Question

Describe the difference between the Excess of Revenues over Expenses and the Increase in Unrestricted Net Assets.

Answer 1

Excess of Revenues over Expenses: Revenue is the amount of sales that a business makes during a period and expenses relates to the expenditure incurred in realizing the sales in that period. Hence, the excess of revenue over expenses refers to the net income of organization from its business operations during a given period of time.This is also referred to as the surplus. This is calculated by preparing the income and expenditure account or Profit & Loss Account for a given period.

Increase in Unrestricted Net Assets: The excess of revenue over expenses for a particular period is transferred to Reserves & Surplus under various heads. The various heads includes heads which are restricted in nature i.e. the balance under those heads can only be used for certain specified activities only. The remaining amount left after transfer to various restricted heads is transferred to unrestricted surplus account which is the accumulated balance of surplus / (deficit) over a period of time. This are the funds that can be used for operating expenses of the organization. The increase in unrestricted net assets is the increase in accumulated balance of surplus which is achieved by transferring the excess of revenue over expenses to unrestricted reserves.