[Commerce Class Notes] on Not-for-Profit Organizations Pdf for Exam

Non Profit making organizations are formed for social welfare or charity. They usually promote science, art, charity, commerce or religion for social development and not for personal profit. Such establishments can be registered under Section 8 of the Indian Companies Act, 2003.

It is a type of organization which does not gain profits for its owners, instead all the amount of money they earn as donation is utilized in pursuing objectives of it and in keeping it running. Typically these non-profit seeking organizations are under the non-profit sector and are tax-exempt charities or other types of public service organizations.

The sole objective of such companies is to extend necessary aid to a specific group of people or public at large. Usually, they do not perform credit transactions which are generally done in a profit making organization. Hence, they need not to keep a list of credit records, accounts for loss or profits as such. 

However, they do keep a book of records which is then used to keep track of consumption of their funds and to assess the financial standing of the company during a fiscal year. This record is kept to maintain the transparency between the expenditure and income of that particular company and then submitted to statutory authority, also known as Registrar of Society. 

Characteristics of Not for Profit Organizations

There are a few distinct features which make them different from regular organizations.

• The Motive for Service – Non-profit organisation meaning they are set up mainly to provide service to a specific group of people or public, without discriminating for their caste, creed and gender. They extend help free of cost or at a nominal price as profit making is not their motive. For example, they provide services like health care, education, food, recreation, shelter, clothing, sports facilities, etc.

• Management – Usually, a managing committee or executive committee looks after these organizations, and its members elect them. 

• Income Sources – The primary source of these trusts are donations, subscriptions, government grants, incomes from investments, legacies and several others. 

For instance, Amnesty International is an example of a non-profit organization. Now, try searching and noting down the names of other 5 such renowned international non-profit organizations.  

Accounting Process of Non – Profit Organizations

Although non-profit seeking organizations do not trade with the motive to earn a profit, like any other organization, they need to keep records of expenses, assets, income, liabilities, etc. Most of their sources of income are donations, subscriptions, etc. which are mainly made through cash or bank transactions.

Keeping proper credit documentation is required as these trusts are accountable to its members and contributors and most importantly, to the Government as well. For a matter of fact, the government monitors these trusts whether they are using their funds for right causes or not.

Along with ledgers and cash books, they also hold a Stock Register. This stock registers records of all consumables and fixed assets, and are maintained carefully. Moreover, the not for profit organizations maintain a general fund account or capital funds instead of a capital account and this is one of the primary differences between a profit organization and non-profit organization.

These organizations must prepare a financial statement or final accounts at the end of a financial year. This financial statement includes the following components.

• Receipts and Payment Account – Here, all the cash and bank transactions are recorded. It is used to prepare income, expenditure accounts and balance sheets, and finally, three of these have to be submitted to the Registrar of Societies. 

Types of Non – Profit in India

The term non-profit meaning is an entity which serves society without any motive to earn a profit. There are majorly two types of such organizations in India.

1. Companies Under Section 8 – It is one of the most popular forms of non-profit organization in India and comes under Companies Act, 2003. These types of companies are set up to promote social wellbeing and developments.

Any profit generated from them can only be used for promotion of the objectives of that particular body and cannot be divided among its members. The registration process of them is quite similar to that of other companies, but a special certificate is given in this case.

2. NGOs – These are non-government organizations which come under the Section 8 of Companies Act. These companies are established in India but are allowed to accept foreign funds. However, the funds are monitored by the National Intelligence Agency.

A few eminent examples of non-profit organizations of India are CRY (Child Rights and You), GOONJ, Help Age India, Give Foundation and various others.

Task for You: Find out the difference between a non-profit organization and a non-governmental organization.

For further details about not-for-profit organizations and NGOs of India and how they operate, check our website today. You can also install ’s app to take your learning with you.

MCQs about Non-Profit Organization :

1. What is the payment account and receipt of the non-Profit Organization?

1. Real account

2. Income proof

3. check

4. account of the nominee

Answer  (a) Real account

2. What is the main objective of a non-profit organization?

1. To work with government

2. To maintain peace

3. To investigate crime

4. To provide a better life to citizens.

Answer (d)