Profit And Loss Account Prepare by business undertakings

Income And Expenditure Account Prepared by non-trading organizations Credit balance is known as excess of income over expenditure or surplus and added to opening capital fund Debit balance is known as excess of expenditure over income or deficit and deducted from opening capital fund To check correctness of accounts, receipts and payment account is prepared before preparing this account.

Credit balance of this account is known as Net profit and added to opening capital

Debit balance of this account is known as Net loss and deducted from opening capital

To check correctness of accounts, trial balance is prepared before preparing this Profit & Loss Account

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Receipts and Payments Account

1 It is a summarized statement of all cash transactions during an accounting year.

Income and Expenditure Account

1 It is the account of revenue income and revenue expenditure of an accounting year. It is not confined to, cash transactions

Only cash transactions are recorded here.

The portion of income or expenditure which has been received or paid in cash this year, is recorded here

Transactions involving cash receipts are recorded on Debit side and those involving cash payments are recorded on Credit side.

Transactionsboth capital and revenue-are recorded here.

Its balance can never be credit.

Its balance is carried over to Receipts & Payments Account of the next year. This account shows opening balance except in the first year. The closing balance of this account represent in the first year.

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This account records transactions relating to past, present and future, years. Hence, no adjustment is made for pre-received or accrued incomes and pre-paid or outstanding expenses. In a word, it is prepared on cash basis.

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only, i.e. noncash transactions are also included in it. The whole amount of income or expenditure whether received or paid in cash or notis recorded in it. All expenditures are recorded on Debit side and all incomes on Credit side. Only revenue transactions are recorded here. Its balance may be either debit or credit. Its balance is transferred to Capital Fund. It has no opening balance. Its. closing balance represents either surplus or deficit. Credit balance indicates surplus, while debit balance indicates deficit. Transactions relating to the current year only are recorded in it. Hence, adjustments are invariably made for prereceived or

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It is, in fact, an abridged Cash Book.

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It is outside the Double Entry system. It is not accompanied by Balance Sheet.

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Its preparation is not compulsory.

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accrued incomes and pre-paid or outstanding expenses. In a word, it is prepared on Accrual basis. It is, infect, similar to Profit & Loss ' Account of a profit-seeking business concern. It is within the Double Entry system. It is accompanied by Balance Sheet It is compulsory. It must be prepared in order to ascertain the true result of a concern.

Revenue Expenditure
1. Its effect is temporary, i.e. the benefit is received within the accounting year. 2. 3.

Capital Expenditure

4. 5. 6.

7. 8.

1. Its effect is long-term, i.e. it is not exhausted within the current accounting year-its benefit is received for a number of years in future. Neither an asset is acquired nor the 2. An asset is acquired or the value of an value of an asset is increased. existing asset is increased. 3. Generally it has physical existence except It has no physical existence because it is incurred on items intangible assets. which are used by the business. 4. It does not occur again and again. It is It is recurring and regular and it occurs repeatedly. nonrecurring and irregular. 5. This expenditure improves the position of This expenditure helps to maintain the business. the business. 6. A portion of this expenditure The whole amount of this expenditure is shown in trading P & (depreciation on assets) is shown in L A/c or income statement. trading & P & L A/c and the balance is shown in the balance sheet on asset side. 7. It appears in the balance sheet until its It does not appear in the balance sheet. benefit is fully exhausted. 8. It does not reduce the revenue of the It reduces revenue (profit) of the business. concern. Purchase of fixed asset does not affect revenue.