Question

Regarding the components of an Income and Expenditure Account, which statement(s) is (are) accurate?

1. Income and Expenditure Account is prepared to ascertain the profit or loss of a non-profit organization.
2. Income and Expenditure Account includes both revenue and capital items.
3. Income and Expenditure Account is only applicable to businesses and corporations.
4. Income and Expenditure Account records only cash transactions.

Options

• 1. & 2.

• 3. & 4.

• Only 1.

• 2. & 4.

Answer 1

Only 1.

Explanation:

The Income and Expenditure Account is prepared specifically for non-profit organizations to measure operational performance, with a profit denoted as a “surplus” and a loss as a “deficit”. The other claims are false because this account strictly excludes capital items, applies only to non-profit entities rather than commercial enterprises, and uses the accrual basis of accounting rather than just recording cash transactions.