(a)What is a not-for-profit making organization?
(b) Outline two differences between a for-profit organization and a not-for-profit making organisation.
(c) Explain the following sources of funding in a not-for-profit making organisation:
i. subscription
ii. life membership fee
iii. entrance fee
iv. donation
Explanation
(a). A not-for-profit making organization:
- It is a type of organization that is established to cater to the welfare of its members.
- The primary objective is not for profit-making.
(b)
| For-profit organization | Not-for-profit organization |
| The primary objective is profit-making | The main objective is to cater for the welfare of its members |
| The main sources of income are from sales of goods and the rendering of services. | Their main sources of income are donations, subscriptions, membership fees, and grants. |
| Tax is paid on taxable profit | Basically, they are tax-exempt, except from commercial activities undertaken by them. |
| They are usually in the form of sole proprietorships, partnerships, and companies. | They are usually in the form of clubs, benevolent associations, trusts, societies, schools, hospitals, etc. |
| Management is vested in the owner for sole proprietorships, partners for partnerships, and directors for companies. | Management is vested in the board of trustees, committee, or governing bodies |
| The components of their financial statements are the income statement, cashbook, balance sheet, and statement of cash flow | The components of their financial statements are receipts and payments account, income and expenditure account statement of affairs, and balance sheet |
| They employ experts to run the business | They rely more on members voluntary services to run the organization |
(c) Sources of funding for a Not-for-profit-making organization;
i. Subscription: It is a regular contribution made by members of the organization. It constitutes the main source of funding to the organization.
ii. Life membership fee: This is an amount paid once by a member of the organization in order to enjoy the facilities throughout the period of membership
iii. Entrance fee: This is an amount paid once at the point of admission into membership of an organization.
iv. Donation: This is cash or any item received by the organization as a gift.