Q.State the meaning of a 'Not for Profit' concern. State any four of its features.

A 'Not for Profit' concern is fundamentally different from a trading business in why it exists at all, and that difference drives everything else about how it keeps its books.

A Not for Profit concern is an organisation formed with the primary object of rendering service to its members or to society, not to earn and distribute profit. Four of its features are: it is managed by an elected Managing Committee; its funds come mainly from subscriptions, donations, entrance fees and grants rather than trading; any surplus is retained and added to its Capital Fund, never distributed; and it prepares a Receipts and Payments Account, an Income and Expenditure Account and a Balance Sheet instead of a Trading and Profit and Loss Account.

A Not for Profit concern is an organisation formed with the primary object of rendering service to its members or to society, and not with the object of earning and distributing profit to any person. Clubs, hospitals run on a charitable basis, schools and colleges run by trusts, libraries, and religious/charitable trusts are common examples.

Its main features are:

1. Service motive, not profit motive — it exists to serve its members or the public, never to earn profit for distribution to anyone.
2. Managed by a Managing Committee — usually elected by, and accountable to, the general body of members, rather than owned by proprietors or partners.
3. Funds come from subscriptions, donations, entrance fees and grants — not from selling goods or services at a profit margin, as a trading concern does.
4. Surplus is never distributed — any excess of income over expenditure earned in a year is retained by the organisation and added to its Capital Fund, to be used only for the organisation's own objects, unlike a trading concern's profit which belongs to its owners.
5. No Trading Account or Profit and Loss Account — since it does not carry on any trade, it has no need for these; instead it prepares an Income and Expenditure Account.
6. Final accounts — a Receipts and Payments Account, an Income and Expenditure Account, and a Balance Sheet, together taking the place of the trading concern's Trading A/c, Profit and Loss A/c and Balance Sheet.

Students sometimes describe a Not for Profit concern as one that 'never earns any profit at all' — in fact it can, and often does, earn a Surplus in a year; the defining feature is that this surplus is never distributed to members, not that a surplus can never arise.