Go Ad-Free on CAclubindia with Daily Mobile Updates. Subscribe Now!

Expenditure over Income

Peter Rebello (5 Points)

03 October 2023

Why is the difference between expenditure over Income shown on the asset side of balance sheet.

Reply
Follow
Share

19 Replies

Yasaswi Gomes new (Finance ) (4524 Points)
Replied 03 October 2023

You mean to say that expenses - income = asset. Not possible. Its gross profit or operating or net profit.

1 Like

Upgrade to CAclubindia Pro. Subscribe Now!

prasad Nilugal ( GST Practitioner & Accounts ) (14811 Points)
Replied 03 October 2023

If your query is regarding Deficit in Income & Expenditure account, then Deficit should be reduced from Reserve Surplus or Capital Fund.

RAJA P M ("Do the Right Thing...!!!") (128091 Points)
Replied 03 October 2023

@ Peter,

Are You asking about Loss... Right...??!

Yes, If You are using any accounting software then Loss will be shown I Asset Side.

prasad Nilugal ( GST Practitioner & Accounts ) (14811 Points)
Replied 03 October 2023

As per schedule III of the Companies Act 2013 Debit balance of P&L ( loss) Shall be shown as a negative figure under head surplus, Similarly the balance of Reserve Surplus after adjusting negative balance of Surplus shall shown under head "Reserve & Surplus." .

Check out Companies Act 2013 applicable to you or not .

RAJA P M ("Do the Right Thing...!!!") (128091 Points)
Replied 03 October 2023

Is there querist ask this as Company...??!

If Yes, please highlight the word or meaning of the word...!

Upgrade to CAclubindia Pro. Subscribe Now!

sabyasachi mukherjee (27597 Points)
Replied 03 October 2023

Expenditure over income cannot be shown.

N. A (JOB) (45 Points)
Replied 03 October 2023

The income and expenditure account is prepared by the non-trading entities to determine surplus or deficit of income over expenditures for a particular time frame. The accumulated or accrual concept of accounting is rigidly pursued while preparing income and expenditure a/c of non-trading concerns. It is prepared as a portion of final accounts of non-trading entities and is equal to the profit and loss account outlined by for-profit business entities.

The surplus or deficit from the income and expenditure account is moved to the capital fund a/c

Hence it is whether it is surplus or deficit shall be adjusted to Capital A/c only.

As per Golden rules of accounting,

Type of account	Golden rules
Real account	Debit what comes in Credit what goes out
Personal account	Debit the receiver Credit the giver
Nominal account	Debit the expenses or losses Credit the income or gain

In the Balance sheet Real and Personal accounts only shown at the Debit ( Asset side) and Credit ( Liabilities side) & the Loss/Deficit being a Debit balance shall ultimately be carry forwarded to balance sheet Debit side (Asset side) and adjusted against the capital account being Credit balance until then being a Debit balance shown on the balance sheet Debit side (Asset side).. GENERALLY IT WILL BE AUTOMATICALLY ADJUSTED

RAJA P M ("Do the Right Thing...!!!") (128091 Points)
Replied 03 October 2023

Yes, You are exactly correct and I agreed the above said golden rules and All.

But,

The query is

Why is the difference between expenditure over Income shown on the asset side of balance sheet.

Querist asked why it's shown asset side..

Since,

I am also asking to you all "Why it's shown in asset side...???

Is there any difference if it's company or other than company...??

Is may be shown any other side except Asstt/Liabilities...???

prasad Nilugal ( GST Practitioner & Accounts ) (14811 Points)
Replied 03 October 2023

C.A Sir

we know that income and Expenditure prepare for Non profit organisation and Profit and loss for Profit making company. , we know everything , however querist in his query not clearly mentioned .

I think his query is Loss or Deficit is an Asset side ? why ?.

prasad Nilugal ( GST Practitioner & Accounts ) (14811 Points)
Replied 03 October 2023

@ Raja P M Sir

Loss / Deficits is an asset side in balance sheet , because when company next year earn profit or in future they earn profit , all these Accumulated losses or deficit Can be use for deduction from current year profit and untimely , it will reduce the taxes therefore for future benefits current year loss or deficit is an asset .

For example Current year loss is 5 Lacs in balance sheet , will be carried forward to next F.Y , now in the next F.Y profit is 12 lacs , so last years loss of 5 lacs will be deducted from 12 lacs , ( 12 -5 = 7 lacs ) , therefore you have to pay tax on 7 lacs instead of 12 lacs , due to last year loss .

In short for future benefits it is an asset .

Upgrade to CAclubindia Pro. Subscribe Now!

RAJA P M ("Do the Right Thing...!!!") (128091 Points)
Replied 03 October 2023

Originally posted by : prasad Nilugal
	@ Raja P M Sir Loss / Deficits is an asset side in balance sheet , because when company next year earn profit or in future they earn profit , all these Accumulated losses or deficit Can be use for deduction from current year profit and untimely , it will reduce the taxes therefore for future benefits current year loss or deficit is an asset . For example Current year loss is 5 Lacs in balance sheet , will be carried forward to next F.Y , now in the next F.Y profit is 12 lacs , so last years loss of 5 lacs will be deducted from 12 lacs , ( 12 -5 = 7 lacs ) , therefore you have to pay tax on 7 lacs instead of 12 lacs , due to last year loss . In short for future benefits it is an asset .

Dear Mr Prasad Nilugal...

Yes, I know it very well...

Also I know the loss/dificit is asset side (also I know adjustments and any other accounting procedures)...

I ask a question to You as above...!

The query is

Why is the difference between expenditure over Income shown on the asset side of balance sheet. Querist asked why it's shown asset side..

Why You consider this as Company or Which based You think and reply it's for Company...???

I don't know any point of view it's company...

Query asked why its in asset side...

Please check once again the query...

N. A (JOB) (45 Points)
Replied 03 October 2023

Dear Prasad Nilugal

As you said earlier as shown below,

"As per schedule III of the Companies Act 2013 Debit balance of P&L ( loss) Shall be shown as a negative figure under head surplus, Similarly the balance of Reserve Surplus after adjusting negative balance of Surplus shall shown under head "Reserve & Surplus." . Check out Companies Act 2013 applicable to you or not " AND

To this contrary you only says "Loss / Deficits is an asset side in balance sheet , because when company next year earn profit or in future they earn profit .......... " which seems not relevant here, however you gave a very good explanation with a nice example.

ALL THIS AMBIGUITY COME TO END ONLY UNLESS THE QUERIST GIVE A CLEAR EXPLANATION ABOUT HIS QUESTION

PART I — BALANCE SHEET

I. EQUITY AND LIABILITIES

B. Reserves and Surplus

(i) Reserves and Surplus shall be classified as: (a) Capital Reserves;

(b) Capital Redemption Reserve;

(d) Debenture Redemption Reserve;

(e) Revaluation Reserve;

(f) Share Options Outstanding Account;

(g) Other Reserves–(specify the nature and purpose of each reserve and the amount in respect thereof);

(h) Surplus i.e., balance in Statement of Profit and Loss disclosing allocations and appropriations such as dividend, bonus shares and transfer to/ from reserves, etc.; (Additions and deductions since last balance sheet to be shown under each of the specified heads);

(ii) A reserve specifically represented by earmarked investments shall be termed as a ―funds‖.

(iii) Debit balance of statement of profit and loss shall be shown as a negative figure under the head ―Surplus‖. Similarly, the balance of ―Reserves and Surplus‖, after adjusting negative balance of 264 surplus, if any, shall be shown under the head ―Reserves and Surplus‖ even if the resulting figure is in the negative.

prasad Nilugal ( GST Practitioner & Accounts ) (14811 Points)
Replied 04 October 2023

Dear CA sir
Agree, Ambiguity come to an end only after clear explanation from quriest.

ACCOUNTANT (Student) (559 Points)
Replied 04 October 2023

Originally posted by : RAJA P M
	Yes, You are exactly correct and I agreed the above said golden rules and All. But, The query is Why is the difference between expenditure over Income shown on the asset side of balance sheet. Querist asked why it's shown asset side.. Since, I am also asking to you all "Why it's shown in asset side...??? Is there any difference if it's company or other than company...?? Is may be shown any other side except Asstt/Liabilities...???

Sir As you gave an explanation from Schedule III of Companies Act, Deferred Expenses and Debit balance of P&L will be shown on asset side because to satisfy Matching Concept of Basic Concepts of Accounting,I.e., since all expenses are debited they are shown on Dr. side of Balance Sheet.

Expenditure over Income ultimately recognises Expenditure and which matches with third rule coming to debit side.

Please correct me if I am wrong.