Let us make in-depth study of the meaning, objectives and features of Not-For-Profit organisations.
Meaning of Not-For-Profit Organisations:
The sole purpose of any business organization is to earn profit. In other words, they work for self-interest. However, there are some organizations whose basic aim is to serve the society i.e. they work for the benefit of the society as a whole. These are called not-for-profit organizations or nonprofit organizations.
They are formed for some idealistic purposes and provide service to its members and the public in general. Their aim may be educational, religious, charitable or social welfare of the people at large. They are working in variety of forms ranging from small to large. In small forms, they are working in the shape of resident welfare associations (RWAs), charitable dispensaries, religious societies etc.
However, in large forms they are working in the shape of hospitals, schools, colleges and bar councils etc. The main sources of their income are subscriptions, donations, income from investment and grants-in-aid from any governmental agencies. The funds raised by these organisations are credited to capital fund or general fund the balance of which goes on accumulated due to capital receipts year after year.
Objectives of Accounting for Not-For-Profit Organisations:
Following are some objectives for accounting in not-for-profit organizations:
1. To evaluate the performance of organizations in terms of achieving their goals for which they were created.
2. To judge whether those organizations are appropriating the funds with three E’s viz. economically, effectively and efficiently.
3. To examine the compliance of rules, regulations, bye-laws in the organizations.
4. For obtaining grants from government departments.
5. To submit annual accounts to the Registrar with whom they are registered.
1. Main Aim is Service:
The basic aim of non-profit organizations is to serve the society. They are working for the benefit of the society as a whole.
2. Profit is not the Criterion:
Non-profit organizations are formed for some idealistic purposes such as religious, charitable or providing education etc. Earning of profits can never be their aim.
3. Surplus not Distributed among its Members:
Though earning profit is not the criterion for non-profit organizations, yet there may be excess of income over expenditure or excess of expenditure over income. The former is known as ‘surplus’ and latter is known as ‘deficit’. Unlike other business, surplus or deficit of non-profit organizations is not distributed among its members. They are adjusted in the capital fund of such organizations.
4. Separate Entity:
The separate entity concept is equally applicable to non-profit organizations. Such organizations are treated as a separate entity distinct from its members.
5. Unique Names Connoting their Working:
The names of non-profit organizations denote the nature and style of their functioning. For example, JMD Educational Society, Shri Sai Keertan Mandli, Shri Sunder Dev Sports Club and Shri Sanatan Dharam Ramlila Committee etc.
6. Management by Elected Persons:
These organizations are run and managed by elected members.
7. Major Funds from Contributions and Donations etc..:
Usually, non-profit organizations are not self sufficient to run their activities with the revenue generated from their own sources, so they depend upon the subscriptions, donations and grants received from various government departments.