Question

Discuss the difference between not-for-profit and for-profit organizations and how this relates to the application of accounting principles.

Answer 1

Not for Profit Organisation - Not for profit - Organisation are the organisation whose sole motive is to provide services to the society. For examples Opening a charitable school , hospital for sovety. For Profit organisation - Profit organisation are - the one whose main motive is to earn profit from sale of goods & services. Difference between Non-Profit Organisation & for profit organisation - 0 Main motiver As disussed above, the = main motive of mon profit Organisation is to provide sowices, whereas, the main motive of for profit organisation is to maximize the profits of the organisation

& form of @ form of oog Organisation. The non-profit organisation - are mostly in the form of club, public hospital, trust, any religious centre etc. The for profit organisation is mostly in form of sole proprietorship, company, Partnership from © Revenue Generation. The revenue generation for non profit organisation comes from donations, subscription, membership fee ete. The revenue for profit organisation comes from sale of goods & services. © Capital The capital of funds for non profit organisation comes from donation, subscription fees, goverment grants eta The capital of funds of for profit organisation are contributed by the owners. The sole propreitor contributes capital to the sole propreston ship business.

In partnership, capital is contributed by the partners. In company the capital is raised from market by issuing securities or using retained earnings. ③ Management & The non profit organisation is managed by trustee, boards, committees . The for profit organisation is managed by the sole proprietor, partners of management (board of director) according to form of Organis ation Difference of Profit & Non-profit organisation prelated to accounting princible - 0 Accounting for Income & expensest For profit and expenses sowices in organisation, track the revenue related to sale of goods & a general ledger that represents

the business activity of the organisation . But Noo, as its revenue comes from ... clonation and grants , so, sometimes the . grond is for a partiular purpose ,so, the organisation has to use the grant .. funds only for the purpose, it has been given, so the organisation has to maintain a series of to track general ledgers or funds ,go, as the revenue & expenses. ☺ Ownership A for profit organisation especially a company daises funds from individual and other entities, which is shown as equity in their financial statements. . The owners are entitled to receive profits of the business according to their share of ownership But, in case of NPO, the person who have founded the trust, club etc. and the person who give goants, donation are not entitled to recieve any profits.

This means, there is no equity or retained earinings accounts in the accounting system of NPO. Difference in financial Reports in A for profit organisation has to properly follow all accounting principles and standards and has to maintain their financial reports sued as t Profit & Loss Account and Balance Sheet. But, a NPo keeps Statement of financial Position, which is basically the summary of financial position the organisation Npo makes, Statement of Activities, which shows what is revenue the NPO generates, and what expenses are being done by the non profit organisation ... The NPO i has to make statement of Cash Hlow. Statement of cash flow is analysis of from where the cash inflow come and

AN - where they are being spent. © Tax Statush a nonprofit will generally be . exempt from income taxes provided it is approved by IRS. States and local government decided whether or not to give tax exemption status to any onpo.or. But, corporation are not exempted from any income tax. so, NPO may be exempted from tax but profit organisation has to pay taxes,