However, the law allows the profit making organizations to distribute profit net of taxes to shareholders. unlike it is the case for nonprofit making organizations, which are limited from carrying out any form of financial surplus distribution of those charged with the responsibility of running organizations (Newlands & Saee, 2012).
Nonprofit making organizations have no shares as it is the case for profit making organizations. As such, these organizations are just owned and managed by individuals or groups of individual who have the overall power. Profit making entities are owned by shareholders whose membership is determined by the shares one has in the company.
Additionally, profit making organizations are always labor intensive since they are always after profit, thus, they employ a large number of professionals to carry out organization’s operations. Nonprofits mostly rely on unpaid volunteers in their operation unless they are carrying out a duty requiring the expert knowledge and skills1.
Finally, nonprofit making organizations depend on the revenue from non-client persons or corporations to sustain their operations. Profit making entities depends on the shareholder’s investment to finance their operations (Newlands & Saee, 2012).
Example of nonprofit organization is a charitable organization involved in assisting the less fortunate in the society, while profit making organizations include multinational companies like Coca Cola Company, which trade in soft drink globally.
FASB has the responsibility of establishing accounting standard for not-for-profit making organizations. FASB’s commitment in the nonprofit sector is part of its standard setting process for GAAP. As such, FASB over the years has been addressing the reporting requirements of this sector, both for transactions that are specific to the sector and transactions that are commonly found in the nonprofit sector, private and public business entities (McKinney, 2004).