Meaning, Features and Examples of Not for Profit Concerns

Every organisation set up in society is not established to earn profit. Alongside trading and manufacturing concerns run purely to make money, a very large number of organisations exist purely to provide a service — to their own members or to society at large — without any intention of distributing a profit to anyone. Sports clubs, hospitals run on a charitable basis, schools and colleges managed by educational trusts, public libraries, and religious or charitable trusts are everyday examples. This chapter studies how such organisations — commonly called 'Not for Profit' concerns — maintain their books of account and prepare their annual financial statements. The Maharashtra HSC (MSBSHSE) Book-Keeping and Accountancy syllabus places this chapter early in Standard XII precisely because its treatment of subscriptions, donations and funds recurs, in one form or another, right through the rest of the subject.

Examples of Not for Profit concerns

• Social and sports clubs (e.g. a gymkhana, a cricket or badminton club)
• Hospitals and dispensaries run by a charitable trust
• Schools, colleges and other educational institutions run by a trust or society
• Public libraries and reading rooms
• Religious institutions, temples and trusts
• Professional and welfare associations, and charitable trusts generally

Features of a Not for Profit concern

• It is formed to render a service to its members or to the public, never to earn profit for distribution.
• It is generally managed by an elected or nominated Managing Committee, which is answerable to the members for the funds entrusted to it.
• Its funds mainly come from subscriptions, donations, entrance fees, grants-in-aid and income from investments — not from selling goods or services at a profit margin.
• Any surplus it earns in a year is never distributed among members (unlike a trading concern's profit, which belongs to the owners); it is instead retained and added to the organisation's own Capital Fund, to be used only for the organisation's own objects.
• It maintains proper books of account, but since it does not run a trade, it does not prepare a Trading Account or a Profit and Loss Account.
• Its final accounts consist of a Receipts and Payments Account, an Income and Expenditure Account, and a Balance Sheet — the last two occupying the same place that the Trading and Profit and Loss Account and Balance Sheet occupy for a trading concern.

The table below sets the frame for the whole chapter by comparing a Not for Profit concern with an ordinary trading concern.