Not for Profit Organisation: Concept

Meaning/Definition

Not-for-Profit Organisations refer to the organisations that are used for the welfare of the society and are set up as charitable institutions which function without any profit motive.

Characteristics of NPOs:

The main characteristics of such organisations are:
1. Such organisations are formed for providing service to a specific group or public at large.

2. It includes education, health care, recreation, sports, and so on without any consideration of caste, creed, and colour. 

3. Its sole aim is to provide service either free of cost or at a nominal cost, and not to earn profit.

4. These are organised as charitable trusts/societies and subscribers to such organisation are called
members.

5. Their affairs are usually managed by a managing/executive committee elected by its members.

6. The main sources of income of such organisations are: 
                (i) subscriptions from members, 
                (ii) donations, 
                (iii) legacies, 
                (iv) grant-in-aid, 
                 (v) income from investments, etc.

7. The funds raised by such organisations through various sources are credited to capital fund or general fund.

8. The surplus generated in the form of excess of income over expenditure is not distributed amongst the members. It is simply added to the capital fund.

9. The Not-for-Profit Organisations earn their reputation on the basis of their contributions to the welfare of the society rather than on the customers’ or owners’ satisfaction.


Accounting Records of Not-for-Profit Organisations

(i) Receipt and Payment Account

(ii) Income and Expenditure Account, and

(iii) Balance Sheet.

Most of their transactions are in cash or through the bank. 

    This is why they usually keep a cash book in which all receipts and payments are duly recorded.

    They also maintain a ledger containing the accounts of all incomes, expenses, assets and liabilities which facilitates the preparation of financial statements at the end of the accounting period. 

    They do not maintain any capital account. Instead, they maintain capital fund which is also called general fund that goes on accumulating due to surpluses generated, life membership fee, donation, legacies etc. received from year to year. 



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