Most of the private individuals never keep their accounts to record earned income or expenditure incurred by them. It is advisable for everyone to maintain an account to know what he has earned during a particular period, what he spent, and what was his saving out of that income. It is helpful to track the record of income and expenditure. It also helps to increase the income (as need arises) and control on the expenditure.
Private individual should keep his books on cash basis system, ignoring accrued system in different heads like insurance premium paid, medical insurance, school fees, taxes, household expenses, medical expenses, clothing, salary received, bank interest, income from mutual fund, rent received, and other income received.
For all these, one should keep a cash book, which can be summarized on monthly basis as per the abstract of cash Book given below −
Particulars (of Income) | Amount | Particulars (of Expenditure) | Amount |
To Balance b/d To Salary To Rent received To Saving Bank Interest To Interest on FDR To Income from Investment To Income from profession or Business Total | xx xx xx xx xx xx xx xxxx | By Kitchen Expenses By Electricity Expenses By School/College fees By Clothing By Insurance Premium (Life insurance, medi-claim, accidental insurance, other Insurance like fire, theft etc.) Total | xx xx xx xx xx xxxx |
In case of professional individual, one more column can be added in the cash book to show professional transaction and personal transaction separately. In addition to above, an individual may keep a register to maintain the record for his assets including car, building, investments, etc.
A cash basis of accounting is the most suitable system for any professional including doctor, accountant, or solicitor instead of a mercantile system to fulfill the following purposes −
· To ascertain the professional income earned by him correctly for a specific accounting period, and also to calculate the net professional income after deducting the related expenses from the professional income.
· To correctly record all items of income and expenditure.
Following records should be maintained by a professional −
All receipts and payments should be recorded in a cash book, and a memorandum book should be maintained to keep record of credit transactions. The credit transactions will be scored off at the time of actually cash receipt or at the time of payment made and should be entered in the cash book.
A cash book can be summarized under various heads on monthly, quarterly, half yearly, or annual basis as per the suitability and requirements.
Two separate stock registers should be maintained, one for resale items and other to keep record of the items of personal use. Resale items may be medicine, surgical items, the stationery items, electrical items, computers, and any other items or asset.
A receipt and expenditure account is similar to a profit and loss account; therefore, it is prepared by the professionals to know the professional income and expenditure for a specific period. Outstanding incomes are ignored to prepare it, but outstanding expenses are included in it. Therefore, it is known as Receipt & Expenditure account instead of Receipt & Payment account. It means, incomes are recorded on a cash basis and expenditure on an accrual basis.
Doctors usually maintain a register that may also be known as diary or note book in which all the particulars of the patients including charges, fees, physical conditions of patient, etc. are recorded. After grouping, the extracted entries of diary are recorded in the cash book under different heads of income. Similarly, expenses are also recorded under various heads.
In case, where the number of doctors is two or more than two and they run their clinic in the partnership, income may be recorded in the cash book under various heads (Doctor Wise), similar to a petty cash book pattern. Similarly, the expenses relating to each doctor may be recorded under various heads of the expenses.
Thus, cash book, stock register, memorandum book, Receipt and expenditure account, and Balance sheet are prepared by the doctors.
Dr. Ortho starts his medical practice on 1st January 2013 and introduced a capital of Rs. 300,000/. Receipt and payment account as on 31-12-2013.
Receipt | Amount (Rs.) | Payment | Amount (Rs.) |
To Consultation Charges To Capital Introduced | 2,500,000 300,000 | By Clinic Rent By Salary to Staff By Books & Periodicals By Medical Equipment By Other expenses By Balance c/d Cash in hand Cash at Bank | 240,000 300,000 15,000 450,000 38,000 57,000 1,700,000 |
Total | 28,00,000 | Total | 28,00,000 |
Solution −
Receipt & Expenditure Account of Dr. Ortho
For the year ended 31-12-2013
Expenditure | Amount | Receipt | Amount |
To Clinical Rent To Salary to Staff300,000 Add: Outstanding Salary50,000 ------------ To Books & Periodicals To Other Expenses To Depreciation on Equipment To Surplus – Excess of Receipt over Expenditure | 2,40,000 350,000 15,000 38,000 50,625 1806,375 | By Consultation Charges | 25,00,000 |
Total | 25,00,000 | Total | 25,00,000 |
Dr. Ortho
Balance Sheet
As on 31-12-2013
Expenditure | Amount | Receipt | Amount |
Capital Introduced300,000 Add: Surplus1,806,375 _________ Outstanding Salary | 2,106,375 50,000 | Cash in hand Cash at Bank Medical Equipment450,000 Less: Depreciation50,625 _______ | 57,000 1,700,000 399,375 |
Total | 2,156,375 | Total | 2,156,375 |
Most of the educational institutions are registered under Indian Society Registration Act, 1860. The core purpose of formation of the educational institutions is to educate people at large and not to earn profit.
Generally, following financial transactions are being incurred by the educational institutions −
Main Sources of Collection | Types of Expenses/Payments |
· Admission fees, tuition fees, Examination fees, fines etc. · Security deposit by students · Donations from public · Grants from Government for building, prizes, maintenance, etc. | · Salary, allowances, and provident fund contribution to teaching and nonteaching staffs. · Examination expenses · Stationery & printing expenses · Distribution of scholarships and stipends · Purchase and repair of furniture & fixture. · Prizes · Expenses on sports and games · Festival and function expenses · Library books, newspaper, magazines, etc. · Medical expenses- medicine and examination · Audit fees and audit expenses · Electricity expenses · Telephone expenses · Laboratory running & maintenance · Laboratory equipment · Building Repair & maintenance |
Separate collection register should be maintained to record these collections from the above mention sources. Separate ledger for students should also be maintained for each student to record the fees — due, received, and outstanding if any.
Normally, all accounting records are maintained on the basis of financial year i.e. from 1st April to 31st March in most of the educational institutions. Educational institutions maintain income and expenditure account to keep the records of surplus or deficiency and also to prepare a Balance sheet to know the financial position of the institution.
Consolidation of accounts is done step by step, where various institutions are run under one society.
The given example is an illustration of the simplified procedures −
Institute wise consolidation will be done as hereunder −
Opening Balance of Fees Due Add: Fees due during the current financial year Less: Fees collected during the current Financial Year Outstanding Fees at the end of the year |
|
XXX XXX |
|
XXXXX XXX |
|
XXX |
|
Trial Balance of the Brilliant education society as on 31st March, 2013 is given as here under, please prepare an Income and Expenditure Account and a Balance sheet on that date −
Particulars | Amount (Debit) | Amount (Credit) |
Cash in Hand | 68,000 |
|
Cash at Bank | 802,000 |
|
Scholarship Fund Investment | 800,000 |
|
Miscellaneous Expenses | 420,000 |
|
Interest received on Scholarship Fund |
| 80,000 |
Interest Received on Investment |
| 55,000 |
Investment | 550,000 |
|
Sundry Creditors |
| 236,000 |
Building | 1,700,000 |
|
Furniture & Fixture | 200,000 |
|
Addition to Furniture & Fixture | 25000 |
|
Vehicles | 280,000 |
|
Sundry Debtors | 260,000 |
|
Capital Fund |
| 2,400,000 |
Donation for Capital Fund |
| 500,000 |
Entrance Fees |
| 40,000 |
Course Fees |
| 1,600,000 |
Examination Fees |
| 70,000 |
Auditorium Rent Received |
| 850,000 |
Salary | 1,100,000 |
|
Printing & Stationery | 50,000 |
|
Scholarship Awarded | 36,000 |
|
Scholarship Fund Reserve |
| 360,000 |
Government Grant Received |
| 100,000 |
Total | 6,291,000 | 6,291,000 |
· Salary for one month is outstanding.
· Outstanding Auditorium is Rs, 50,000/- and Rs. 25,000 received in advance.
· Depreciation is to be provided at 5% on building, 10% on Furniture & Fixture, and 15% on vehicles.
Solution
In the Books of Brilliant Education Society
Income & Expenditure Account
For the Year ended 31st March, 2013
Expenditure | Amount | Income | Amount |
To Printing & Stationery To Salary1,100,000 (+) Outstanding Salary100,000 -------------- To Miscellaneous Expenses To Scholarship awarded To Depreciation: Building @ 5%85,000 Furniture & Fixture22,500 Vehicles @ 15%42,000 -------------- To Surplus of Income over Expenditure | 50,000 1,200,000 420,000 36,000 149,500 964,500 | By Entrance Fees By Examination Fees By Course Fees By Auditorium Rent850,000 (+) Outstanding Rent50,000 -------------- 900,000 (-) Advance Rent Received25,000 -------------- By Government Grants By Interest received on scholarship fund | 40,000 70,000 1,600,000 875,000 100,000 80,000 55,000 |
Total | 2,820,000 | Total | 2,820,000 |
Balance Sheet
As on 31-03-2013
Liabilities | Amount | Assets | Amount |
Capital Fund2,400,000 Add: Donation500,000 --------------- 2,900,000 Add: Surplus964,500 --------------- Scholarship Fund Sundry Creditors Salary outstanding Rent received in advance | 3,864,500 360,000 236,000 100,000 25,000 | Building1,700,000 (-) Depreciation@ 5%85,000 -------------- Furniture & Fixture200,000 (+) Addition25,000 -------------- 225,000 (-) Depreciation @10%22,500 -------------- Vehicles280,000 (-) Depreciation @15%42,000 -------------- Investments Scholarship Fund Investment Sundry Debtors Rent receivable Cash in hand Cash at Bank | 1,615,000 202,500 238,000 550,000 800,000 260,000 50,000 68,000 802,000 |
Total | 4,585,500 | Total | 4,585,500 |
Hostels are run by most of the educational institutions to provide boarding facility to the students, coming from remote places, for their education. Hostels are usually run on no profit basis. Government also grants some fund to these hostels to provide cheaper living space to the students.
Like any other non-profit organization, hostels also have accountants who record and maintain their financial transactions as −
Following are the common lists of incomes and expenditures incurred by Hostels −
Main Source of Collection | Types of Expenses/Payments |
· Admission fees · Security (refundable at the time of entering into the hostel) · Room rent · Electricity, water, fans, coolers, heaters & geysers charges etc. · Government grants · Fees for reading room & common room. · Mess charges · Medical Fee. | · Electricity expenses · Water charges · Building repair & maintenance · Grocery & provisions for mess · Rent for hostel Accommodation (In case or rented premises) · Salary (Warden, watchman, sweeper etc.) · Telephone expenses · Newspaper and magazines |
From the given information and Trial Balance, please prepare an Income & Expenditure account and Balance sheet of Divya Jyoti hostels (for the girls) for the year ending 31-03-2014 −
Particulars | Amount (Debit) | Amount (Credit) |
Opening Stock − · Food · Fuel · Drinks · Sundries | 31,500 4,500 3,000 6,000 |
|
Purchases − · Food · Fuel · Drinks · Sundries | 1,065,000 90,000 135,000 15,000 |
|
Wages − · Mess · Others | 337,500 97,500 |
|
Annual Day Collection |
| 10,500 |
Building | 6,300,000 |
|
Capital Fund |
| 7,050,000 |
Cash at Bank | 466,500 |
|
Common Room Expenses | 24,000 |
|
Electricity and Water Charges |
| 28,500 |
Electricity and Water Charges | 42,000 |
|
Fans | 75,000 |
|
Furniture & Fixture | 225,000 |
|
General Fund |
| 450,000 |
Grants-Youth welfare Departments |
| 300,000 |
Heaters | 7,500 |
|
Income From Investments |
| 82,500 |
Indoor Games Material | 22,500 |
|
Investments | 750,000 |
|
Land | 750,000 |
|
Medical Expenses | 19,500 |
|
Mess Charges (for guests) |
| 30,000 |
Mess Fees |
| 1,770,000 |
Rent for fan Heater etc. |
| 16,500 |
Repair & Maintenance | 33,000 |
|
Room Rent |
| 352,500 |
Room Service Charges |
| 9,000 |
Security Deposits |
| 400,500 |
Total | 10,500,000 | 10,500,000 |
· Depreciation to be provided @ 5% on Building, Furniture, & Fixture; and 15% on heater and Fans.
· Closing stock: Food Rs. 22,500, Fuel Rs. 7,500, Drinks Rs. 4,500, and sundries Rs. 3,000.
Solution −
In the Books of Divya Jyoti Hostels
Income & Expenditure Account
For the Year ended 31st March, 2014
Expenditure | Amount | Income | Amount |
To Mess Expenses Food: Opening Stock31,500 Add: Purchases1,065,000 -------------- 1,096,500 Less: Closing Stock22,500 -------------- Fuel: Opening Stock4,500 Add: Purchases90,000 -------------- 94,500 Less: Closing Stock7,500 -------------- Drinks: Opening Stock3,000 Add: Purchases135,000 -------------- 138,000 Less: Closing Stock4,500 -------------- Sundries: Opening Stock6,000 Add: Purchases15,000 -------------- 21,000 Less: Closing Stock3,000 -------------- To Wages : Mess337,500 Others97,500 -------------- To Electricity & Water Charges To Repair & Maintenance To Indoor Games Material To Common Room Expenses To Medical Expenses To Depreciation: Building5%315,000 Furniture10%22,500 Heaters15%1,125 Fans15%11,250 -------------- To Excess of Income Over Expenditure | 1,074,000 87,000 133,500 18,000 435,000 42,000 33,000 22,500 24,000 19,500 3,49,875 3,61,125 | By Room Rent By Rent for Heater, Fans, etc. By Grants-Youth Welfare By Income From Investments By Annual Day Collection By Mess Fees By Mess Charges for Grants By Room Service Charges By Electricity & Water Charges | 352,500 16,500 300,000 82,500 10,500 1,770,000 30,000 9,000 28,500 |
Total | 2,599,500 | Total | 2,599,500 |
Balance Sheet
As on 31-03-2014
Liabilities | Amount | Assets | Amount |
Capital Fund General Fund450,000 Add: Surplus361,125 ------------ Security Deposits | 7,050,000 811,125 400,500 | Land Building6,300,000 (-) Depreciation@ 5%315,000 ------------ Furniture & Fixture225,000 (-) Depreciation @10%22,500 ------------ Heaters7,500 (-) Depreciation @15%1,125 ------------ Fans75,000 (-) Depreciation @15%11,250 ------------ Investments Closing Stocks: Food22,500 Fuel7,500 Drinks4,500 Sundries3,000 ------------ Cash at Bank | 750,000 5,985,000 202,500 6,375 63,750 750,000 37,500 466,500 |
Total | 8,261,625 | Total | 8,261,625 |
Being a non-profit organization, hospitals also maintain Receipt & Payment accounts, Income & Expenditure account, and Balance Sheet.
An illustration of the income and expenditure of a hospital is shown below −
Main Items of Income | Types of Expenses/Payments |
· Room Rent · Medical Care · Dentistry Charges · Delivery Room Charges · Anesthesia Charges · Laboratory Charges · Grants for operating needs of Hospital · Grants for fixed Assets · Donations · Miscellaneous Income · Interest on Investments · Fees from Nursing & Training School · Bed Charges · Operating Room Charges · X-ray Charges · Pharmacy Charges · Physiotherapy Charges | · Electricity & Water Charges · Pharmacy Charges · Salaries and Wages · Pharmacy Expenses · Building repair & Maintenance · Laundry Charges · Rent for Nursing Hostel Accommodation (In case or rented premises) · Telephone Expenses · Laboratory Expenses · Surgery Expenses · Operation Tools and Equipment Expenses · Depreciation |
A charitable hospital and pharmacy are run by Rehmat Ali trust; following are the balances as extracted from its books for the year ended 31-03-2014 −
Particulars | Amount (Debit) | Amount (Credit) |
Consumption of · Medicines · Foodstuff · Drugs and Chemicals Closing Stock of · Medicines · Foodstuff · Drugs and Chemicals | 360,000 270,000 90,000 60,000 12,000 3,000 |
|
Salary | 540,000 |
|
Electricity | 315,000 |
|
Pharmacy − · Opening Stock · Purchase · Sale · Salary · Electricity | 165,000 900,000 45,000 6,000 | 930,000 |
Furniture & Fixture | 240,000 |
|
Ambulance | 90,000 |
|
Telephone Expenses | 78,000 |
|
Subscription | 63,000 |
|
Ambulance Charges |
| 2,400 |
Consumption of Housekeeping Items | 2,70,000 |
|
Bank Deposits @ 15% | 1,500,000 |
|
Cash in hand | 105,000 |
|
Cash at Bank | 720,000 |
|
Sundry Debtors | 181,500 |
|
Sundry Creditors |
| 824,100 |
Remuneration to Trustees | 63,000 |
|
Capital Fund |
| 2,700,000 |
Donation |
| 1,800,000 |
Fees |
| 900,000 |
Rent |
| 825,000 |
Food Supply |
| 420,000 |
Building | 960,000 |
|
Equipment | 1,365,000 |
|
Total | 8,401,500 | 8,401,500 |
· Depreciation to be provided @ 5% on Building; 10% on Furniture; 15% on Equipment; and 30% on Ambulance.
· Closing stock of medicine at pharmacy Rs. 120,000
· 15% of the fees received from patients to be paid to specialist doctors.
· Supply of medicines from pharmacy to the hospital Rs. 180,000 for which no adjustment has been made in the books of accounts.
Solution −
In the Books of Rehmat Ali Trust
Income & Expenditure Account of the Pharmacy
For the Year ended 31st March, 2014
Expenditure | Amount | Income | Amount |
To Opening Stock (Medicines) To Purchase of Medicine To Salaries To Electricity Expenses To Surplus of Income over Expenditure | 165,000 900,000 45,000 6,000 114,00 | By Sale (Medicines) By Medicine to Hospital By Closing Stock | 930,000 180,000 120,000 |
Total | 1,230,000 | Total | 1,230,000 |
Income & Expenditure Account of the Hospital
For the Year ended 31st March, 2014
Expenditure | Amount | Income | Amount |
To Consumption of Medicines360,000 Add: Medicine from Pharmacy180,000 ------------ To Consumption of Food Stuff To Consumption of Drugs & Chemicals To Consumption of House Keeping To Salaries To Electricity Expenses To Subscription To Fees to specialist 15% of fees To Telephone Expenses To Depreciation: Building5%48,000 Furniture10%24,000 Equipment 15%204,750 Ambulance 30%27,000 ------------ | 540,000 270,000 90,000 270,000 540,000 315,000 63,000 135,000 78,000 303,750 | By Fees By Rent By Recovery of Food supply By Ambulance Charges By Deficit (Excess of expenditure Over Income) | 900,000 825,000 420,000 2,400 457,350 |
Total | 2,391,750 | Total | 2,391,750 |
Income & Expenditure Account of Trust
For the Year ended 31st March, 2014
Expenditure | Amount | Income | Amount |
To Deficit (Hospital A/c) To Remuneration to Trustee | 457,350 63,000 | By Surplus (Pharmacy) By Interest due on fixed deposit By Net Deficit | 114,000 225,000 181,350 |
Total | 520,350 | Total | 520,350 |
Statement of Affairs of Rehmat Ali Trust
As on 31-03-2014
Liabilities | Amount | Assets | Amount |
Capital Fund2,700,000 Add: Donation1,800,000 ---------------- 4,500,000 Less: Net Deficit (-)181,350 ---------------- Sundry Creditors Fees Payable to specialist | 4,318,650 824,100 135,000 | Building960,000 (-) Depreciation@ 5%48,000 --------------- Furniture & Fixture240,000 (-) Depreciation @10%24,000 ------------- Equipment1,365,000 (-) Depreciation @15%204,750 ------------- Ambulance90,000 (-) Depreciation @30%27,000 ------------- Bank Deposits1,500,000 Add: Interest Due225,000 ------------- Closing Stocks: Medicine60,000 Foodstuff12,000 Drugs & Medicine3,000 Pharmacy120,000 ------------- Sundry Debtors Cash in hand Cash at Bank | 912,000 216,000 1,160,250 63,000 1,725,000 195,000 181,500 105,000 720,000 |
Total | 5,277,750 | Total | 5,277,750 |