Annual Financial statements
In commercial organisations this is better known as a profit and loss account, as it shows the profit or loss made from trading during the year. In not-for-profit organisations it shows the surplus or deficit for the year.
Essentially, this statement shows the income earned for the year and deducts from it the expenses incurred earning that income.
If the income is larger than the expenses then the organisation has generated a surplus which is added to their reserves.
If the expenses exceed the income then there is a deficit which reduces the reserves.
For charities, the income and expenditure account is in the form of a statement of financial activities based on fund accounting.
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