Which of the following statements is incorrect in case of 'Not for Profit Organisation?

Income and Expenditure Account does not include Depreciation

The correct answer is Option (3) → Income and Expenditure Account does not include Depreciation.

In the financial reporting of a Not for Profit Organization, it is crucial to incorporate Depreciation in the Income and Expenditure Account. Depreciation is allocated to account for the gradual wear and tear on fixed assets. This practice ensures a faithful representation of the organization's financial performance and sustainability over time. By accounting for depreciation, the Income and Expenditure Account accurately reflects the comprehensive assessment of the organization's financial health. Income and expenditure account incorporated all the revenue items whether they are paid in cash or non cash.

The Income and Expenditure Account serves the same purpose as the profit and loss account of a business organisation does. All the revenue items relating to the current period are shown in this account, the expenses and losses on the expenditure side and incomes and gains on the income side of the account. It shows the net operating result in the form of surplus (i.e. excess of income over expenditure) or deficit (i.e. excess of expenditure over income), which is transferred to the capital fund shown in the balance sheet. The Income and Expenditure Account is prepared on accrual basis with the help of Receipts and Payments Account along with additional information regarding outstanding and prepaid expenses and depreciation etc. Hence, many items appearing in the Receipts and Payments need to be adjusted.