What are non-trading concerns?

By: Rashid Javed | Updated on: July 9th, 2023

Non-trading concerns are simply non-profit making entities that exist solely for the betterment of the society by providing quality services. Unlike trading concerns that sell goods and services to earn profit, the non-trading concerns accept donations and receipts from the general public, corporate entities and government to run its operations. Some of the common examples of non-trading concerns are as follows:

  • Orphanages
  • Sports clubs
  • Civil hospitals
  • Libraries
  • Charities
  • Government owned educational institutions
  • Civil Hospitals

Objective of non-trading concerns

The main objective of a non-trading concern is to serve the community. It accepts donations and grants from general public and government to meet day to day expenditures.

Sources of income

The main sources of income for a non-trading concern are donations, fees and government or municipal grants. The income should generally be received through a proper banking channel in order to provide an audit trail.

Accounting for non-trading concerns

The accounting for a non-trading concern is generally as per the principles of double entry bookkeeping system. They generally only maintain a cash book to record receipts and payments made during the year. The cash book is converted into receipt and payment account at the end of the year. The receipts and payments account is a summarized form of cash book and is considered a more useful source of information for preparing final accounts of the entity. By using information from receipt and payment account and from other sources, the entity prepares its income and expenditure account and balance sheet at the end of the period. The income and expenditure account shows a surplus or deficit for the year and balance sheet shows the assets and liabilities of the entity at the end of the year.

Surplus or excess of income over expenditure ascertained by the income and expenditure account is never distributed among the people who support the organization but rather saved to be used by the organization in future to improve the quality of services and to buy assets necessary to carry out operations of the organization.

Management and control

The responsibility for the management and control of a non-trading concern rests with the board of trustees who came together to make the organization in the first place.

Chances of fraud

There is a medium to high risk of fraud in a non-trading concern as individuals within the organization may misappropriate donations or grants received and run away with the money. Therefore the control over assets is generally very strict.  Only some certain trusted individuals have access to the assets of the organization. Moreover, the operations of non-trading concerns are closely watched and regulated by the government through strict laws.

Summary and conclusion

  • A non-trading concern is also known as a non-profit making entity that receives donations and grants from the public and governemnt and uses them to serve the community.
  • The excess of income over expenditure of a non-trading concern is never distributed among the members but rather kept for providing better services in future.
  • The management is responsible for the accounts of a non-trading concern and prepares a balance sheet and income and expenditure account at year end.
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