Necessary steps to prepare an Income and Expenditure Account from Receipt and Payment Account.

Conversion of Receipts and Payment Account into Income and Expenditure Account. When it is desired to convert a receipts and payments account into an income and expenditure account, the following steps are taken :

1. Leave the opening and closing balance of cash and bank given in the receipts and payments account.
2. Take only revenue items of income and expenditure and leave all those items which are of capital nature.
3. Make all adjustments for outstanding and prepaid expenses, accrued income, income received in advance, provision for depreciation or bad debts etc.
4. Taking items only for the current period i.e., items relating to the preceding and succeeding periods are to be ignored.

Following Table I shows how to calculate Revenue Income which will appear in the income side of the Income and Expenditure Account :

After taking above steps, now calculate the difference between the total of debit Side (Expenditure Side) and the total of credit side (Income Side). If the total of credit side exceeds the total of debit side, difference will be Surplus and it will appear On the debit side. If the total of debit side exceeds the total of credit side, it will show Deficit on the credit side of income and Expenditure Account.