Question

Describe the main differences for revenue spending between ""for profit"" companies and ""not for profit"" companies. Describe how the main financial documents of Goodwill are similar to those companies that are ""for profit"". Describe how the main financial documents of Goodwill are difference to those companies that are ""for profit"".

Answer 1

Answer with Explanation:

Requirement 1:

1. Profit Organization

The aim of profit organization is to maximize the wealth of shareholders by increasing its profits. The owners of the company get dividends and appreciation in the value as a return from the company.

2. Nonprofit Organization

The primary mission of Non-profit organization is to benefit the community by helping them and the earnings generation is not the primary goal of the company. ACCA is an entity that delivers quality education to its students and also earns profit on it but the profit margin kept is as low as possible to keep its operation running. Other examples are Rolex, NGO's, National Health Institutes, etc.

In other words, these institutes are for charitable purpose and their primary objective is not making profits.

Key Difference Between Profit Organization and Non-profit Organization​​​​​

• A profit organization's primary objective is to maximize profits whereas the Non profit organizations work for delivering services and products that helps in uplifting the society from their donations.
• A profit organization is registered as a sole proprietorship or partnership or a corporation. Whereas Non profit organization is registered as a charity club, association of person, trust, corporations, etc.
• Usually major source of income of Non profit organization comes from donations, government and corporation grants, subscriptions, etc. Whereas the major source of profit organization is income generated from the sale of goods and services. Non profit organization - the major incomes are donation, grant, legacies, subscription, etc.

Requirement 2:

Profit making organization have to publish all financial statements which includes income statement, balance sheet, cash flow statement, statement of changes in equity, etc whereas the non profit organization only publishes balance sheet and cash flow statement. If the Non profit organization is involved in selling of products and services then the organization will also have to prepare income statement.

The non profit organization doesn't pays andy dividends as it is a charity firm and all it does is, it spends it money for the welfare of the community. Whereas the profit organization have to retain a share of earned profits and then distributes the remainder to shareholders.

The profit making organization publishes changes in equity statement whereas the charitable firm is not required to publish such things because its primary objective is to spend on the welfare of the community.