0The primary goal for any organisation is wealth maximization. Wealth maximization is achieved by means of earning profits. Whereas, in the case of a not-for-profit organisation, the primary focus of the entity is to provide welfare and services to its members and society at large. The goal is not to earn profit but to make living better for the society collectively. The main source of receipts for such organisations includes donations from its members, subsciptions, government grants etc; These organisations donot engage in manufacturing or trading activities.
A not-for-profit organisation is a separate legal entity. It is not owner by any individual or enterprise. Hence, it does not have a capital but only has a corpus or other types of funds.
Examples of such organisations include schools, hospitals, sports clubs, art societies, etc;
Unlike profit-making organisations, NPOs donot prepare a Profit and Loss Account. They will instead prepare an Income and Expenditure Account which will show the summary of their income and revenue expenses. They will also prepare a Receipts and Payments Account which will be prepared by the cash basis of accounting showing both capital and revenue transactions. The NPOs are also required to annually prepare a Balance Sheet to show its Financial position at the end of the year.
While NPOs may not be profit-making, they still have a responsibility to report to its members and other stakeholders about the way in which their money is being spent. Hence, they are required to maintain proper books of accounts and prepare the following statements on an annual basis:
1. Receipts and Payments Account,
2. Income and Expenditure Account, and
3. Balance Sheet.
