ACCA Applied Knowledge · Financial Accounting · The context and purpose of financial statements for external reporting
Which of the following entities would most likely be classified as a not-for-profit organisation?
A registered charity that uses all its surpluses to fund its social aims is a not-for-profit organisation. Its purpose is to provide benefit rather than distribute profit to owners, whereas companies, sole traders and partnerships exist mainly to generate profit for their owners.
- AA listed manufacturing company that pays dividends to shareholders
- BA registered charity that uses all surpluses to fund its social aimsCorrect
- CA sole trader running a retail shop
- DA partnership of two consultants sharing profits
Explanation
A not-for-profit organisation's primary objective is to provide a service or benefit, with surpluses reinvested in its aims rather than distributed to owners. The other three entities exist to earn profit for their owners, so they are for-profit entities.
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