unit-19-accounts-on-non-trading-concerns-ii

Unit-19 Accounts On Non-Trading Concerns-II

In this unit you will learn how the required statements are to be prepared from the given information.

Why is an Income and Expenditure Account termed as Receipts and Expenditure Account in case of professionals? How do they account for the outstanding fees?

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Learning Pundits Content Team

Written on Jun 24, 2019 4:53:15 PM

The professionals like doctors, solicitors etc., whose main job is to provide personal service as consultants and not trading in goods, maintain books of account like a non-trading concern. They prepare their final accounts also in the same manner. The only difference relates to the Income & Expenditure Account which in case of professionals is termed as 'Receipts & Expenditure Account.’ It is so because they account for their income on cash basis though the expenses are included on accrual basis. In other words, they take into account the outstanding expenses, but not the outstanding incomes. They adopt cash basis for recording incomes on the ground that their debtors are of a very uncertain nature so that a fee may not be considered as earned until the cash is received. Not only that, the professionals can not file suit for recovery of their fees.

There are two methods which can be adopted with regard to the outstanding fees of the professionals: (i) ignore the amount of outstanding fees altogether i.e., do not include it in the incomes at all, or (ii) include it first in the income as outstanding fees and then make-provision for doubtful debts equal to 100% of this amount. The second method is considered better because the outstanding fees is duly brought into account. As for the Balance Sheet, the outstanding fees are shown on the assets side and 100% provision for doubtful debts is deducted therefrom thus reducing its amount to nil.




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