Income and expenditure account and balance sheet: problems solved

Financial Accounting · Unit IV · Topic 13 of 14 · 4 min read

The steps for turning a receipts and payments account into an income and expenditure account and balance sheet, the cricket club problem set in both January 2026 papers solved in full, and the literacy organisation problem (June 2025) with subscriptions, interest accrued and sale of furniture.

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On this page

1. Steps
2. Cricket club (January 2026, both papers)
3. Literacy organisation (June 2025)
How this is examined

Cases checked to exist. Read the judgment before quoting a holding.

Every case cited here has been checked to exist — the citation resolves and names the right parties. The propositions attributed to each case have not been verified line by line against the judgment. Case names link through to the full judgment: read it before quoting a holding in an examination answer, and never carry a proposition from notes into court on trust.

The examinable core. The cricket club problem (Rs. 1,22,000 receipts and payments account; outstanding salaries and printing, subscription due, sports equipment revalued, entrance and life membership fees capitalised) was set in both January 2026 papers — 10 marks in one, 16 in the other. The June 2025 problem (a literacy organisation) adds the opening capital fund, subscription arrears, interest accrued and sale of an asset.

1. Steps

Ignore the opening and closing cash and bank balances (they go to the balance sheet).
Separate capital items (furniture, equipment, investments, legacies, life membership, specific funds) from revenue items.
Take each revenue item for the current year only: add outstanding and accrued amounts, deduct prepaid and advance amounts, and the reverse for opening ones.
Add non-cash items: depreciation, loss or profit on sale of assets, stock of stamps or stationery consumed.
Find the surplus or deficit.
Prepare the opening statement of affairs if the opening capital fund is not given.
Prepare the closing balance sheet: capital fund + surplus + capitalised items; specific funds net of their expenses; outstanding items; assets at their closing values.

2. Cricket club (January 2026, both papers)

The club began on the first day of the year, so there are no opening balances. Sports equipment bought for 30,100 is valued at 25,100 at the year end: depreciation Rs. 5,000. Postage 330 less stamps on hand 100: Rs. 230. The donations of Rs. 60,000 are general (no purpose is stated), so they are revenue.

Income and Expenditure Account for the year ending 31 March

Expenditure	Rs.	Income	Rs.
To Honorarium	14,000	By Donations	60,000
To Other expenses	6,000	By Fees from function	24,000
To Printing 1,200 + 1,000	2,200	By Subscriptions 10,000 + 2,000	12,000
To Rent	2,500
To Salaries 7,000 + 2,500	9,500
To Postage 330 − 100	230
To Depreciation on sports equipment	5,000
To Surplus to capital fund	56,570
	96,000		96,000

Balance Sheet as on 31 March

Liabilities	Rs.	Assets	Rs.
Capital fund: surplus 56,570 + entrance fees 1,000 + life membership 5,000	62,570	Furniture	15,800
Tournament fund 22,000 − expenses 10,300	11,700	Sports equipment 30,100 − 5,000	25,100
Outstanding salaries	2,500	Fixed deposit in bank	30,000
Outstanding printing	1,000	Subscription receivable	2,000
		Postage stamps on hand	100
		Cash	4,770
	77,770		77,770

Why the tournament expenses are not in the I&E Account. The tournament fund is a specific fund. Expenses for the tournament are met from it, so they are deducted from the fund on the liabilities side. Putting Rs. 10,300 in the I&E Account and also showing the fund at Rs. 22,000 is the most common error in this problem; the balance sheet will still agree, but the surplus will be wrong.

3. Literacy organisation (June 2025)

Receipts and payments total Rs. 65,150. The paper says the organisation owned furniture Rs. 12,000 and books Rs. 5,000 “on 1st Jan. 2021”; read this as the opening date of the year under account, 1 January 2022 (state the assumption). Subscriptions of Rs. 2,000 were outstanding on 31 December 2021.

Workings.

Opening capital fund = cash 4,000 + bank 15,550 + subscriptions due 2,000 + furniture 12,000 + books 5,000 = Rs. 38,550 (no liabilities).
Subscriptions for 2022 = received for 2022 26,500 + outstanding 1,500 = Rs. 28,000. Of the Rs. 2,000 due for 2021, 1,200 is received, so Rs. 800 is still due. The Rs. 500 for 2023 is received in advance (liability).
Interest on FD: 18,000 × 10% × 6/12 = Rs. 900; received 450, accrued Rs. 450.
Rent: 6,500 includes one month in advance. Thirteen months were paid, so a month is Rs. 500; expense Rs. 6,000, prepaid Rs. 500.
Salary: 3,600 + 600 outstanding = Rs. 4,200.
Furniture sold: book value 5,000, sold for 3,700; loss Rs. 1,300.

Income and Expenditure Account for the year ended 31-12-2022

Expenditure	Rs.	Income	Rs.
To General expenses	3,200	By Subscriptions	28,000
To Newspapers	1,850	By Sale of old newspapers	1,250
To Electricity	3,000	By Government grant	12,000
To Salary	4,200	By Interest on FD	900
To Rent	6,000
To Postage	300
To Loss on sale of furniture	1,300
To Surplus	22,300
	42,150		42,150

Balance Sheet as on 31-12-2022

Liabilities	Rs.	Assets	Rs.
Capital fund 38,550 + surplus 22,300	60,850	Furniture 12,000 − 5,000 + 10,500	17,500
Subscription received in advance	500	Books 5,000 + 7,000	12,000
Outstanding salary	600	Fixed deposit	18,000
		Interest accrued	450
		Subscriptions due (2021: 800; 2022: 1,500)	2,300
		Prepaid rent	500
		Cash 3,000, bank 8,200	11,200
	61,950		61,950

The government grant is treated as revenue because no purpose is stated; if it were for a building, it would go to a capital fund. No depreciation is charged because none is asked.

How this is examined

This is the main problem of Unit IV: 10 marks in the 80-mark paper and 16 in the 100-mark paper, and the same club problem has been reused. Write the working notes first (subscriptions, depreciation, funds), then the two statements. Examiners give marks for the workings even where a figure goes wrong, so do not skip them.

Now try the real questions: Financial Accounting past question papers.