Enforcement Officer / Accounts Officer (EO/AO) 2017 recruitment test. Transcribed from the Commission's own booklet (series A, GRS-A-TNS); answer as per the official UPSC final answer key. This question is in Part B. Answer last reviewed 24 August 2026.

Income and Expenditure Account is

(a)Real Account
(b)Personal Account
(c)Nominal Account
(d)Capital Account

Answer

Why

Correct — C, (c) Nominal Account. The Income and Expenditure Account is what a not-for-profit organisation prepares in place of a Profit and Loss Account. It collects the revenue expenses of the year on its debit side and the revenue incomes of the year on its credit side, both on the accrual basis, and its balancing figure is a surplus — an excess of income over expenditure — or a deficit. That is precisely the behaviour by which the traditional classification defines a nominal account: debit all expenses and losses, credit all incomes and gains.

The traditional classification recognises three classes of account. A personal account is the account of a person or of an entity treated as a person — a debtor, a creditor, a bank, the proprietor's capital. A real account is the account of an asset or a property, tangible or intangible — cash, furniture, buildings, goodwill. A nominal account is the account of an expense, a loss, an income or a gain. The test that separates the third class from the first two is whether the account survives the closing of the books. Personal and real accounts carry their balances into the Balance Sheet and begin the next year with them. Nominal accounts are closed off every year into the account that summarises them, and start the next year at nil.

The Income and Expenditure Account behaves in exactly that way. It is opened for one accounting period, it takes in nothing but revenue items belonging to that period, and at the year end it is closed: the surplus is added to the Capital Fund on the liabilities side of the Balance Sheet, or the deficit deducted from it. Nothing of the account itself is carried forward. It holds no asset and owes nothing to anybody, so it can be neither real nor personal.

The distinction worth carrying out of this item is the pairing with the other statement a non-trading concern prepares. The Receipts and Payments Account is a summarised cash book — a real account — which records every cash receipt and payment of whatever nature, capital or revenue, and whichever period it belongs to. The Income and Expenditure Account is its nominal counterpart, admitting only revenue items and only those of the current year.

Why the others are wrong

(a)Real Account — A real account is the account of an asset or a property — cash, investments, sports equipment, a building. The Income and Expenditure Account holds no asset; it holds the year's incomes and expenses and is closed at the year end. The real account in a non-trading concern's own set of books is the Receipts and Payments Account, which is nothing but a summarised cash book, opening with the cash and bank balances at the start of the year and closing with those at its end. Candidates who mix the two statements up land here.
(b)Personal Account — A personal account is the account of a person or of an entity treated as one — a member who owes a subscription, a supplier, a bank, the Capital Fund itself, or a representative account such as Subscriptions Received in Advance. The Income and Expenditure Account represents no such party. It is worth noticing that the Capital Fund, which is personal in nature, is the account into which this one is closed; two accounts standing in that relationship cannot be the same account.
(d)Capital Account — Capital Account is not one of the three classes at all in the traditional classification, so this option is misclassified before its content is even considered. Where a capital account appears in a set of books — the proprietor's capital, or the Capital Fund of a club or society — it is personal in nature and it sits on the liabilities side of the Balance Sheet. The Income and Expenditure Account is closed into it, which is exactly what makes the two distinct.

Concept

Non-trading concerns — clubs, societies, hospitals, schools, charitable trusts — exist to serve their members or the public rather than to earn profit, and their final accounts are named accordingly. They keep a Receipts and Payments Account, a real account and a summary of the cash book, which shows all cash and bank transactions of the year without regard to whether they are capital or revenue and without regard to the period they relate to. From it, with adjustments, they prepare an Income and Expenditure Account, a nominal account on the model of the Profit and Loss Account, admitting only revenue items and only those of the current year, on the accrual basis. Its balance is called a surplus or a deficit rather than a profit or a loss, and it is taken to the Capital Fund — the non-trading concern's name for capital, built up from surpluses, capitalised legacies, life membership fees and donations of a capital nature — which appears on the liabilities side of the Balance Sheet. The three golden rules of the traditional classification decide how any item is posted: debit the receiver and credit the giver for personal accounts; debit what comes in and credit what goes out for real accounts; debit all expenses and losses and credit all incomes and gains for nominal accounts.

Accounts classification is the first thing taught in book-keeping and the last thing candidates revise, which is why recruitment papers keep returning to it. This paper asks it twice in the same block — the same three options open this item and the one on Branch Accounts under the Debtors System later in the block — so a candidate who has the classification straight collects both, and a candidate who is guessing loses both. The efficient preparation is not to memorise a list of account names but to hold the closing test: an account that is closed off into another account at the year end and starts the next year at nil is nominal; an account whose balance is carried into the Balance Sheet is real or personal.

Key facts

The Income and Expenditure Account is a nominal account, the not-for-profit counterpart of the Profit and Loss Account.
It records only revenue items and only those relating to the current period, on the accrual basis.
Its balance is a surplus or a deficit, transferred to the Capital Fund in the Balance Sheet.
The Receipts and Payments Account is a real account — a summarised cash book covering capital and revenue items of any period.
The traditional classification has three classes: personal, real and nominal. Capital Account is not a separate class; a capital account is personal in nature.
Golden rules: debit the receiver, credit the giver (personal); debit what comes in, credit what goes out (real); debit all expenses and losses, credit all incomes and gains (nominal).
Nominal accounts are closed every year and open the next year at nil; personal and real accounts carry their balances forward.

Three classes of account, and the test is whether the account survives the closing of the books

(c) Nominal Account→The Income and Expenditure Account collects the revenue expenses of the year on its debit side and the revenue incomes of the year on its credit side, both on the accrual basis, and balances to a surplus or a deficit. That is precisely the behaviour by which the traditional classification defines a nominal account.

The test that separates the classes→Personal and real accounts carry their balances into the Balance Sheet and begin the next year with them. Nominal accounts are closed off every year into the account that summarises them, and start the next year at nil. This one is closed by taking the surplus to the Capital Fund, or deducting the deficit from it.

(a) Real Account→The account of an asset or a property — cash, investments, sports equipment, a building. The real account in a non-trading concern's own set of books is the Receipts and Payments Account, a summarised cash book recording every receipt and payment of whatever nature, capital or revenue, and of whichever period.

(b) Personal Account→The account of a person, or of an entity treated as one — a member who owes a subscription, a supplier, a bank, the Capital Fund itself, or a representative account such as Subscriptions Received in Advance. The Capital Fund is the account this one is closed into, and two accounts standing in that relationship cannot be the same account.

(d) Capital Account→Not one of the three classes at all in the traditional classification, so the option is misclassified before its content is even considered. Where a capital account does appear in a set of books — the proprietor's capital, or the Capital Fund of a club or society — it is personal in nature and sits on the liabilities side.

The three golden rules→Debit the receiver and credit the giver, for personal accounts. Debit what comes in and credit what goes out, for real accounts. Debit all expenses and losses and credit all incomes and gains, for nominal accounts.

Study next

Preparing an Income and Expenditure Account from a Receipts and Payments Account, with adjustments for outstanding and prepaid itemsSubscriptions — arrears, advances, and the treatment of subscriptions written offCapital Fund and the items that build it: entrance fees, life membership fees, legacies and specific donationsThe distinction between a specific fund, such as a tournament fund, and the general Capital FundModern classification of accounts — asset, liability, capital, revenue and expense — and how it maps onto the traditional three classes

Common traps

Confusing the Income and Expenditure Account with the Receipts and Payments Account; the second is the real account of the pair.
Treating Capital Account as a fourth class of account. The classification has three classes and a capital account is personal.
Posting capital receipts, such as the sale of an old asset or a legacy, into the Income and Expenditure Account.
Recording only cash received in the Income and Expenditure Account; the account is drawn on the accrual basis and takes in what is due for the year.
Calling the balance a profit or a loss. The correct words for a non-trading concern are surplus and deficit.

The classification of a named account is a recurring one-line item in EPFO accountancy sections, and the names chosen are usually those that look like something else — Income and Expenditure Account, Branch Account, Consignment Account, Joint Venture Account, Drawings Account. Papers also ask the reverse: given a rule such as debit all expenses and losses, which class does it govern. The same block sometimes tests the pairing directly by asking which of the two statements of a non-trading concern is a summary of the cash book.

Related PYQs

EPFO_EOAO_2017_Q63Open & attempt →

Legacies are generally

(a) capitalized and taken to Balance Sheet
(b) treated as income
(c) treated as expenditure
(d) capitalized and taken to Suspense Account

Answer(a) capitalized and taken to Balance Sheet

The next item in the same not-for-profit set, on how legacies are treated — the capital receipt that must be kept out of this very account.

EPFO_EOAO_2017_Q67Open & attempt →

Branch Account under Debtors System is

(a) Real Account
(b) Personal Account
(c) Nominal Account
(d) Liability Account

Answer(c) Nominal Account

The twin classification item later in this block, on the Branch Account under the Debtors System, which offers the same three classes with only the fourth option changed.

Practice

practice — not a real PYQ
Receipts and Payments Account of a non-trading concern is
- (a)a nominal account
- (b)a real account
- (c)a personal account
- (d)a memorandum statement outside the double-entry system
Answer(b) a real account
practice — not a real PYQ
The excess of income over expenditure disclosed by the Income and Expenditure Account of a club is
- (a)credited to the Profit and Loss Account
- (b)added to the Capital Fund in the Balance Sheet
- (c)shown as an asset in the Balance Sheet
- (d)carried forward as the opening balance of the next year's Income and Expenditure Account
Answer(b) added to the Capital Fund in the Balance Sheet

Why