Not-for-Profit Organisation - Meaning and Characteristics

What is a Not-for-profit Organisation?

Not-for-Profit Organisations are the establishments that are for utilized for the welfare of the community and are set up as charitable associations which operate without any motive for profit. Their primary objective is to furnish service to a specific class or the public at larger picture. Usually, they do not produce, buy or sell commodities and may not have credit transactions. Therefore, they need not manage many books of account (as the trading entities do) and Trading and Profit & Loss Account. The funds raised by such establishments are credited to general fund or capital fund. The major sources of their income usually are subscriptions from their members donations, income from investments, grants-in-aid etc.,

The main aim of maintaining records in such establishments is to meet the statutory necessities and assist them in exercising control over consumption of their funds. They also have to prepare the financial statements during the closure of each accounting period (usually a financial year) and determine their income and expenditure and the financial condition and submit them to the statutory authority known as Registrar of Societies.

The primary characteristics of such establishments are :

  • Such establishments are established for furnishing service to a particular group or public at a larger picture such as recreation, education, sports, health care and others without any deliberation of creed, caste and colour. Its sole objective is to provide service at free of cost or at nominal cost and not to earn profits
  • These are established and organised as charitable societies/trusts and subscribers to such establishments are known as members
  • Their phenomenons are normally regulated by a managing/executive committee selected by its members
  • The principal sources of income of such organisations are :
    • subscriptions from members
    • Legacies
    • Grant-in-aid
    • Donations
    • income from investments, etc.,
  • The funds raised by such establishments via various sources are credited to capital fund or general fund
  • The surfeit generated in the form of excess of income over expenditure is not allocated amongst the members. It is simply added in the capital fund
  • The NPO earn their prestige based on their contributions to the welfare of the society rather than on the consumers’ or owners’ content
  • The accounting data furnished by such establishments is meant for the present and potential contributors and to meet the statutory requirement

The above mentioned is the concept that is explained in detail about Meaning and Characteristics of Not-for-Profit Organisation for the class 12 students. To know more, stay tuned to BYJU’S.