitalised.
Solution.
INCOME AND EXPENDITURE ACCOUNT
Dr. for the year ended 31st Dec., 1996 | Cr. | ||
Expenditure | Rs. | Income | Rs. |
To Maintenance | 6,820 | By Subscription 40,000 | |
To Match Expenses | 13,240 | Less: Received for | |
To Salaries 11,000 | last year 6,600 | ||
Add: Outstanding 1,000 | 12,000 | 33,400 | |
To Conveyance To Upkeep of lawn To Postage Stamps Purchased 1,500 Add: In hand (op.) 750 1,800 Less: In hand (end) 900 To Cricket expenditure 9,720 Add: in hand (op.) 3,210 12,930 Less: In hand (end) 2,800 To Sundry Expenses | 820 4,240 900 10,130 2,000 | Less: Received In Advance 6,000 27,400 Add:Outstanding (end) 8,000 By Entrance Fees By Donation By Interest on fixed Deposits 900 Add: Outstanding 900 By Profit on sale of crockery(2000-1200) By Excess of Expenditure over Income | 35,400 2,750 5,010 1,800 800 4,840 |
50,150 | 50,150 | ||
3.4 RECEIPTS AND PAYMENTS ACCOUNT AND INCOME AND EXPENDITURE ACCOUNT DISTINGUISHED
The difference between the two has been summarized as follows:
Receipts and payments account | Income and expenditure Account |
1. It is a real account. | It is a nominal account. |
2. It is a cash account of a non-trading concern | It is like a profit and loss account of a trading concern. |
3. Debit side of this account records receipts | Debit side of this account records expenses and losses. |
4. Credit side of this account records payments | Credit side of this account records incomes. |
5. Balance in the beginning represents cash in hand in the beginning | There is no balance in the beginning |
6. Balance at the end represents cash in hand at the end | Balance at the end represents excess of income over the expenditure or vice versa. |
7. It records receipts and payments of both capital and revenue nature. | It records income and expenditure of only revenue nature. |
8. It shows the receipts and payments made during the year whether they belong to past, current or subsequent year. | It shows income and expenditure of the current year only whether received or not received/paid |
9. Expenses not yet paid, ie., outstanding expenses and incomes not yet received or incomes due but not received are not included in this account. | If they expenses or income relate to the current year, they will be recorded in this account even if they are not paid or received |
10. Depreciation, bad depts., etc. are not received in this account. | Depreciation, bad debts, etc. are losses to the institutions and therefore these losses are recorded in the account. |
11. It is not essential that balance sheet should accompany this account. | Balance sheet must accompany this account. |
12. As this is a cash account, it always has a debit balance. | This account may have a debit balance representing a debit (Loss) or a credit balance representing a surplus (Profit) |
3.5 FORMS OF THE PROBLEMS
There are three forms of problems.
1. When receipts and payments account with accompanying notes is given and income and expenditure account and balance sheet are required:
2. When income and expenditure account with accompanying notes is given and receipts and payments is required; and
3. When receipts and payments and income and expenditure accounts are given and balance sheets both in the beginning and at the end are required.
Income and Expenditure Account is Required
Income and expenditure account is prepared from receipts and payments account and additional information. In order to do so debit side of receipts and payments account is posted to credit side of income and expenditure account and credit side of receipts and payments account is posted to the debit side of income and expenditure account. First, we shall discuss the posting from the debit side of the receipts and payments account and then posting from its credit side.
Posting From Debit Side of Receipts and Payments A/c
All the items appearing on the debit side of receipts and payments account are not posted to the credit side of income and expenditure account. Only such receipts are posted as can be said incomes. Income, when used in this context, is said to accrue only when item under discussion satisfies both conditions:
It is recurring in nature, and
It is not earmarked for a particular use.
3.6 SPECIAL ITEMS OF RECEIPTS
1. Legacy. It is like a donation. It appears on the debit side of the receipts and payments account but is not treated income.
2. Donations. Donation is the amount received from some person, firm, company or any other body by way of gift. It appears on the debit side of the receipts and payments account in the year of receipt. Whether or not it is to be posted to the credit side of income and expenditure account depends upon its nature.
(i) Specific donation of a small or a big amount is taken to the balance sheet on the liability side, i.e., specific donation is always capitalized.
(ii) General donation of large amount is capitalised.
(iii) General donation of small amount is treated as income.
3. Endowment fund. Endowment fund is a fund which provides permanent means of support for any person or institution. Since the fund provides a permanent means of support it is a receipt of capital nature. It is recorded on the debit side of receipts and payments account in the year of receipt. From there it is taken to the liability side of balance sheet where it appears year after year. It is not treated as income.
4. Entrance fee. It appears on the debit side of receipts and payments account and should be taken to income and expenditure account on the income side.
5. Sale
6. Sale
7. Sale Sale
8. Amount received on account of subscription, games fees, interest on general investments received are examples of incomes because they are recurring in nature and they are not earmarked for a particular purpose.
What amount is posted?
After having decided as to which item is to be treated as income the next step is the calculation of the amount which is to be posted to the credit side of income and expenditure account. This has been explained with the help of an example-subscription.
TABLE SHOWING CALCULATION OF SUBSCRIPTION
Total Subscriptions received during the year (whether in respect of previous, current or future period) as shown in receipts and payments account | - |
Add Subscriptions outstanding at the end of the year | - |
Less Subscriptions outstanding at the beginning of the year | - |
Add Subscription received in advance at the beginning of the year | - |
Less Subscriptions received at the end of the year | - |
Subscriptions to be shown in Income and Expenditure Account Rs. | - |
Example 5:
Rs. | |
Subscription income for 1996-97 as per Income & Expenditure Account | 82,000 |
Advance subscription received in 1995-96 | 4,000 |
Subscriptions outstanding at the end of 1996-97 (Including 1,000 for 95-96) | 9,500 |
Advance subscriptions received for 1997-98 | 2,000 |
Subscription written off during 1996-97 | 500 |
Subscription receivable on 1.4.96 | 5,000 |
Subscription collected (1996-97) by the Secretary but not deposited | 1,000 |
Prepare a statement showing subscription received in 1996-97 as per Receipts & Payments Account.
Solution:
Details | Amount Rs. | |
Subscription income as per income and Expenditure account | 82,000 | |
Add Subscription receivable on 1.4.96: Advance subscriptions Received for 1997-98 | 5,000 2,000 | 7,000 89,000 |
Less Advance subscription received in 1995-96 Subscription written off Subscription outstanding at the end of 1996-97 | 4,000 500 9,500 | 14,000 |
Subscriptions received as per Receipts and Payments Account | 75,000 | |
Posting From Credit Side
All items appearing on the credit side of receipts and payments account are NOT posted to the debit side on income and expenditure account. Only such payments are posted as can be said to be expenditures. An item is labeled as expenditure only when it satisfies one condition: “The item is useful only for the current year”. In other words, amount spent on an item is to be labeled as an expenditure only when it is not usefil for the future period.
Amount spent on the purchase of library books, crockery, curtains, furnishings, investments and electric installation are examples of capital expenditures because these items are useful for more than one year. These are, thus, shown on the asset side of balance sheet. In other words, they are not expenditures.
Payment of honorarium. It is the amount paid to the person who is not employee of the organisation paying the amount. For example, if a payment is made to a radio artist for giving a performance at the club then the payment so made is termed as honorarium. Payment of honorarium is shown on the credit side of receipts and payments account and from there it is posted to the debit side of income and expenditure account.
What amount is posted?
Expenses paid appear on the credit side of receipts and payments account and from there they are posted to the debit side of income and expenditure account. Before the posting is made, the amount is adjusted in the light of additional information given. The procedure relating to the calculation of actual expenditure incurred is made clear from the following illustration:
Example 6:
Calculate what amount will be posted to income and expenditure account for the year ending 31st December, 1996:
(a) Amount paid for stationery during the year 1996 Rs.1,080; Stock of stationery in hand on 31st Dec., 1996 Rs.50.
(b) Stock of stationery in hand on 1st Jan., 1996 Rs.300; Payment made for stationery during the year 1996, Rs.1,080; Stock of stationery in hand on 31st Dec., 1996 Rs.50.
(c) Stock of stationery on 1st Jan., 1996 Rs.300
Creditors for stationery on 1st Jan., 1996 Rs.200
Amount paid for stationery during the year 1996 Rs.1,080.
Stock of stationery on 31st Dec., 1996 Rs.50.
Solution: Rs.
(a) Payment made during the year 1996 1,080
Less Stock in hand as on Dec. 31, 1996 50
Stationery actually used Rs. 1,030*
(b) Stock of stationery already in hand on Jan. 1, 1996 300
Add Payment made during the year 1996 1,080
1,380
Less Stock in hand on 31st Dec., 1996 50
Rs.1,330*
(c) Stationery already in hand on 1st Jan., 1996 300
Add Payment made during the year 1996 1,080
1,380
Less Stock of stationery on Dec., 31 1996 50
1,330
Less Creditors for stationery on Jan., 1 1996 200
Stationery actually used Rs. 1,130
3.7 Some income and expenditure not taken to income and expenditure Account.
When expenditure is not taken to income and expenditure account?
As a general rule all expenses of a concern are taken to profit and loss account at the end of the year. In the case of a non-trading concern they are taken to income and expenditure account. but this general rule is nor a fund. In all such cases, expenses incurred are not taken to the income and expenditure account but are shown by way of deduction from the respective fund. Examples are: match expenses are deducted from account of prizes distributed are deducted from prize fund. But, match expenses incurred, charity paid, prized distributed must be debited to income and expenditure account if there is no match fund, charity fund or prize fund respectively.
When income is not taken to income and expenditure account?
All incomes normally are taken to income and expenditure account but if there is an income coming out of a certain fund then in that case it is added to that fund and is not credited to income and expenditure account. For example, if match fund is raised and is kept separately by investing in securities outside the business, then interest so received on such securities will not be credited to income and expenditure account but will be added to the match fund.
Example 7:
How will you deal with the following cases:
Case 1 | Dr. | Cr. | Case 2 | Dr. | Cr. |
Prize fund | Rs. 5,000 | Match fund | Rs.10,000 | ||
Prizes paid | Rs.1,200 | Match expenses | Rs. 3,500 | ||
Match expenses | 500 | Investment of match fund | 6,000 | ||
Interest on investments of match fund | 300 | ||||
Prizes paid | 900 |
Solution:
Case 1. Prizes paid Rs.1,200 will be deducted from the prize fund. The balance of prize fund Rs. 3,800 will appear on the liability side of the balance sheet.
Match expenses will be debited to income and expenditure account balance there is no special fund maintained to meet this expense.
Case 2. Interest on match fund investments will be added to match fund (because it is the income of a particular fund). From the total fund match expenses will be deducted and the balance will appear on the liability side of the balance sheet. Presentation will be as follows:
Liabilities
Match fund Rs. 10,000
Add Interest 300
10,300
Less Match express 3,500
Rs. 6,800
Prizes paid Rs. 900 will be debited to income and expenditure account because there is no fund to meet this expense.
Note In case fund is smaller than the expense then the balance of expenses not covered by the
fund is taken to income and expenditure account.
Example 8:
The following is the summary of cash transactions of the melody club for the year ended 31st December, 1997:
Receipts | Rs. | Payments | Rs. |
Balance from last year | 319 | Rent and rates | 168 |
Entrance fees | 255 | Wages | 245 |
Subscriptions | 1,600 | Lighting charges | 72 |
Donations | 165 | Lecturer’s fees | 435 |
Life membership fee | 250 | Books | 213 |
Interest | 14 | Office expenses | 450 |
Profit on entertainment | 42 | Placed on 3 per cent fixed deposit 1st July 1997 | 800 |
Cash at bank | 242 | ||
Cash in hand | 20 | ||
2,645 | 2,645 |
In the beginning of the year the club possessed books worth Rs.2,000 and Furniture worth RS.8.50. Ordinary subscription in arrears at the beginning of the year amounted to Rs.35 and at the end of the year Rs.45, and six months rent Rs.60 was due both at the beginning of the year and at the end of the year.
Prepare Income and Expenditure Account of the club for the year ended 31st December, 1997 and its Balance Sheet on that date after writing off Rs.50 and Rs.113 on furniture and books respectively.
Solution:
Melody Club
INCOME AND EXPENDITURE ACCOUNT
Dr. for the year ended 31st December, 1997 Cr.
Expenditure | Rs. | Income | Rs. |
To Rent and Rates | 168 | By Entrance Fees | 255 |
To Wages To Lighting Charges To Lecturer’s Fees To Office Expenses | 245 72 435 450 | By Subscriptions 1,600 Less for last year 35 1,565 Add Outstanding 45 | 1,610 |
To Depreciation: Books 113 Furniture 50 | 163 | By Donations | 165 |
By Interest 14 | |||
Add Accrued on | |||
To Excess of Income Over Expenditure | 565 | Fixed Deposit 12 By Profit on Entertainment | 26 42 |
2,098 | 2,098 |
Melody Club
BALANCE SHEET
as at 31st December, 1997
Liabilities | Rs. | Assets | Rs. |
Rent Outstanding Capital on 1.1.97 3,144 Add Surplus of the year 565 Life membership fee | 60 3,709 250 | Cash in hand Cash at bank Fixed Deposit Interest outstanding Subscriptions outstanding Books in the beginning 2,000 Add Purchased during the year 213 2,213 Less Depreciation 113 Furniture 850 Less Depreciation 50 | 20 242 800 12 45 2,100 800 |
4,019 | 4,019 |
Working Notes:
(i) Calculation of Capital in the beginning:
Rs.
Books 2,000
Furniture 850
Cash balance 319
Subscription outstanding 35
3,204
Less Rent Outstanding 60
Capital Rs.3,144
(ii) Life membership is capitalised.
Example 9: From the following Receipts and Payments Account of a club and from the information supplied, prepare an Income and Expenditure Account for the year ended 31st December, 1997 and the Balance Sheet as on that date:
RECEIPTS AND PAYMENTS ACCOUNT
For the year ended 31st Dec., 1997
Income | Rs. | Expenditure | Rs. |
To Balance To Subscriptions: 1996 250 1997 1,000 1998 200 To Rent received from the use of hall To Profit from entertainment To | 350 1,450 700 400 100 | By Salaries By General expenses By Electric charges By Books By Newspapers By Balance | 1,400 300 200 500 400 200 |
3,000 | 3,000 |
a) The club has 50 members each paying an annual subscription of Rs.25, subscriptions outstanding on 31st December, 1997 were Rs.300.
b) On 31st December, 1997 salaries outstanding amounted to Rs.100. salaries paid in 1997 included Rs.300 for the year 1996.
c) On 1.1.1997, the club owned Building valued at Rs.10,000; Furniture Rs.1,000 and Books Rs.1,000.
d) Provide depreciation on Furniture at 10 per cent.
Solution:
….Club
INCOME AND EXPENDITURE ACCOUNT
Dr. for the year ending 31st December, 1997 Cr.
Expenditure | Rs. | Income | Rs. |
To salaries 1,400 Add outstanding Salary 100 1,500 Less Salaries paid for 1996 300 To General expenses To Electric charges To Newspaper purchase To Depreciation on furniture To Excess of Income over Expenditure Rs. | 1,200 300 200 400 100 250 400 2,450 | By Annual Subscription of 50 members @ Rs.25 By Rent of Hall By Profit from entertainment By | 1,250 700 400 100 2,450 |
BALANCE SHEET
as at 31st December. 1997
Liabilities | Rs. | Assets | Rs. |
Salaries outstanding Subscription received in advance Capital Fund(1.1.97) 12,350 Add Surplus 250 Rs. | 100 200 12,600 12,900 | Cash Outstanding Subscription: 1996 50 1997 250 Furniture 1,000 Less Dep. 100 Books 1,000 Add Purchased during the year 500 Buildings Rs. | 200 300 900 1,500 10,000 12,900 |
Capital Fund on 1st Jan., 1997 is calculated as follows:
BALANCE SHEET
as at 31st December, 1996
Liabilities | Rs. | Assets | Rs. |
Salaries Outstanding Capital Fund (balancing figure) | 300 12,350 | Cash Furniture Books Buildings Subscription Due | 350 1,000 1,000 10,000 300 |
Rs. | 12,650 | Rs. | 12,650 |
Example 10:
The following is the Receipts and Payments Account of the Punjab Bagh Club. For the year ended on 31st Dec., 1997:
Receipts | Rs. | Payments | Rs. |
To Balance b/d To Entrance fees To Subscription 1996- 1997- 1998- To Locker’s Rent To Special subscription for L.G’s Party | 1,500 2,750 1,000 84,500 1,500 2,500 17,250 | By Rent By Stationery By Wages By Billiard’s Table By Repairs By Miscellaneous expenses By Balance c/d | 26,000 15,340 26,650 19,500 4,030 7,500 11,980 |
Rs. | 1,11,000 | Rs. | 1,11,000 |
The following adjustments are to be made:
a) Locker’s Rent include Rs.300 for 1996 and Rs.550 is still owing for year 1997.
b) Subscription unpaid for 1997 Rs.2,400 and Rs.260 for Stationery were outstanding.
c) Entrance fees is to be capitalised.
d) The club’s other Assets on 1.1.1997 were Rs.39,000
From the above information, prepare an Income & Expenditure A/c for the year ending on 31st Dec., 1997 and a Balance Sheet as on that date.
Solution:
INCOME AND EXPENDITURE ACCOUNT
Dr. for the year ended 31st December, 1997 Cr.
Expenditure | Rs. | Income | Rs. |
To Rent To Stationery 15,340 Add outstanding 260 To Wages To Repairs To Misc. Expenses To Excess of Income over Expenditure | 26,000 15,600 26,650 4,030 7,500 9,870 | By Subscription 84,500 Add Unpaid 2,400 By Locker’s Rent 2,500 Less for 1996 300 2,200 Add for 1997 550 | 86,900 2,750 |
89,650 | 89,650 |
BALANCE SHEET
as on January 1, 1997
Liabilities | Rs. | Assets | Rs. |
Capital Fund (bal. Fig.) | 41,800 | Cash Other Assets Locker Rent due Subscriptions due | 1,500 39,000 300 1,000 |
41,800 | 41,800 |
BALANCE SHEET
as on December 1, 1997
Liabilities | Rs. | Assets | Rs. |
Entrance fees Subscriptions received in Advance Stationery outstanding Speicla subscription for L.G.’s Party Capital fund: Balance 41,800 Add Surplus 9,870 | 2,750 1,500 260 17,250 51,670 | Cash Other Assets Billiards Table Locker Rent due Subscriptions due | 11,980 39,000 19,500 550 2,400 |
73,430 | 73,430 |
3.8 When Receipts and Payments Account is Required
In the type of questions being given students are required to prepare receipt and payments account from income and expenditure account and additional information.
Procedure for finding out Receipts from Income
REGARDING SUBSCRIPTION OR OTHER INCOMES
Procedure adopted for calculating income from receipt. (This technique was used in previous type of questions) | Procedure adopted for calculating receipt from income. (This technique will be used in this type of questions) |
1. Subscription received during the current year 4,000 | Subscriptions pertaining to the current shown in the income and expenditure account 3,850 |
2. Add Outstanding at the end of the current year 200 4,200 | Less Outstanding at the end of the current year 200 3,650 |
3. Less Outstanding at the end of the previous year 100 4,100 | Add Outstanding at the end of the previous year 100 3,750 |
4. Less Subscriptions received in advance at the end of the current year 300 3,800 | Add Subscriptions received in advance at the end of the current year 300 4,050 |
5. Add Subscriptions received in advance at the end of the previous year 50 Subscriptions to be shown in the income and expenditure account 3,850* | Less Subscription received in advance at the of the previous year 50 Subscriptions received during the current year to be shown in receipts and payments account 4,000+ |
* This figure is taken as a starting point in questions where receipts and payments account is required.
+ This figure is taken as a starting point in questions where income and expenditure account is required.
3.9 Procedure for finding out Payment from Expenses
REGARDING ANY EXPENSE
Procedure adopted for calculating expenditure from payment. (This technique was used in previous type of questions) | Procedure adopted for calculating Payment from expenditure. (This technique will be used in this type of questions) |
1. Payment during the year (regarding a particular expense) 700 | Expense shown in the income and expenditure account 750 |
2. Add outstanding at the end of the previous year 50 750 | Less Outstanding at the end of the current year 50 700 |
3. Less Outstanding at the end of the previous year 30 720 | Add Outstanding at the end the previous year 30 730 |
4. Less Prepaid at the end of the current year 10 710 | Add prepaid at the end of the Current year 10 740 |
5. Add Prepaid at the end of the Previous year 40 Expense to be shown in the income and expenditure account 750 | Less Prepaid at the end of the Previous year 40 Payment to be shown in the receipts and payment account 700+ |
Example 11: The income and expenditure account of Madurai City Sports Club for the year ended 31st March, 1997 is as follows:
To Salaries To Printing and stationery To Rent To Repairs To Sundry expenses To Annual dinner expenses To Interest to bank To Dep. On sports equipments To Excess of income over exp. | Rs.60,000 3,000 6,000 5,000 4,000 15,000 3,000 3,000 6,000 | By Subscriptions By Entrance fees By Contribution for annual dinner By Profit on annual sports meet | Rs.80,000 5,000 10,000 10,000 |
1,05,000 | 1,05,000 |
The account had been prepared after the following adjustments:
Subscription outstanding on 31.3.1996 Rs.6,000
Subscription received in advance on 31.3.1996 Rs.4,500
Subscription received in advance on 31.3.1997 Rs.2,700
Subscription outstanding on 31.3.1997 Rs.7,500
Salaries outstanding at the beginning and the end of the financial year were Rs.4,000 and Rs.5,000 respectively. Sundry expenses include insurance prepaid Rs.600.
The club owned a freehold ground valued Rs.1,00,000. The club has sports equipment on 1.4.96 valued at Rs.26,000. At the end of the year, after depreciation, the sports equipments amounted to Rs.27,000. The club raised a loan from bank Rs.20,000 on 1.1.1996 which was not paid on 31.3.1997. On 31st march 1997, cash in hand amounted to Rs.16,000.
Prepare the Receipts and Payments Account of the club for the year ended 31st March 1997 and Balance Sheet as on March, 1997.
RECEIPTS AND PAYMENTS ACCOUNT
Dr. For the year ended 31st March, 1997 Cr.
Receipts | Rs. | Payments | Rs. |
To Balance b/d (Bal.figure) To Subscription (See Note 1) To Entrance fees To Contribution for Annual Dinner To Profit on Annual Sports meet | 13,900 76,700 5,000 10,000 10,000 | By Salaries (60,000-5,000+4,000) By Printing & Stationery By Rent By Repairs By Sundry expenses(4,000+600) By Annual Dinner Expenses By Interest to Bank By Sports equipment (See Note 2) By Balance c/d | 59,000 3,000 6,000 5,000 4,600 15,000 3,000 4,000 16,000 |
1,15,600 | 1,15,600 |
BALANCE SHEET
as at 31st March, 1997
Liabilities | Rs. | Assets | Rs. |
Capital Fund: Balance Rs. 1,17,400 Add Excess of Income over Expenditure 6,000 Bank Loan Salaries Outstanding Subscription in advance | 1,23,400 20,000 5,000 2,700 | Freehold Ground Sports Equipment: Bal. 26,000 Additions 4,000 30,000 Less Depreciation 3,000 Subscription outstanding Insurance prepaid Cash in hand | 27,000 7,500 600 16,000 |
1,51,000 | 1,51,000 |
Working notes: 1. Statement showing subscription collected during 1996-97:
Subscription for 1996-97 (as per Income & Expenditure A/c) 80,000
Add Subscriptions outstanding on 31.3.96 6,000
Add Subscriptions received in advance on 31.3.97 2,700
88,700
Less Subscriptions outstanding on 31.3.97 Rs.7,500
Less Subscriptions received in advance on 31.3.96 4,500 12,000
76,000
2. Sports Equipment Account
Dr. Cr.
Rs. | Rs. | ||
To Balance b/d To Bank (Bal.fig) | 26,000 4,000 | By Depreciation By Balance c/d | 3,000 27,000 |
30,000 | 30,000 |
4. Opening balance of Capital fund has been found out as follows:
BALANCE SHEET
as at 31st March 1996
Liabilities | Rs. | Assets | Rs. |
Bank Loan Salaries Outstanding Subscriptions received in advance Capital fund (Bal.fig) | 20,000 4,000 4,500 1,17,400 | Freehold Ground Sports Equipment Subscriptions outstanding Cash in hand | 1,00,000 26,000 6,000 13,900 |
1,45,900 | 1,45,900 |
3.10 When Balance Sheets are Required
In the third type of problems to prepare opening and closing balance sheets from income and expenditure and receipts and payments accounts.
Example 12:
From the following information given in the books of a sports club prepare the Balance Sheet as on December 31, 1996:
RECEIPTS AND PAYMENTS ACCOUNT
For the year ended 31st December, 1996
Receipts | Rs. | Payments | Rs. |
To Balance b/d To Entrance fees To Subscriptions 1995 1996 1997 To Interest received | 8,400 4,000 1,200 50,000 800 4,000 | By Salaries By Investment By Advertising By Printing and stationery By Insurance premium By Balance b/d | 16,000 40,000 1,000 3,600 2,400 5,400 |
68,400 | 68,400 |
INCOME AND EXPENDITURE ACCOUNT
For the year ended 31st December, 1996
Expenditure | Rs. | Income | Rs. |
To Salaries To Advertising To Audit fees To Insurance premium To Depreciation: on Sports Equipments on Furniture To Excess of income over expenditure | 16,800 1,000 3,000 2,000 2,000 15,000 800 18,400 | By Subscription By Entrance fees By Interest received | 51,000 4,000 4,000 |
59,000 | 59,000 |
Assets of the club on 1.1.96 included sports equipment Rs.50,000; Ground and Pavilion Rs. 80,000; and Furniture Rs.8,000. Subscriptions received in advance were Rs.500.
Show your workings neatly.
Solution:
BALANCE SHEET
as at 1.1.1996
Liabilities | Amount Rs. | Assets | Amount Rs. |
Subscriptions received in advance Outstanding for printing & Stationery Capital Fund (Balancing fig.) | 500 600 1,46,900 | Sports Equipments Club Grounds & Pavilion Furniture Subscription in Arrears Cash balance | 50,000 80,000 8,000 1,600 8,400 |
1,48,000 | 1,48,000 |
BALANCE SHEET
as at 31.12.1996
Liabilities | Amount Rs. | Assets | Amount Rs. |
Audit fees payable Subscriptions received in advance Salaries outstanding Capital Fund Balance 1,46,900 Add Surplus 18,400 | 2,000 800 800 1,65,300 | Sports Equipments Balance 50,000 Less Depreciation 15,000 Club Grounds & Pavilion Furniture 8,000 800 Cash Subscriptions in Arrears: For 1995 For 1996 Investments Prepaid Insurance | 35,000 80,000 7,200 5,400 400 500 40,000 400 |
1,68,900 | 1,68,900 |
Unit Questions:
1. What is the difference between Receipts and Payments account and Income and Expenditure account?
2. What is a Income and Expenditure account? Who prepares it? Why and how is it prepared?
3. Following is the Cash Account of Kalai Library for the year ending 31st December 1996.
Rs. | Rs. | ||
To Balance To Entrance fees To Subscriptions To Hire charges for Lecture Hall To Miscellaneous To Interest on investments | 2,250 1,750 9,750 1,250 175 300 | By Salaries & Wages By Rent By Investments By Postage By Stationery By Electric charges By Books By Outstanding expenses By Balance | 3,400 4,125 1,750 125 500 365 3,000 350 1,860 |
You are required to prepare an Income and Expenditure Account for the year 1996. The following further information are give:
a) Subscriptions received in advance this year amounted to Rs.300 and outstanding liabilities on 31.12.1996 are for Salaries and wages Rs.600 and for Rent Rs.375.
b) On 31.12.1995, the Library had the following Assets also: Furniture Rs.2,750; Books valued at Rs.22,500 and Investments at a cost of Rs.10,000.
c) 60% of the Entrance fees should be capitalised.
d) Furniture and Library Books are to be depreciated at 6% and 10% p.a. respectively.
[Ans: Excess of Expenditure over Invome Rs.180]
11. From the following particulars of the L.T. Association, prepare an Income & Expenditure Account for the year ended 31st December 1995:
RECEIPTS & PAYMENTS A/C for the year ended 31st December 1995
Rs. | Rs. | ||
To Balance b/d: Cash 1,000 Bank 5,500 To Subscriptions: For 1994 1,000 For 1995 20,000 For 1996 2,000 To Hall Rent To Govt. Grant: For Building 30,000 Maintenance 5,000 To fees from members To Donations(revenue) To Entrance Fees To To Interest on Investments To Bank Interest To Locker Rent To Telephone Receipts | 6,500 23,000 3,000 35,000 7,000 4,000 5,000 100 900 600 400 100 | By Salaries By Furniture By Building Construction By Printing & Stationery By Electricity By Telephone By Misc. Expenses By Investments By Office Expenses By Repairs By Insurance By Billiards Table By Sports Equipment To Tournament Expenses By Entertainment Expenses By Establishment Expenses By Balance c/d: Cash 7,000 Bank 17,400 | 3,000 12,000 10,000 500 700 2,400 1,600 16,000 1,000 500 1,000 4,000 5,000 1,200 800 1,500 24,400 |
85,600 | 85,600 |
Additional information:
i) Outstanding subscription for 1995 amounted to Rs.3,000
ii) Hall rent includes Rs.1,000 for 1994 and Rs.1,500 still owing.
iii) Bank interest accrued amounted to Rs.500
iv) Salaries include Rs.500 for 1994 and Rs.1,000 is still outstanding
v) Depreciate Furniture by 10% p.a. and Sports Equipment by 20% p.a.
vi) Establishment expenses outstanding amounted to Rs.200.
[Ans. Excess of Income over Expenditure Rs.26,750]
Notes: (i) Depreciation on furniture and sports equipment has been charged for 6 months on an average basis.
(ii) Fees from members have been assumed to be ‘life membership fees’ and so it has not been shown in Income & Exp. A/c
4. From the following information relating to Ding Dong Club, Salem
RECEIPTS & PAYMENTS A/C
For the year ending 31.12.1997
Receipts | Rs. | Payments | Rs. |
To Balance b/d Cash Bank To Subscriptions 1996 - 5,000 1997 - 20,000 1998 - 1,000 To Legacies To To Interest on investment To Sundry income | 1,000 4,000 26,000 4,000 1,000 1,500 500 | By Salaries By Printing & Stationery By Rent By Honorarium By Postage By Sports Materials By Investments By Conveyance By Furniture By Balance c/d Cash Bank | 3,000 4,000 8,000 5,000 100 2,900 5,000 1,000 6,000 1,500 1,500 |
38,000 | 38,000 |
Adjustments:
1. Subscription still outstanding for 1997 Rs.2,000 and subscription received in advance in 1996 for 1997 Rs.800
2. Interest on investments includes Rs.500 relating to 1996 and sundry income still accrued Rs.700.
3. Rent pre-paid Rs.2,000 and stationery outstanding Rs.1,000
4. Depreciate buildings and Furniture by 10%
5. The ledger account balances as on 1.1.97 were
Building - Rs.40,000
Furniture - Rs.10,000
& Sports materials - Rs.5,000
(Ans: Excess of Income over Expenditure Rs.300; Opening capital fund Rs.64,700; Balance sheet total Rs.71,000)
[Hint: Depreciation on furniture Rs. 1,000 + 600 = Rs.1,600]
6. From the following information relating to Youth club, prepare the Balance sheet as on 1st April, 1997 and as on 31st March, 1998:
(i) | Club’s Assets as on 1.4.97: Club Grounds and Pavilion Sports Equipment Furniture Stock of Staioenry Subscription Due | Rs. 50,000 30,000 7,000 1,000 1,200 |
(ii) RECEIPTS AND PAYMENT ACCOUNT for the year ending March 31, 1998
Receipts | Rs. | Payments | Rs. |
To Balance b/d To Subscriptions- 1996-97 900 1997-98 18,000 1998-99 500 To To Rent Received To Entrance Fees | 5,000 19,400 300 2,200 12,000 | By Stationery By Salaries By Audit Fees By Advertising By Fire Insurance By Furniture By Investments By Balance c/d | 3,000 10,000 1,000 2,000 1,500 2,000 18,000 1,400 |
38,900 | 38,900 |
INCOME AND EXPENDITURE ACCOUNT
for the year ending March 31, 1998
Expenditure | Rs. | Income | Rs. |
To Salaries To Stationery To Audit Fees To Fire Insurance To Depreciation on: Sports Equipment Furniture To Surplus, i.e., excess of income over expenditure | 11,000 2,800 1,500 3,000 5,000 800 8,400 | By Subscriptions By Entrance Fees By Rent Received By | 19,000 12,000 2,400 300 |
Rs. | 33,700 | Rs. | 33,700 |
[Ans. Capital (Op.Bal.) Rs.94,200; Balance Sheet (op.) Total Rs.94,200; Balance Sheet (closing) total Rs.1,05,600]
6. The following Income and Expenditure Account of the club is given for the year ended 31st December 1996:
Dr. Cr.
Rs. | Rs. | ||
To Opening Stock of provisions To Purchase of Priovisions To Salaries To Printing and Stationery To General Expenses To Depreciation on equipment To Excess of Income over Expenditure | 10,000 40,000 15,000 5,000 3,000 38,000 | By Sub scriptions By Donations By Entrance Fees By By Closing Stock of Provisions | 26,000 30,000 8,000 43,000 5,000 |
1,12,000 | 1,12,000 |
The following Balance Sheets are available:
BALANCE SHEET as on
Liabilities | 31.12.95 Rs. | 31.12.96 Rs. | Assets | 31.12.95 Rs. | 31.12.96 Rs. |
Creditors General Fund | 8,000 47,0000 | 10,000 85,000 | Equipments at written down value Stock of Provisions Cash ans bank balance Subscription receivable | 10,000 10,000 30,000 5,000 | 15,000 5,000 55,000 20,000 |
55,000 | 95,000 | 55,000 | 95,000 |
Prepare Receipt and Payments account for the year ended 31st December 1996.
[Ans. : Receipts & Payments A/c total Rs.1,22,000; Subscriptions Rs.11,000(26,000-20,000+5,000); Creditors for Provisions (paid) Rs.38,000(8,000+40,000-10,000); Equipments purchased Rs.6,000 for eash]
very good job. It is very useful to students and to those who keeps accounts of service oriented concerns. thanks.
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