Understanding Income and Expenditure Account Items

The Income and Expenditure Account is a key financial statement for Not-for-Profit Organisations (NPOs). It is prepared on the accrual basis of accounting, which means it records all income and expenses related to the current accounting period, regardless of whether cash has been received or paid during that period. It excludes items of a capital nature.

Let's analyse each option to determine whether it is recorded in the Income and Expenditure Account for the current year:

• Subscription received for the current year: This is income pertaining directly to the current accounting period. Since the Income and Expenditure Account follows the accrual basis, this amount is included as income for the current year.
• Subscription for the previous year received in the current year: This subscription relates to a past accounting period (the previous year) but the cash is received in the current year. The Income and Expenditure Account only deals with the income and expenses of the current period. Therefore, a subscription relating to a previous year is not recorded in the current year's Income and Expenditure Account. It would appear in the Receipts and Payments Account (as it's a cash receipt) but is excluded from the Income and Expenditure Account.
• Subscription for the current year received in the previous year: This is a subscription received in advance in the previous year, but it pertains to the current accounting period. Because the Income and Expenditure Account follows the accrual basis, this income, although received earlier, belongs to the current year and is therefore recorded as income in the current year's Income and Expenditure Account.
• Subscription outstanding for the current year not yet received: This represents income earned during the current year but for which cash has not yet been received. On the accrual basis, this outstanding amount is treated as income for the current year and is added to subscriptions received for the current year to arrive at the total subscription income shown in the Income and Expenditure Account. Thus, the subscription outstanding for the current year is indeed relevant and accounted for in the Income and Expenditure Account for the current year.

Based on this analysis, the item that is not recorded in the current year's Income and Expenditure Account is the subscription relating to the previous year, even if received during the current year.

Conclusion on Income and Expenditure Account Items

The Income and Expenditure Account focuses strictly on the revenues and expenses of the specific accounting period it is prepared for. Items relating to previous or future periods, even if cash is received or paid in the current period, are adjusted for. Capital receipts and payments are also excluded.

Revision Table: Income and Expenditure Account vs. Receipts and Payments Account

Additional Information on NPO Accounts

Understanding the nature of different accounts is crucial for NPOs. Subscriptions are usually the main source of revenue for many NPOs. The treatment of subscriptions in the Income and Expenditure Account ensures that the income recognized for the period truly reflects the activities of that period on an accrual basis.

While a subscription for a previous year received in the current year is shown on the debit (receipts) side of the Receipts and Payments Account, it is explicitly excluded when calculating the subscription income for the Income and Expenditure Account of the current year.

Similarly, subscriptions received in advance relate to a future period and are treated as a liability in the Balance Sheet, while outstanding subscriptions for the current year are treated as an asset.