Final accounts – an understanding – Key statements
In the Learning & Development group, Last week I explained the concept of direct & indirect expenses / incomes.
The direct and indirect concept helps you define what items will be almost directly proportional to your business volumes, and which will not really behave in this manner.
What about income and expenditure account / the receipt and payment account?
Not every entity is a profit making / a business entity. There may be non-profit entities, mutual benefit bodies, charitable bodies.
Under various laws, there may be different requirements, like a body under the societies act may need to prepare an income and expenditure along with a balance sheet, whereas, under the foreign exchange regulations they may need to file only a receipt payment statement.
Thus the nature of the organization, along with the laws applicable to them will actually lead to the determination of type of financial statements they would need.
So, what are these statements?
Income & Expenditure Statement:
Normally used for non-profit / charitable bodies
- No profit allocations done
- Surplus adds to corpus
- Governed by some law / exempt from IT
This will declare the incomes earned and expenses made only
Receipt & Payment Account:
Normally used for accountability on donation utilization
- Fund Utilization declaration
- Required for donor / under law
To declare the receipt and payments