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Difficulty: HardIncome and Expenditure Account

The following financial information was extracted from the books of Unity Recreation Club for the year ended 31st December 2025:

- Subscriptions received in cash: ₦640,000
- Subscriptions accrued as at 1st January 2025: ₦50,000
- Subscriptions received in advance as at 1st January 2025: ₦35,000
- Subscriptions accrued as at 31st December 2025: ₦65,000
- Subscriptions received in advance as at 31st December 2025: ₦40,000
- Rent paid in cash: ₦180,000
- Rent prepaid as at 31st December 2025: ₦20,000
- General expenses paid: ₦210,000
- Depreciation on equipment for the year: ₦45,000

What is the net surplus (in Naira) to be reported in the Income and Expenditure Account for the year ended 31st December 2025?

Answer: 235000 Naira

Answer

The net surplus to be reported in the Income and Expenditure Account for the year ended 31st December 2025 is ₦235,000.
The correct net surplus of ₦235,000 is derived by calculating total revenue earned minus total revenue expenses incurred during the year. Subscription Income earned equals ₦640,000 + ₦35,000 (opening advance) - ₦50,000 (opening accrual) + ₦65,000 (closing accrual) - ₦40,000 (closing advance) = ₦650,000. Total expenditure equals Rent of ₦160,000 (₦180,000 - ₦20,000 prepayment) + General Expenses of ₦210,000 + Depreciation of ₦45,000 = ₦415,000. Net Surplus = ₦650,000 - ₦415,000 = ₦235,000.

Step-by-Step Solution

1
Determine the Subscription Income for the year using accrual adjustments
Subscription Income = ₦650,000
Opening advance (₦35,000) and closing accrual (₦65,000) are added to cash received (₦640,000), while opening accrual (₦50,000) and closing advance (₦40,000) are deducted.
2
Calculate the adjusted Rent Expense for the period
Rent Expense = ₦160,000
Prepaid rent at year-end (₦20,000) represents an unexpired cost for the next period and must be deducted from cash paid (₦180,000).
3
Sum all revenue expenditures for the period
Total Expenditure = ₦415,000
Total revenue expenses comprise Rent Expense (₦160,000), General Expenses (₦210,000), and non-cash Depreciation (₦45,000).
4
Deduct Total Expenditure from Total Income to calculate Net Surplus
Net Surplus = ₦235,000
Surplus is the excess of total revenue income (₦650,000) over total revenue expenditure (₦415,000).

Key Concept

Income and Expenditure Account Net Surplus Determination
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Topics

Income and Expenditure Account

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