The trading concern is an entity that brings its products with the intention to sell, thereby generating revenue, through buying goods for sale from different producers or manufacturers for resale to their customers. Non-trading concernsare the non-profit-making entities that exist only for the improvement of society by providing various quality services to society. Unlike trading concerns that sell goods and services to earn a profit, the non-trading concerns receive donations and subscriptions from the public in general, corporate entities, and government to operate their activities.
Trading Concerns
Trading concernsarebusiness entities working with various kinds ofproductsthat are purchased byconsumers, businesses, orgovernmententities. Trading companies purchase a particular variety of products, preserve a stock or a shop, and sell the products tocustomers.In today’s world, the trading company mainly mentions globalB2Btraders, highly focused on one goods category and with strong transport facilities. Variations in real conditions such as fasterdistribution,computing, and modern methods ofmarketinghave led to variation in the business models.
Not-for-Profit Concerns
Individuals or institutions that are engaged in activities other than trade are known as non-trading concerns or not-for-profit concerns. Examples of these concerns are clubs, hospitals, libraries, colleges, athletic clubs, etc. These institutions are initiated not for running a business and making a profit but for some charitable, religious or similar intention of work. The income of these organizations is derived from donations, subscriptions, entrance fees, etc., and it is spent on fulfilling the purpose for which the organization is formed.
The income should normally be taken by the institutions through a proper banking channel to provide an audit trail. The responsibility for the management and supervision of a non-trading concern lies with the board of trustees who came together initially to make the organization.
The risk factor in a not-for-profit concern is a medium to high risk of fraud as individuals within the organization may misuse donations or grants received and embezzle with the money received. Thus, the regulation over resources is generally very rigid. Only some specific trusted individuals have the right to access the resources of the organization. Moreover, the activities of non-trading concerns are closely seen and supervised by the government through strict laws.
Difference Between Trading and Not-for-Profit Concerns
Sr.No. | TRADING | NOT-FOR-PROFIT |
Based on Objectives | The main objective of a trading concern is to earnprofit by the sale of goods and services. | The main objective of not-for-profit concern is to offergoodsand services to the society that fulfills the need of the people of society. |
Based on Source of Income | The basic sources of income for trading concerns are fromsales of productsand services rendered to others. | Whereas for non-trading concerns the basic sources of revenue are entrance fees, subscriptions, donations, government grants, municipal grants, etc. |
Based on Distribution of Net Income | Thenet incomeor profit generated during a trading period by trading concern is distributed among the partners or shareholders or owners. | The surplus of income over expenditure is not circulated but is utilized to accomplish the purposes of the concerns. |
Based on Form of the Organization | Trading concernsmay take the form of a sole proprietorship,partnership,joint-stock company, or public enterprise. | Whereas non-trading concernsmay take the form of a club, society, association, or trust. |
Based on Ownership | Ownership in case of trading concern lies with the parties whocontributed capital. In a sole proprietorship, the owner is the proprietor, whereas, in partnerships and joint-stock companies, the owners of thebusiness are the partners and shareholders. | Ownership in not-for-profit concerns does not lie with anyone. All the persons participating in the society, club, or trust are its members. |
Based on Management | In trading concerns, the proprietor manages thesole proprietorship, the partners or their representatives manage the partnership firms, and theboard of directorscontrols the joint-stock company. | In non-trading concerns,thecontroland management ofnon-trading concernslie in thehands of trustees, the governing body, and the management committee. |
Based on Books of Accounts | In trading concerns,books of accountsare kept using the double-entry system.A trial balanceis prepared to improve the calculation precision of the books of accounts, and the statement of profit or loss showing income and expense summary is prepared to identify the net income or loss of the business during a period. | In non-trading concerns,the double-entry system of accounting is used, but only a cash book is prepared and maintained. The receipts and payments accounts are made in place of the trial balance, and theaccounts are prepared to see how muchincomehas exceededexpenditure, or the opposite. |
Accounting for Trading Concerns
The accounting cycle in a trading company is not very different from that of a service company. Either the service company or the trading company should record all transactions in the journal book and then record them periodically in the individual accounts in the ledger book. At the end of the financial period, the balances of the accounts are calculated and mentioned in the worksheet as an item for making financial reports. Adjustments in the journals and closing journal entries are also made within the trading company, as well as the making of a post-closing trial balance should be done as the final step in the accounting cycle.
Accounting for Not-for-Profit Concerns
The accounting for a non-trading concern is usually done as per the principle of the double-entry system of accounting. They usually only prepare and maintain acash bookto record receipts and payments made during the year. The cash book is transformed into a receipt and payment bookat the end of the year. Thereceipt and payment accountsare a brief form of cash book and are taken to be a more reliable source of data for preparing final accounts of the business entity.
By using the data from receipt and payment accounts and sources, the entity makes itsincome and expenditure accountandbalance sheetat the end of the financial year. The income and expenditure account reflects surplus or deficit generated during the year and the balance sheet reflects the value of the assets and liabilities of the entity at the end of the financial period.
Surplus or extra income over expenditure determined by the income and expenditure account is never circulated among the people who participate in the organization but rather reserved to be utilized by the organization in the future to advance the quality of services and to purchase assets necessary to carry out activities of the concerns.
Conclusion
Trading concernsarebusiness entities working with various kinds ofproductsthat are purchased byconsumers, businesses, orgovernmententities. Individuals or institutions that are engaged in activities other than trade are known asnon-trading concerns or not-for-profit concerns. Examples of these concerns are clubs, hospitals, libraries, colleges, athletic clubs, etc. The main objective of a trading concern is to earnprofit by the sale of goods and services. The main objective of not-for-profit concern is to offergoodsand services to the society that fulfills the need of the people of society. Trading concernsmay take the form of a sole proprietorship,partnership,joint-stock company, or public enterprise, whereas non-trading concernsmay take the form of a club, society, association, or trust.
