Professional Documents
Culture Documents
Y our Income and Expense Statement reports income earned and spent during a specified period,
while the Cashflow Statement presents a record of all the cash inflows and outflows during a particular
time period.
The difference between the two is that the cashflow statement records only the actual cash inflows and
outflows. It does not include amounts spent or earned on credit. On the other hand the income and
expense statement records all types of income and expenses.
These statements make it easy to see where your money is being spent. Many people complain that
they earn large sums of money, but they never have anything left over. Recording their expenditures is
a first step to taking control of their financial affairs. Because earnings and living expenses also influence
net worth, these statements also show that change.
The income statement shows actual income and expenditures over a period of time, whereas a balance
sheet or Statement of Net Worth shows financial position at a single point in time.
There are three steps to creating an income statement, as shown in Worksheet 3.1.
Note:
Cash surplus increases net worth while a deficit decreases it.
1. Anil lives in a flat, which he purchased 10 years ago for Rs. 10 Lakhs. There is a loan outstanding
for Rs. 3 Lakhs left. The monthly EMIs, which Anil pays towards the loan, is Rs. 4000 pm. His wife
has jewellery worth Rs. 2 Lakhs.He has a car, which he purchased for 3 Lakhs, four years ago. He
pays a monthly EMI of Rs. 2000 for his car loan. His life insurance and pension funds cost him Rs.
4000 pm. He earns Rs. 40000 pm. His car requires petrol worth Rs. 3000 pm. The grocery bill adds
up to Rs. 8000 pm. His wife, Mina likes to eat out. They spend Rs. 2000 on entertainment every
month. His mobile bill and utilities come to Rs. 6000 pm. His credit card bill is Rs. 2000 pm.Anil
earns interest income up to Rs. 400 pm.He has no other source of income.
Prepare his income and expense statement. Is there a surplus or a deficit? State the discretionary
and non-discretionary income. What is the percentage of discretionary and non-discretionary expenses
to the income?
2. Mukesh, a student had withdrawn Rs.3000 on 1st May’07. By the 10th of May, he had only Rs. 100
in his wallet. Intrigued as to where he spent all his money, he decided that for the following month,
he would maintain a note of all his cash outflows and inflows.
One June 1’07, Mukesh withdrew Rs. 3000 from ICICI Bank. On the 1st, he had travel and eating
expenses of Rs. 150. On the 2nd, he bought some fruits worth Rs. 45 and had conveyance of Rs.
50. On the 4th and the 5th, he had miscellaneous expenses of Rs. 500. On the 7th of June, he realized
that the rains will start soon and that he needed both a pair of rainy shoe and a bag. He purchased
the office bag at Rs. 700 and the shoes cost him Rs.900. He hunted out his old umbrella that had
served him well for the last 2 rainy seasons.
How does Mukesh’s cash inflow-outflow statement look like? Does Mukesh have a surplus or a
deficit? Is he better off in June than in May?
Chapter Review