Non-Profit Organization Definition
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.
Members – Since these organizations are formed as charitable societies or trusts, the people who give subscriptions to these are its members.
Income Sources – The primary source of these trusts are donations, subscriptions, government grants, incomes from investments, legacies and several others.
Surplus – If a financial year surplus is generated, that will be credited to the capital fund.
Reputation – These organizations generally earn a reputation for the contribution it makes through the services and not for any of its member’s personal goodwill.
Accounting Information – Generally, any present or potential contributors and its members can have access to its accounting information.
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.
Expenditure and Payment Account – It is somewhat similar to profit and loss accounts and keeps track of deficit or surplus, if any.
Balance Sheet – A balance sheet has to be made following the guidelines like any other organization’s balance sheet is prepared.
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.
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.
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 Vedantu’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?
Real account
Income proof
check
account of the nominee
Answer (a) Real account
2. What is the main objective of a non-profit organization?
To work with government
To maintain peace
To investigate crime
To provide a better life to citizens.
Answer (d)
FAQs on Not-for-Profit Organizations: Objectives and Accounting
1. What do you Mean by a Non-Profit Organization?
A non-profit organization is a company which promotes charity and welfare of communities. Usually, they do not produce, sell or buy products to make a profit. These organizations have their own terms and conditions and work accordingly for providing better life to the citizens of the country or world. They are not controlled by the government but it is necessary for them to follow the democratic laws during their work hours as well. Various organizations have various roles and functions depending on their subject of welfare.
2. Is UNICEF a Non-Profit Organization?
Yes, UNICEF is a non-profit as well as a Non Governmental Organization (NGO). It aims to provide equal and proper rights as well as security to every child without making profit out of it. Also, it does not receive money from the UN budget. It depends on individual funding or funds provided by other programs and organizations.
3. Is an NGO Non-Profit?
An NGO is also a non-governmental body; however, they may gain aid from the government. You may or may not make a profit from an NGO. They are built primarily for charitable purposes. These NGOs get their funds from the private individuals, companies or firms that are interested in charity. Sometimes, the NGO is also funded by the local government but the controlling and functional rights while spending that money stays with the NGO.
4. Give two Examples of NPO in India. Also, explain the working of some non profit organizations.
Aeronautical Society of India and All India Management Association are two examples of NPO in India. More non profit organizations are
Agaram Foundation - It is an educational foundation in TN. It was started on 25 September 2006 by Suriya. This organization aims to improve the social and economical structure of Tamil Nadu's rural society. They provide education to the underprivileged and economically weaker background students free of cost.
A.P.J. Abdul Kalam Center - This organization has several branches all over India. It was found in 2015 in the memory of A.P.J. Abdul Kalam. This organization promotes innovation and creativity to provide a good and sustainable environment.
5. List out the importance of Non-Profit Organization. Describe them with examples.
Non-Profit Organizations are important because :
Non governmental organizations that work for free are very important in cases where government laws are implemented properly. These organizations educate and award consumers for their rights related to consuming and commercial activities. Therefore, there organizations promote the consumer protection act on a private level apart from the constitution.
NGOs empower the citizens to express their views and promote diversity. This helps in building a clear and proper public decision.Due to this step, various bills and laws of the constitution were updated in the interest of the major group of people.
These organizations also look after the welfare of the society and its citizens. This leads to the creation of a positive image of the country.
These organizations also work to reduce the crime rate and inspect unethical activities like corruption, disobedience etc on a private level. These organizations work in mass groups along with the citizens of the area to fight against the unfair situations whenever possible.
They ensure the children's protection policies. Various acts like 'Child education act' are passed on the demand of these private organizations to provide free education to every child. This contributed to increasing the literacy rate of the country and spreading awareness about the rights that citizens hold.
These organizations help in strengthening the social systems. By doing this, it ensures that citizens can demand for their needs and question the government related to their requirements that are not being fulfilled. Their organizations also conduct rally and mass grouping to keep their point for the citizens on a big level.
Apart from human rights, these organizations also work for animals and resource conservation.
When large government organizations fail to look after the animals in the small parts of the local area, it is properly done by these private non-profit organizations. These organizations help street animals by providing them with food and shelter. They do so by assigning the task to people in the particular city. These people work like a small group to ensure the welfare of animals in their area. This leads to conduction of animal welfare programs on a large scale by these organizations.
These organizations also inspect the natural resources on the private level. For example - if an area is suffering from deforestation but it comes under private property, these organizations plant trees and promote afforestation in that area (keeping the public interest and agreement as a priority). Therefore, these organizations also contribute to a healthy and safe environment.
They also help the poor and weaker section of the society by conducting charity drives. Along with this, 'anath ashrams' are also made for such people who suffer from extreme poverty and need support to survive.
Therefore, private non-profit organizations manage the fund from various sources for the welfare of the citizens and diversity of the country which should be appreciated more often.
