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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