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A short class with Sarah and her students. The other ways are under More.
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Today, we'll delve into the Income and Expenditure Account. Can anyone explain what this account is and why it is crucial for non-trading organisations?
I think it records the money earned and spent by the organisation.
That's right! It shows the financial performance over a period and is prepared on an accrual basis. Can someone tell me what 'accrual basis' means?
I believe it means expenses are recorded when they are incurred, not just when cash is paid.
Exactly! This helps reflect the true financial state of the organisation.
Now, let's break down the format of the Income and Expenditure Account. What categories do we find under income?
There are subscriptions, donations, grants, and legacies.
Correct! And what about the expenses? What do they include?
Expenses include salaries, rent, office expenses, and depreciation.
Exactly! Remember, these expenses help us understand how funds are utilized. Why is it important to report a surplus or deficit?
It helps assess the financial health and decide on future funding.
Great point! The surplus or deficit informs strategic decisions.
Why do you think accurate recording in the Income and Expenditure Account is important for non-trading organisations?
It ensures transparency and builds trust with donors and stakeholders.
Exactly! Transparency is crucial. What else does this accuracy help with?
It helps organisations manage their resources effectively.
Spot on! Proper accounting helps in planning and delivering on their objectives.
An accounting method that records transactions when they occur, not when cash is exchanged.
The amount of income that exceeds expenses, indicating financial health.
The amount by which expenses exceed income, indicating financial issues.
Categories of income including donations, subscriptions, and grants.
Categories of expenditure, including salaries, rent, and office supplies.
Income high, expenses low, a surplus is what we want to show.
Lucy runs a community art organization. Each month, she collects funds (subscriptions) which she spends on art supplies (expenses). By the end of the month, if she has more money left than she spent, that's her surplus, showing her financial health!
I E A (Income Earned, Expenses Accounted) helps remember the focus of the Income and Expenditure Account.
I.E.E.: I for Income, E for Expenditure, E for Essence of accounting in non-trading organisations.
Term
Income and Expenditure Account
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Term
Surplus
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Term
Deficit
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Term
Accrual Basis
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A financial statement for non-trading organisations that records income earned and expenses incurred over a period on an accrual basis.
An accounting method where income and expenses are recorded when they are earned or incurred, regardless of when cash is received or paid.
The excess of income over expenditure, indicating financial profitability for non-trading organisations.
The amount by which expenditure exceeds income, indicating a shortfall in financial resources.
Funds received from the sale of assets or other non-operational activities, which are excluded from the Income and Expenditure Account.
The Income and Expenditure Account records the income and expenses of a non-trading organisation, showing its financial performance over a period.
This section details the purpose and structure of the Income and Expenditure Account, highlighting its significance in reflecting the true financial performance of non-trading organisations by capturing income earned and expenses incurred regardless of cash transactions.
The Income and Expenditure Account is fundamental for non-trading organisations, serving as a financial report similar to the profit and loss account used by trading entities. It is prepared on an accrual basis, ensuring that all income earned and expenses incurred during a specific period are documented, irrespective of cash transactions. This provides a clearer picture of the financial health of the organisation.
The account typically consists of:
It’s critical to note that this account does not include capital receipts or payments, such as the sale of assets, and the resulting surplus or deficit is transferred to the Balance Sheet as part of the organisation’s accumulated funds. This emphasis on accurate recording and classification fosters transparency and accountability, essential elements for sustaining donor trust and organisational integrity.