Organizations (also known as concerns) may be classified as follows:

  • Profit-making or trading concerns
  • Non-trading concerns or non-profit making organizations

Profit-Making Organizations

Profit-making organizations buy and sell merchandise with the expectation of earning profit. Examples of profit-making organizations are commercial banks, insurance companies, and textile mills.

Non-Profit Making Organizations

Non-profit making organizations (or non-trading concerns) exist for the benefit of the community. They seek to provide public goods without trading to make a profit.

Examples of non-trading concerns include civil hospitals, state-owned educational institutions, public libraries, orphanages, sporting and athletics clubs, and societies of various kinds.

Characteristics of Non-Trading Concerns

The main characteristics of non-trading concerns are the following:

Objective

The main objective of non-trading concerns is to provide goods or services that fulfill a social need. There is neither a profit motive nor an expectation of earning net income.

Sources of Income

In a non-trading concern, the main sources of income are fees, subscriptions, donations, government and municipal grants, and other similar sources.

Distribution of Income

No part of the excess of income over expenditure is distributed to those who contributed support through subscriptions or donations (e.g., in the form of dividends).

Use of Income

The excess of income over expenditure is usually used in later years to provide better goods and services to the citizens of the area.

Management

The control and management of non-trading concerns rest in the hands of trustees or a governing body committee of management.

Maintenance of Accounts

Typically, the accounts of a non-trading concern are maintained using the double entry bookkeeping system. At the end of the year, a summary is created, which is known as the income and expenditure summary and balance sheet.

These institutions and societies do not maintain a full set of books. Only a cash book is maintained in which all receipts and payments are entered.

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Frequently Asked Questions

What is the primary objective for a non-trading concern?

Non-trading concerns seek to provide goods and services that fulfill a social need. The main objective of these organizations is not to earn income but rather to provide benefits to members or society as a whole. These benefits may be of financial, educational, medical, technical, etc., Nature.

Are non-trading concerns limited to only public institutions?

No, there are many private non-trading concerns which provide educational, medical, technical and social benefits to its members. For example - societies for the promotion of different arts and sports, hobby clubs, civil associations.

What kind of income is earned by non-trading concerns?

Non-trading concerns earn income from fees, subscriptions and donations. They do not receive income from the sale of goods or services.

What is a non-profit organization?

A non-profit organization is a legal designation for an entity that does not distribute its earnings to owners or investors. Non-profit organizations are often called "not-for-profit" or "non-stock." A non-profit organization may be a charitable foundation, grant maker, cooperative, etc.

Who manages the funds of a non-trading concern?

Typically, trustees or governing body committee of management manage the funds of a non-trading concern.

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