7 Differences between Profit Making and Not for Profit Organizations

We are now in a position to distinguish between both the types of organizations- Profit-making and Not-for-profit. The differences are tabulated below.

Basis of
Profit-making OrganisationsNot-for-Profit Organisations
Prime ObjectiveTo earn profitsTo render services to its members and the society
Source of IncomeThe main source of income is sales and purchase of produced goods and servicesThe main source of income is donations, subscriptions, entrance fees, grants, etc.
FundsFunds consist of capital contributed by the owners, accumulated profits and reservesFunds consist of capital/general funds (donations, grants, subscriptions, etc.)
Profit or Loss v/s
Surplus or Deficit
The final net result of these organizations are expressed as profit or loss.The final net result of NPOs is expressed as surplus or deficit.
PerformanceThe performance of these organizations is assessed by profit or loss that is revealed by Profit and Loss AccountThe performance of these organizations is assessed by surplus or deficit revealed by Income and Expenditure Account
Financial StatementsFinancial statements of these organizations comprise of:
• Trading Account
• Profit and Loss Account
• Balance Sheet
Financial statements of these organizations comprise of:
• Receipts and Payments Account
• Income and Expenditure Account
• Balance Sheet
Distribution of Profit
or Bearing of Loss
Profit (or loss) is distributed (or borne by) among the owners of the organizationSurplus (or deficit) is not distributed among the members of the organisation

Also, Read

Interest on Capital

Any interest paid on capital is considered as an expense and is shown in the Profit and Loss Account. Treatment of interest on capital in the final accounts is as follows.

Interest on Drawings

Treatment of interest on drawings in the final accounts is as follows. Firstly, interest in drawings is shown on the credit side of the Profit and Loss Account.

What is Operating Profit?

Operating Profit can be defined as the profit earned by carrying the normal business activities. It is computed by subtracting the operating expenses from the gross profit.

Balance Sheet

The balance sheet is the last financial statement that is prepared by any organization. This statement helps to ascertain the true financial position of an enterprise at the end of an accounting period

Profit and Loss Account

A profit and Loss Account is the second financial statement prepared by an organization. This account is prepared to ascertain the net results of a firm in form of net profit earned or net loss incurred during an accounting period.

What are Adjusting Entries?

In order to incorporate adjustments in the financial statements, we pass the required Journal entries, which are termed as adjusting entries.

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