Features of Non Profit Organization (NPOs)

Non Profit Organizations (NPOs) are formed with the basic motive of rendering services and with the welfare-motive. A few examples of Non-Profit Organizations (NPOs) are charitable trusts, hospitals, schools, temples, social clubs, and sports clubs. These organizations are managed and governed by the person(s) who are known as trustees. Features of Non Profit organization (NPOs) are discussed below


Features of Non Profit Organization (NPOs)


The given below are the various features of Non-Profit Organizations (NPOs).

Welfare-Motive Objective: The prime motive to set up an NPO is to render services to its members and to society. In this way, an NPO aims at enhancing social welfare.

Separate Legal Entity: NPOs have a separate legal entity. This entity means that an NPO is different from its members or trustees. This implies that NPO remains unaffected by the death of existing members and/or the admission of new members. In different words, an NPO is treated as an artificial person.

Income Sources: The main sources of income of NPOs are subscriptions from their members, entrance, and admission fees, donations, and grants.

Books of Accounts: These organizations maintain their books of accounts in form of Receipts and Payments Account, Income, and Expenditure Account, and Balance sheets.

Form: These organizations are established in the form of trusts, charitable institutes, or clubs that aims at promoting the welfare of society.


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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.