Question

Income and Expenditure Account of a Non-Profit Organization is a:

• A. Real Account
• B. Personal Account
• C. Nominal Account
• D. None of the above

Hint:

Income and Expenditure Account of an NPO is equivalent to the Profit and Loss Account of a business concern. Since it records revenue incomes and expenses, it is treated as a Nominal Account.

Answer 1

The Correct Option is C

Concept: A Non-Profit Organization (NPO) such as a club, charitable institution, educational institution or hospital prepares an Income and Expenditure Account to determine surplus or deficit for a particular accounting period. This account is similar to the Profit and Loss Account prepared by a business concern. It records only revenue incomes and revenue expenses on an accrual basis.

Step 1: Understand the purpose of Income and Expenditure Account.
The account is prepared to ascertain: \[ \text{Surplus} = \text{Income} - \text{Expenditure} \] or \[ \text{Deficit} = \text{Expenditure} - \text{Income} \] It summarizes all revenue items relating to the current accounting period.

Step 2: Recall the types of accounts.
Traditional classification divides accounts into:
• Personal Accounts
• Real Accounts
• Nominal Accounts Personal Accounts relate to persons, firms, companies and institutions. Real Accounts relate to assets such as: \[ \text{Cash, Furniture, Building, Machinery} \] Nominal Accounts relate to: \[ \text{Expenses, Losses, Incomes and Gains} \]

Step 3: Identify the nature of Income and Expenditure Account.
Income and Expenditure Account contains items such as:
• Salary
• Rent
• Subscription
• Interest Received
• Electricity Expenses
• Miscellaneous Income All these items are revenue incomes or revenue expenses. Since it summarizes nominal items only, it is classified as a Nominal Account.

Step 4: Eliminate incorrect options.
Option (A): Real Account relates to assets, therefore incorrect. Option (B): Personal Account relates to persons or organizations, therefore incorrect. Option (D): Not applicable because one of the given options is correct.

Step 5: Select the correct answer.
Income and Expenditure Account records incomes and expenses only. Hence it is a: \[ \boxed{\text{Nominal Account}} \] Therefore, \[ \boxed{(C)} \]