The Income & Expenditure Account serves the same purpose for a non-trading concern as the Profit & Loss Account for a trading concern. It is also prepared exactly in the same manner as the Profit & Loss Account i.e., all incomes are shown on the credit side and all expenses and losses on the debit side.

However, in case of non-trading concerns the excess of income over expenses and losses is not termed as profit. It is called 'Excess of Income over Expenditure' or 'Surplus'. Similarly, the excess of expenses and losses over income is termed as 'Excess of Expenditure over Income' or 'Deficiency’. 

As stated earlier, the Income & Expenditure Account is prepared with the help of Receipts & Payments Account and the additional information available. You know the Income & Expenditure Account will show incomes and expenses only for the period to which it relates and that too on accrual basis.

Hence while taking figures from Receipts & Payments Account you will have to make the necessary I adjustments. For example, if the amount of subscriptions received during 1987 includes Rs. 200 relating to 1986, it should be deducted for purposes of computing the income from subscriptions.

Similarly, if certain amount of subscriptions relating to 1987 are still to be received (outstanding) it would not appear in the Receipts & Payments Account. But, it has-been included in the income from subscriptions for 1987 . and so added thereto. Another precaution you have to take relates to the distinction between capital and revenue items.

In the Income & Expenditure Account you are to include only the revenue items, the capital items will be ignored. Then, you will also have to provide the necessary amount of depreciation on all fixed assets and make provisions for doubtful debts. These items do not appear in the Receipts and Payments Account.

Let us now list the steps to be followed for preparing the Income& Expenditure Account from the receipts & Payments Account.

1. Go through the receipts side for ascertaining all items of incomes and the payment side for all items of expenses and losses.
2. Ignore opening and closing balances.
3. lgnore capital receipts and capital payments. I
4. Ignore receipts and payments relating to the preceding and the following years. If, however, a receipt or a payment includes any amount which relates to the preceding or the following year, the same should be deducted.
5. Add the outstanding amounts to the respective items of incomes and expenses.
6. Provide for depreciation and doubtful debts, if required.
7. If any fixed asset has been sold during the year, compute the amount of profit or loss on such a sale and show the same in the Income & expenditure Account.