Difference between income and expenditure account and profit and loss account

Both income and expenditure account and profit and loss account show incomes and expenditures that are revenue in nature. Both the accounts show operating results of the entities for a specific period of time and are essential part of double entry system. The two accounts can however be differentiated on the following grounds:

1. Preparation by entities

Income & expenditure a/c:
It is prepared by non-trading concerns (also known as non-profit organizations).

Profit & loss a/c:
It is prepared by for-profit business organizations such as sole proprietors, firms and corporations.

2. Purpose of preparation

Income & expenditure a/c:
It is prepared at the end of the period to ascertain surplus or deficit of non-profit organizations.

Profit & loss a/c:
It is prepared at the end of the period to ascertain net profit earned or net loss sustained by trading or for-profit business organizations.

3. Treatment of trading activities

Income & expenditure a/c:
The non-trading organizations prepare a separate trading account for any trading activity undertaken by them. This trading account is accompanied as a subsidiary statement with the income and expenditure account of the non-trading organization.

Profit & loss a/c:
The trading organizations prepare a trading account and transfer the balance or result of trading account to profit and loss account. The balance of trading account is usually termed as gross profit or gross loss and is the starting point of profit and loss of for-profit business organizations.

4. Withdrawal of surplus/profit

Income & expenditure a/c:
The surplus shown by the income and expenditure account of non-profit organizations cannot be withdrawn by the members rather it is added to the capital or general fund of the organization.

Profit & loss a/c:
The profit ascertained by the profit and loss account of for-profit organizations can be withdrawn by the owners of the business.

5. Sources of income

Income & expenditure a/c:
The major sources of income shown by income and expenditure account are periodic subscriptions, recurring or non-recurring donations, casual or regular trading activities undertaken by non-profit organizations.

Profit & loss a/c:
The main sources of income shown by a profit and loss account are sale of goods in case of merchandising and manufacturing businesses and the provision of services in case of service organizations.

6. Input for preparation

Income & expenditure a/c:
It can be prepared using receipts and payments account and some additional information.

Profit & loss a/c:
It is prepared by using an adjusted trail balance and some additional information.