Non-Profit Organisation

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A sole trader, otherwise known as a sole proprietor exists where as a single person owns and runs a business. This is a very common form or organisation in the UK. Sole traders have grown substantially over the years. There are several reasons for this trend including more opportunities for firms on consultancy basis and government support for self-employed. Most sole traders work on their own.

This need not be the case though, there is no theoretical reason why a sole trader couldn’t employ a hundred staff and own up to nine factories, and however, in practice this is unlikely that a single person could raise that amount of capital needed for an organisation as big as that. A sole trader holds full responsibility for the financial control over his or her business, for meeting capital requirements and running costs, and her full personal liability in the case of debt. He or she does not have the protection of Limited liability like a limited company.

Sole traders are easy to set up, the sole trader has: ; Responsibility for providing capital either as savings or loans ; Direct personal involvement ; Unlimited liability ; Independence to run the business, however, they see fit ; Entitlement to all profits but responsible for all debts A non-profit organisation collects remaining profits from trading activities. There main objective would not be to make a profit but just to cover costs and break even. To gain capital they therefore have to remain on different forms of outlet, such as grants from local and general government as well as other public bodies.

Donations are also accepted as well as support financially from other companies. Businesses and non-profit organisations differ there aims and accounting terminology, as well as their finances. Below is a table to show primary objectives, main accounting statements, financial sources and financial performance for sole traders and non-profit organisations:The main and fundamental difference between both sets of accounts is that a sole trader’s accounts are recorded in double entry format where most non-profit organisations are recorded by single entry.

Most non-profit organisations therefore keep a cash book which is a simple version to those used by a sole trader and many other businesses. In this particular cash book it records receipts paid into the bank and payments made from the bank, together with cash receipts and payments. At this stage it must be noted that cash books form part of double entry system used by sole traders. This ensures that both businesses can keep track of its available finance, cash and bank transactions are entered immediately.

The cash book s ruled off and balanced at the end of the financial year. A non-profit organisation’s cash book is presented to members in the form of receipts and payments accounts. This is unlike a sole trader. This is mainly because there are accounting problems in using a receipts and payments account: 1. Accruals and Payments cannot be made: This is unlike a sole trader’s set of accounts as accruals and prepayments have to be allowed for in the Less Expenses on the trading, profit and loss account.

The distinction between capital and revenue expenditure cannot be made: Capital expenditure is liked fixed assets whereas; revenue expenditure is like day to day purchases, like rents and rates. A non-profit organisation single entry system is unable to distinguish between one and the other due to its layout, which is unlike the double entry system of a sole trader. Receipt and Payment accounts may be suitable for smaller non-profit making businesses which deal with small amounts of money infrequently.

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