Identify which of the following is prepared on accrual basis :

Income and Expenditure Account

The correct answer is Option 4- Income and Expenditure Account.

Income and expenditure is just like a profit and loss account which is prepared on accrual basis. It includes only revenue items and the balance at the end represents surplus or deficit. 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. Thus, it includes only revenue items not capital items.