Not for Profit Organizations

A not-for-profit organization is established solely to benefit society or promote art and culture. The sources of income for these organizations are donations, income from investments, and funds, subscription fees from members and the public. Trading and profit and loss account are is required for these organizations because they do not manufacture or sell goods. These organizations are managed by their trustees, who keep records of all incomes and expenditures, as they are accountable to the members.

Characteristics of Not-for-Profit Organizations

Motive of service

The primary purpose of these organizations is to provide service to their members or a specific group or general public irrespective of caste, creed, and gender. As they have no motive to earn profits, services are provided free or at a nominal price. These services include education, healthcare, clothing, food, shelter and sports facilities, recreation, etc.

Members

People who subscribe to these organizations are its members.

Management

Members elect a managing committee that looks after the day-to-day operations.

Income sources

Their chief sources of income are subscriptions, donations, income from investments, legacies, government grants, etc.

Surplus

When there is an excess of income over expenditure, the excess amount is added to the capital general or capital fund.

Goodwill

These organizations work for the welfare of society and, as a result, gain a reputation for their contribution.

Accounting Information

These organizations’ accounting information is meant for their contributors and sent to the Registrar of Societies.

Accounting Records of Not-for-Profit Organizations

A proper record of income and expenses must be maintained as these records also monitor how the funds are utilized. The accounting records of not-for-profit organizations are maintained primarily because the organization is accountable to its members, contributors, and the government. The government keeps track of whether funds are used for the right purpose or not. Keeping proper accounting books is also essential, as it reduces the risk of fraud. They maintain cash books, ledger, and stock registers. A stock register holds the record of all fixed assets and consumables. A not-for-profit organization prepares financial statements at the end of the accounting year: the receipt and payment account, income and expenditure account, and balance sheet.

The financial statement of a not-for-profit organization includes:

Receipt and Payment Account

A summary of all transactions related to cash and banks helps prepare the income and expenditure account and balance sheet.

Income and Expenditure Account

It maintains a record of incomes and expenses and ascertains the surplus and deficits. It is similar to profit and loss accounts.

Balance Sheet

The balance sheet contains only capital items and is prepared following general guidelines.

Types of Not-for-profit Organizations

Social advocacy groups

These organizations are formed to promote a particular social cause or political effort. They organize fundraising and inform the public about the cause they are supporting to inspire public support.

Trade organizations

Trade organizations are formed to help improve the members’ business conditions. The source of funds is membership dues, and the fee members pay to enrol in their education programs.

Foundations

Wealthy individuals and corporations establish these organizations for funding non-profit organizations and events to support a particular social cause.

Conclusion

A not-for-profit organization is established to serve its members and society. It does not engage in manufacturing activities or trade but instead works to promote a particular cause. The surplus generated is used to run the organization. They deliver services to a specific group or community of people and exist as charitable trusts. Trustees and members manage the organization. Accounting records of not-for-profit organizations include the receipt and payment account, income and expenditure account, and balance sheet.