Content Standard 15.4

Income and Expenditure Account

Akaun Pendapatan dan Perbelanjaan

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Explanation

The Income and Expenditure Account is the statement prepared by non-profit-making organisations such as clubs and societies to determine the surplus of income or deficit of income for an accounting period. It is the equivalent of the Profit and Loss Account used by profit-making businesses. Because a club does not trade to earn profit, the terms used are not net profit or net loss but surplus of income (when income exceeds expenditure) or deficit of income (when expenditure exceeds income). The account is prepared on the accrual basis, meaning income and expenses are recognised in the period to which they relate, not merely when cash is received or paid.

The main purpose of preparing the Income and Expenditure Account is to show whether the club's activities for the period generated a surplus or a deficit, thereby helping members assess the club's financial performance. This account differs from the Receipts and Payments Account, which records only cash flows. The Income and Expenditure Account adjusts items such as accrued income, income received in advance, accrued expenses, prepaid expenses, depreciation of assets and bad debts, so that the figures shown relate strictly to the current period. A surplus is added to the Accumulated Fund while a deficit is deducted from the Accumulated Fund in the Statement of Financial Position.

Students must be able to distinguish revenue income from capital income, and revenue expenditure from capital expenditure. Revenue income consists of recurring receipts arising from the club's ordinary activities, such as members' subscriptions, hall rental received, canteen sales and small donations. Capital income is non-recurring and is not treated as ordinary income, for example life membership fees, special donations for constructing a building and proceeds from the sale of a non-current asset. Only revenue income is entered in the Income and Expenditure Account; capital income is reported in the Statement of Financial Position as an addition to the Accumulated Fund or to a special fund.

Similarly, revenue expenditure is the recurring cost of running the club's day-to-day activities, such as supervisors' salaries, rent of premises, utility charges (water and electricity), stationery, depreciation of furniture and maintenance costs. Capital expenditure is the cost of acquiring or improving non-current assets such as buying furniture, sports equipment and computers, which benefit several periods. Revenue expenditure is recorded as an expense on the debit side of the Income and Expenditure Account, while capital expenditure is recorded as a non-current asset in the Statement of Financial Position, with only its depreciation becoming an annual expense. Wrongly classifying a capital item as revenue (or vice versa) will make the surplus or deficit figure incorrect.

To prepare the Income and Expenditure Account, all revenue income for the period is entered on the credit side and all revenue expenditure is entered on the debit side. If total credit (income) exceeds total debit (expenditure), the balancing figure is a surplus of income; if the opposite is true, it is a deficit of income. Items involving separate activities such as a canteen or a dinner event are usually summarised first in a small trading account, and only the resulting profit or loss is transferred to the Income and Expenditure Account. All period-end adjustments must be taken into account so that the account complies with the accrual and matching concepts.

Worked examples

Classifying the income and expenses of Seri Damai Recreation Club

Before preparing the account, the treasurer of Seri Damai Recreation Club must classify these items. Annual members' subscriptions of RM4,800 are revenue income (credit the Income and Expenditure Account). Hall rental received of RM1,200 is also revenue income. Life membership fees of RM6,000 are capital income, so they are NOT entered in this account but added to the Accumulated Fund.

For expenses: supervisor's salary of RM3,600 and utility charges of RM900 are revenue expenditure (debit). The purchase of new furniture for RM5,000 is capital expenditure, recorded as a non-current asset; only the depreciation of furniture of RM500 becomes the annual expense on the debit side of this account.

Preparing the Income and Expenditure Account (summary)

For the year ended 31 December 2025, the revenue income of Seri Damai Recreation Club is: subscriptions RM4,800, hall rental received RM1,200, and canteen trading profit RM700. Total income = RM6,700 (credit).

Revenue expenditure is: supervisor's salary RM3,600, utility charges RM900, stationery RM300 and depreciation of furniture RM500. Total expenditure = RM5,300 (debit).

Surplus of income = RM6,700 - RM5,300 = RM1,400. This surplus of RM1,400 is transferred and added to the Accumulated Fund in the Statement of Financial Position as at 31 December 2025.

Adjusting accrued and prepaid subscriptions

The club received subscriptions in cash of RM5,000 during 2025. There are accrued subscriptions (not yet received) of RM400 at year-end and subscriptions received in advance (for 2026) of RM600.

Subscriptions for the Income and Expenditure Account = RM5,000 + RM400 (accrued at end) - RM600 (in advance) = RM4,800. Note: accrued subscriptions of RM400 are a current asset; subscriptions in advance of RM600 are a current liability in the Statement of Financial Position.

Practice

State the purpose of preparing an Income and Expenditure Account for a club, and explain the meaning of surplus of income and deficit of income.

Answer: The purpose of the Income and Expenditure Account is to determine whether the club's activities for an accounting period produced a surplus or a deficit of income, and to assess the club's financial performance. A surplus of income arises when total revenue income exceeds total revenue expenditure for the period; it is added to the Accumulated Fund. A deficit of income arises when total revenue expenditure exceeds total revenue income; it is deducted from the Accumulated Fund in the Statement of Financial Position.

Classify each item as revenue income, capital income, revenue expenditure or capital expenditure: (i) annual members' subscriptions, (ii) life membership fees, (iii) purchase of sports equipment, (iv) water and electricity charges.

Answer: (i) Annual subscriptions: revenue income, because they are recurring and come from the club's ordinary activities; credited to the Income and Expenditure Account. (ii) Life membership fees: capital income, because they are non-recurring; added to the Accumulated Fund in the Statement of Financial Position. (iii) Purchase of sports equipment: capital expenditure; recorded as a non-current asset, with only its depreciation becoming an expense. (iv) Water and electricity charges: revenue expenditure; debited to the Income and Expenditure Account.

Harmoni Youth Club has the following revenue income for 2025: subscriptions RM3,600, small donations RM500, court rental received RM900. Revenue expenditure: caretaker's salary RM2,000, maintenance RM600, depreciation of equipment RM400. Calculate the surplus or deficit of income.

Answer: Total income = RM3,600 + RM500 + RM900 = RM5,000 (credit). Total expenditure = RM2,000 + RM600 + RM400 = RM3,000 (debit). Surplus of income = RM5,000 - RM3,000 = RM2,000. The club has a surplus of income of RM2,000, which is added to the Accumulated Fund as at 31 December 2025.

During 2025 Kreatif Arts Club received subscriptions in cash of RM7,200. At 31 December 2025 there are accrued subscriptions of RM500 and subscriptions in advance of RM800. Calculate the subscription amount to be recorded in the Income and Expenditure Account and state the treatment of the balances.

Answer: Subscriptions for the account = cash received + accrued at end - received in advance = RM7,200 + RM500 - RM800 = RM6,900 (credited to the Income and Expenditure Account). Accrued subscriptions of RM500 are reported as a current asset, while subscriptions in advance of RM800 are reported as a current liability in the Statement of Financial Position as at 31 December 2025.

Exam tips

Key terms

Surplus of income: The balance when total revenue income exceeds total revenue expenditure for the period; added to the Accumulated Fund.
Deficit of income: The balance when total revenue expenditure exceeds total revenue income; deducted from the Accumulated Fund.
Revenue income: Recurring receipts from the club's ordinary activities, such as subscriptions and hall rental received; credited to this account.
Capital expenditure: The cost of acquiring or improving a non-current asset; recorded as an asset, with only depreciation becoming an expense.

Source: DSKP KSSM Prinsip Perakaunan Tingkatan 5

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