Non Trading Organizations

Sole proprietorships, Limited companies, and partnership are business organizations which have been formed for the purpose of making profits. To ascertain whether they make profits or losses these organizations prepare

an account known as trading and profit and loss account periodically. Non-trading organizations have been formed to serve a section of the society or welfare of their membership. they maintain these organizations with the revenue derived from various sources such as membership fees donations, carnivals, festivals, etc, These organizations have to prepare accounts showing their incomes and expenses and their financial position to their membership at least once a year. Non-trading organizations prepare income and expenditure account, receipt and payment account, and balance sheet annually and submit the same to the members at the annual general meeting. 

Some Organizations prepare receipt and expenditure accounts instead of income and expenditure accounts taking into account only cash receipts as a source of income and expenditure on an accrual basis.

Advantages of Non-Profit Organizations

• Tax Exemption
• Defined Debts
• Government Grants
• Enduring Existence
• Inherent Compensation 

Accounting for non-trading concerns

The accounting for a non-trading concern is generally as per the principles of a double-entry bookkeeping system. They generally only maintain a cash book to record receipts and payments made during the year. The cash book is converted into a receipt and payment account at the end of the year. The receipts and payments account is a summarized form of cash book and is considered a more useful source of information for preparing final accounts of the entity. By using information from receipt and payment account and from other sources, the entity prepares its income and expenditure account and balance sheet at the end of the period. The income and expenditure account shows a surplus or deficit for the year and the balance sheet shows the assets and liabilities of the entity at the end of the year.

Surplus or excess of income over expenditure ascertained by the income and expenditure account is never distributed among the people who support the organization but rather saved to be used by the organization in the future to improve the quality of services and to buy assets necessary to carry out operations of the organization.

Examples of non-trading concerns are as follows:

Sports clubs

Civil hospitals

Libraries

Charities

Government-owned educational institutions

Clubs

Colleges

Athletic Clubs

We can summarize these organizations in the following three types of categories

Clubs, associations, or society works for the welfare of their members.

Charitable institutions like hospitals, students’ hostels, and other educational institutions providing education to poor children as well as illiterate young and old groups.

Professional firms of lawyers, chartered accountants, architects, doctors, solicitors