1.0
INTRODUCTION
In a profit - making
business the income and expenditure Account is generally called a Profit and
Loss Account, but in a non-profit making business such as a cooperative
society, the term "Income and Expenditure Account is more appropriate
2.0
OBJECTIVES
At the end of this note,
you should be able to:
• describe this
account as the equivalent of Profit and Loss Account
• transfer the
balances from the Nominal accounts in the ledger to this income and expenditure
account
• ascertain the
correct Net Surplus or Net Loss (Net Profit or Net Loss) for a certain period
• show the treatment
of the surplus of income over expenditure in accordance with the cooperative
Laws and Regulations.
3.0
MAIN CONTENT
3.1
FINAL ACCOUNT II -
3.2
Explanation of Income and Expenditure Account
This may be described
as the equivalent of Profit and Loss Account drawn up for Non-trading concern.
It performs the same function with the Profit and Loss Account and is compiled
and constructed on the same principles. It is a Nominal Account recording
losses and expenses on the debit, and gains on the credit. Like the Profit and
Loss Account, all expenditures relating to the period both paid and accrued are
recorded on the debit side, while the credit side receives all incomes relating
to the period whether actually received or not.
The balance of the
income and expenditure account shows the excess of income over expenditure (Net
Surplus) or deficiency of income over expenditure (Net Loss).
The income and
expenditure accounts are suitable for cooperative thrift and credit societies
and cooperative thrift and Loan societies.
Note: That the income
and expenditure is similar in form to the Profit and Loss Account. They are
both used to ascertain the Net surplus of a business or organization for a
certain period. They are also prepared in the same manner. The only difference
is the nomenclature. So if you can prepare a Profit and Loss Account, you can
also prepare an income and expenditure account. All you have to do is to change
the name of the account to income and Expenditure Account and debit all those
items which ought to be debited in a Profit and Loss Account and credit all
those items which ought to be credited in a Profit and Loss Account.
3.2.1
Specimen of an Income and Expenditure Accounts
Income
and Expenditure Account of NOUN Cooperative Society Ltd. For the Period Ended
31st March 2003
3.2.2
Treatment of Surplus of Income over Expenditure
This is treated the
same way with a Net surplus derived from Profit and Loss Account. The Net
surplus is either appropriated or carried to the balance sheet at the date when
the books are closed. If there is a deficiency, the deficiency (Loss) is
carried to the asset side of the Balance Sheet.
3.3 Proposed
Profit and Loss Appropriation Account
In cooperative
organizations, the Net Surplus transferred to the Profit and Loss Appropriation
Account. The aim of this account is to show the disposal If the Surplus
(profit) of the society for the current financial period. The proposed
Appropriation must be in accordance with the cooperative Law and Regulations.
This account does not
apply to the accounts of the Sole Trader. The various Cooperative Societies
Laws make provisions for the appropriation of Surplus. Allocations made under
these provisions are known as authorized allocations and therefore do not
require the consent of members. The cooperative Laws of each State in Nigeria
provides that 25% (i.e one quarter) of the Surplus of a Cooperative Society
must be allocated to a reserve Fund, between 5% - 10% of the Surplus will be
allocated to the Education Fund.
Apart from the
statutory allocations, all other allocations of Surplus must be made with the
consent of members.
These
allocations are credited4 to the relevant accounts. After meeting all the
statutory provisions, the remaining surplus be return to the members that made
them possible in accordance with the services rendered or patronage made by
them.
This could be achieved through some non-statutory allocation listed
below:
i. Bonus on patronage
ii. Interest on share
capital
iii Committee Bonus
iv. Secretary
honorarium
v. Provision for
Entertainment
vi. General Reserve
e.t.c
Note:
That reserve fund is part of allocation of surplus of a registered
cooperative society to meet unforeseen contingencies. It is created only if
there is surplus, in other words 'no surplus, no Reserve fund'. It is a way of
plugging back part of the surplus of the society while making provisions for a
rainy day.
Also note that
Education find is for continuous education of members and is also for the
prevision of cooperative awareness to the members and general public. This
could be achieved through seminars, symposia, trainings, film shows etc. These
programmes are expected to be met from Education fund.
General Reserve: Any
balance left from the Net Surplus is passed into this account.
3.3.1
Specimen of Proposed Profit and Loss Appropriation Account
3.3.2
Illustration
Oji - Rever Cooperative
Investment and Credit Society Ltd. Made a surplus of 459, 063 = during last
financial period.
Prepare the society's proposed
Appropriation Account for the period in accordance with the cooperative law and
regulations.
The above appropriation account when approved, by
the Director of cooperatives becomes operational and ledger accounts will look
thus:
4.0
CONCLUSION
If you can prepare a
Profit and Lost Account, you can also prepare and Income and Expenditure
Account. All you have to do is to change the name of the account to Income and
Expenditure Account.
The Net Surplus
(Profit) of a cooperative organization is transferred to the proposed Profit
and Loss Appropriation Account. This Surplus is disposed in accordance with the
cooperative Law and Regulations.
5.0
SUMMARY
In this note, we
treated the preparation of Income and Expenditure Account of a non-trading
concern. It is also stated that the Income and Expenditure Account is similar
to the Profit and Loss Account. The only difference is the nomenclature.
We also treated the disposal of Surplus
of a cooperative organization in accordance with the cooperative bye-Laws.
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