Difference between Profit and Nonprofit Organizations

Thu, 03/26/2015 - 05:14 -- Umar Farooq

What is Profit Organization

The basic objective of the trading concern is to provide goods and services for carrying profit or maximization of wealth for shareholders. It involves is certain lawful business activities.

What is a Not for Profit Organization

The basic objective of NPO organizations is to provide social services to those who either have less purchasing power or no purchasing power for utilizing those services. These institutions are financed by donation whether local or international donor agencies for example UNICEF, WFP, FFF Jordan etc. as purpose of non profit organization not to make profit, if its revenue is exceeded by its expenditure, it is treated a surplus and utilizing in coming years for providing more social services to the people.

Types of nonprofit organization

  1. Social welfare institutions, which work for society’s welfare, like clubs, social welfare associations etc.
  2. Charitable institutions which may be a hospital, educational institutions, religious institutions, libraries etc.

Differences Between Profit and Non-profit Organization

For Profit organizations

  1. Its main objective is to earn profit
  2. Main source of revenue is sale of goods and services  
  3. Its nature from ownership point of view may be a sole proprietorship, partnership or company
  4. It is started by the investment of sole proprietorship, partner or shareholders of the concern
  5. It is managed either by sole proprietor partner or directors etc.

Not for profit organizations

  1. It main objective is welfare of the society and members
  2. Main source of revenue donations, subscriptions, fees etc.
  3. Its nature from ownership point of view may be an association of person in the form of club society or trust etc.
  4. It is started by funds of the donations members subscription etc.
  5. It is managed either by committees, trustees or governing bodies etc.

Accounting of Non Profit Organizations

The basic purpose of accounting is to provide information to the interested parties. As the nature and objective NGO differ. The information required for both type of organization also differ. In case of trading concerns detailed set of accounts record is required, because the parties involved are interested in that information these parties may be investor creditors, banks, management etc. you have already studies the book of accounts.

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