HI I wonder if anyone is familiar with income and expense accounts. I have taken over a few clients from an accountant who always seems to produce these rather than a P & L.
The figures are similar to a P & L, except she doesn't appear to do allowances for depreciation but instead notes down the capital allowance. This is of course confusing as capital allowance rates change ( while depreciation should be consistent)
Does anyone else have experience of this and even how a Income and Expense account should look. I don't ever remember them from my training.
Thanks in advance Valerie
__________________
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I'm only on a bookkeeping course so don't put too much weight on my answer. I thought income and expense account was same as P&L. Does a not for profit organisation normally prepare Income and Expence account? Results in either a surplus of income over expenditure or of expenditure over income. I found something to say I&E doesn't use accruals concept.
The same rules are used for Income and Expediture accounts as for P & L but different terms: instead of Net Profit we have Surplus of income over expenditure and instead of Net Loss we have Excess of expenditure over income.
However, there are cases where a non-profit organisation would prepare a P & L account, if there is profit generated for use in the organisation. For example. a football club may have a disco. Any profit from the disco would be transferred to the income and expenditure account but a P & L account would also be prepared for the disco.
I use them to show clients how much profit/loss they made in any trading period, usually a month.
A P&L will not include capital purchases but because one of my clients would buy capital items fairly regularly, i need to show these therefore use an income and expenditure statement rather than P&L.
The I&E account is similar to a P&L account. You are right, it is used for non profit entities but it is also used by small businesses that don't keep formal double entry accounts and mainly deal with cash payments and don't have account customers as such.
It comes from the schedules of income and expenses, which are basically the records for payments and receipts (as you learned from non profit entities).
It is used for simplicity in the SA completion as most "one man bands" use instinct to know if they are making money and probably just keep an eye on their bank balance (wrong, I know but thats the real world). They only go through the process of keeping records for HMRC.
Say, for example a Window Cleaner who is paid cash on the day and pays for his materials over the counter. They will make a list of the their payments and receipts each month (maybe!!) and as this type of enterprise is unlikely to exceed the AIA limit, anything he/she buys in the way of fixed assets are taken into account with the AIA entry.
The HMRC SA website mentions on there that they need to be informed if the accounting practice changes from cash accounting (as above) to generally accepted accounting principles (GAAP) which gives a true and fair view of a business.Basically your standard double entry.
This is a very simplified explaination but I hope it makes sense and you see where it's coming from.
Thank you all for your input. It's so good to get everyones advice and opinions which is why this forum is such a lifeline.
Bill
I believe that you have hit the nail on the head as these are only small businesses which require a simplified system and no double entry involved. The accounts just looked so un professional with one sheet of paper and no balance sheet
Maybe I over complicate things as I have always completed P & L and Balance Sheets even for the smallest of businesses. Difficult to do that now from scant records
It has just confused me with regards to how to handle the capital allowances/depreciation. The client is a taxi driver and I would have previously set a rate of depreciation which would then be used in the accounts, calculation added back in and capital allowances calculated for the SA tax return. These accounts just show the capital allowances used for each year (no depreciation guide to follow)
Am I making any sense at all?
__________________
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Maybe it would make more sense to keep an Asset Register as a seperate record. Showing the purchase date, cost price AIA claimed etc. That way there is a record for your client (and HMRC). It would not affect the I&E account if an asset is sold because it would just be added into income.
It would also be helpful in the calculate a balancing charge if an asset has had a write down allowance.
I like the idea of this as I think it would suit the majority of my clients well (and less work for me). It's just I'm unfamiliar with its use other than for non profit organisations as others have mentioned and have no recollection from training at all.
Is there a set format that an I & E account should take for this purpose in the same way that a P&L is pretty standard.
Valerie
__________________
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
You can still produce a P&L account format from the figures and a Statement of Affairs (a balance sheet but with figures calculated rather than taken from prime records) if you have enough information - but in most cases it would only show bank and cash in hand assets. You could also present it as a T account, with the expenses DR and Income CR the balancing figure being profit (DR) or loss (CR)
As these are not formal accounts, I don't believe there is a standard and like I said it has probably only been done to satisfy HMRC minimums and fill in the boxes on the SA return, so I would present in a way they aids the tax return completion (for example calculate the profit before deducting AIA). A caveat to that is, I would discuss with client what they actually want the accounts for.
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
