Question

Is a non-profit organization considered a firm? Why or why not, please explain.

Answer 1

A non-profit organization is not considered a firm due to the following features of the organization:

1. Non-profit organisations come into existence to provide for society's needs as opposed to firms whose main purpose is to generate greater revenues over costs and forward these profits to the owners and shareholders. The excess of revenue over costs for the non-profit organizations are never distributed among the owners but instead they are used back in their operations and activities to provide for the society.

2. The purpose of the non-profit organizations is to use the resources for the benefit of the society and therefore they are exempted from paying income tax while firms run a business and are liable to pay taxes to the government.

3.Firms are expected to prepare quarterly income statements to assess the company's financial performance whereas the non-profit organizations typically just prepare a statement of financial position in order to inform its donors and general public about revenues, costs and assets regarding their activities.