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Difficulty: EasyNature and Features of Non-Profit Organizations

In accounting for non-profit organizations, the excess of total income over total expenditure is referred to as net profit.

Answer: Answer

Answer

The statement is False. In non-profit organizations, the excess of income over expenditure is termed a surplus, not a net profit.
The statement is false because non-profit organizations aim to provide services rather than generate profit for proprietary owners, meaning any financial excess of income over expenditure is termed a surplus.

Step-by-Step Solution

1
Identify the primary operational objective of a non-profit organization.
Non-profit organizations (such as clubs and voluntary societies) aim to render services rather than maximize profit.
Accounting terminology reflects an entity's core operational purpose.
2
Determine the proper financial term for excess receipts in an Income and Expenditure Account.
The balance is called a surplus (or deficit if expenses exceed income) and is transferred to the Accumulated Fund.
Commercial entities use 'net profit' to denote earnings distributable to owners, whereas non-profit entities retain surplus funds for ongoing service delivery.

Key Concept

The excess of income over expenditure in a non-profit organization is termed surplus, reflecting its service-oriented nature.
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Nature and Features of Non-Profit Organizations