Income & Expenditure Account preparation

The income and expenditure account is the club's version of an income statement. It is prepared on the accruals basis and shows the club's revenue income and revenue expenditure for the year:

$\text{Surplus or deficit} = \text{Total income} - \text{Total expenditure}$

• An excess of income over expenditure is a surplus (the club's equivalent of a profit).
• An excess of expenditure over income is a deficit (a loss).

Only revenue items appear — running income (subscriptions, donations, activity profits) and running expenses (rent, wages, depreciation). Capital items (buying equipment, repaying a loan) are excluded — they go to the statement of financial position. The surplus or deficit is then carried to the accumulated fund (the club's equivalent of capital).

Typical income in an income and expenditure account:

• Subscriptions — the adjusted figure from the subscriptions account (cash adjusted for arrears and advances), not the cash received.
• Donations — usually treated as income for the year (unless a specific large donation is to be capitalised).
• Profit-making activities — for a bar, café, shop or social event, only the net profit is shown as income (its sales less its direct costs). A separate trading account for the activity may be prepared first.
• Investment income / interest received — adjusted for any amounts accrued.

So the income side is built from revenue income, each item adjusted to the accruals basis. A profit-making activity that makes a loss is shown as expenditure (a deduction) instead.

Typical expenditure in an income and expenditure account:

• Running expenses — rent, wages, electricity, insurance, etc., each adjusted for accruals (owing) and prepayments:

$\text{Expense} = \text{Cash paid} + \text{closing accrual} - \text{opening accrual} - \text{closing prepayment} + \text{opening prepayment}$

• Depreciation of non-current assets (a non-cash expense the receipts and payments account omits).
• Loss on disposal of an asset, and irrecoverable subscriptions written off.
• Loss of a profit-making activity (if it made a loss).

Excluded (capital items): the purchase of equipment/furniture, loan repayments, and the opening/closing cash balances — these belong to the statement of financial position. The discipline is: revenue in, capital out.

The final figure is the surplus or deficit:

• a surplus (income > expenditure) increases the accumulated fund;
• a deficit (expenditure > income) decreases it.

The accumulated fund is the club's equivalent of a sole trader's capital (it is the net assets at the start of the year). So in the statement of financial position:

$\text{Closing accumulated fund} = \text{Opening accumulated fund} + \text{Surplus} \;(\text{or} - \text{Deficit})$

The income and expenditure account therefore links directly to the statement of financial position, just as a business's income statement links to its capital. A clear answer labels the result 'surplus' or 'deficit' (not 'profit' or 'loss') — the correct terminology for a non-profit organisation.