Mada za sehemu hiiDemonstrate an understanding of commercial and non-commercial organisationsMada 1
- Describe For-Profit, Not-For-Profit and Non-Profit organizations (motive, owners, management, sources of income, accounting etc.)
Understanding organisations in our society means recognising that they are created for different purposes. Some exist to make money for their owners, while others exist to serve people without seeking profit. This distinction affects who owns them, how they are managed, where they get their money, and how they keep their accounting records.
For-profit organisations are businesses established with the main purpose of earning profit. Their primary goal is to sell goods or services and make more money than they spend.
Motive
The main motive is to generate profit for the owners or shareholders. The profit earned belongs to the owners and can be distributed to them or reinvested in the business.
Owners
For-profit organisations can be owned by one person (sole proprietorship), by several partners (partnership), or by many shareholders (company). In Tanzania, examples include shops in Kariakoo, restaurants in Mwanza, and supermarkets like Shoprite.
Management
Owners may manage the business themselves or hire managers and employees to run day-to-day operations. Decisions are made to maximise profits and grow the business.
Sources of Income
Income comes primarily from selling goods or services to customers. For example, a Tanzanian maize miller earns income by milling grain for customers and charging a fee.
Accounting
For-profit organisations keep detailed accounting records to track revenue, expenses, assets, and liabilities. They prepare financial statements including the Trading Account, Profit and Loss Account, and Balance Sheet. The profit (or loss) is calculated by subtracting expenses from revenue.
In the Tanzanian context, "not-for-profit" and "non-profit" are often used to mean similar organisations. These are organisations that do not exist to make profit for owners. Any money left after covering expenses is kept in the organisation to further its mission.
Motive
The primary motive is to provide services, promote social causes, or serve members rather than generate profit. The focus is on meeting community needs or advancing a particular purpose.
Owners
These organisations do not have owners in the traditional sense. They are usually run by committees, trustees, or elected officials who serve the members or the public. Examples in Tanzania include the Red Cross Society, local mosques, churches, and sports clubs like Simba SC.
Management
Management is typically provided by elected committees or appointed trustees. Members may pay subscriptions but do not receive profit shares. Management decisions aim to fulfill the organisation's mission rather than maximise financial returns.
Sources of Income
Non-profit organisations receive income from various sources:
- Subscriptions and membership fees – regular payments from members
- Donations – money given by individuals, businesses, or organisations
- Government grants – financial support from the government
- Income from investments – interest from bank accounts or rental income
- Fund-raising activities – events like harambee (community contribution), charity drives, or sales
For example, a local football club in Arusha might collect membership fees, receive donations from local businesses, and hold fundraising matches.
Accounting
Non-profit organisations keep accounting records to ensure funds are used properly for their intended purposes. Key records include:
- Cash Book – records all cash and bank transactions
- Ledger – tracks income, expenses, assets, and liabilities
- Receipts and Payments Account – summarises all money received and paid
- Income and Expenditure Account – shows the surplus or deficit (similar to profit and loss but called surplus)
- Balance Sheet – shows assets and liabilities
- Accumulated Fund – represents the total funds belonging to the organisation (instead of owner's capital)
The surplus at the end of the year is not distributed to anyone. It is added to the Accumulated Fund and used to run or expand the organisation's services.
| Aspect | For-Profit | Non-Profit |
|---|---|---|
| Main motive | Earn profit for owners | Serve members or public |
| Owner | Shareholders, partners, or individual | No owners; run by committees |
| Purpose of surplus | Distributed to owners | Reinvested in organisation |
| Sources of income | Sales of goods/services | Donations, subscriptions, grants |
| Key financial statement | Trading & P&L Account | Income & Expenditure Account |
| Final account | Shows Profit or Loss | Shows Surplus or Deficit |
In Tanzania, understanding the difference between these organisations helps you read financial reports correctly. For example, when you join a local * chama * (group) or sports club, you will pay membership fees. These clubs prepare Income and Expenditure Accounts to show donors and members how money was used. Knowing this helps you understand whether the organisation is using funds honestly for its stated purpose.
Swali
What is the primary objective of a non-profit organisation?
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